Emirates $1b sukuk sparks sales hopes
PETRONAS ALSO SEEKING TO RAISE AS MUCH AS $7B IN THE LARGEST SALE OF DOLLAR-DENOMINATED ISLAMIC DEBT
Emirates is leading issuers of Islamic bonds back to the market, reviving a year in the throes of its worst start since 2010. Emirates, the world’s biggest airline by international passenger traffic, plans to sell $1 billion (Dh3.67 billion) of Sharia-compliant notes this quarter, two people familiar with the matter said last week. Petroliam Nasional Bhd, the Malaysian state oil company known as Petronas, is seeking to raise as much as $7 billion in the largest sale of dollar-denominated sukuk. The Islamic Development Bank will meet investors from Sunday before a possible issue.
Global sales of Sharia-compliant debt have slumped more than 70 per cent this year amid a plunge in crude prices. The drought underscores the industry’s dependence on sales from the Gulf Cooperation Council, home to a third of the world’s proven oil reserves, where borrowers have been delaying offerings, according to Mashreq Capital DIFC Ltd.
Higher risk premium
“Issuers are waiting for the oil price to stabilise,” Abdul Kadir Hussain, the Dubai-based chief executive officer of Mashreq, which runs the two best-performing Islamic fixed-income funds in the Middle East and Africa over the past year, said by phone on February 19.
“If they came in an environment where the prices are unstable, investors would either demand a higher risk premium or they may not look at the deal.”
About $1.8 billion of sukuk have been sold globally this year, compared with $6 billion for the same period a year ago, according to data compiled by Bloomberg.
Brent crude has risen more than 25 per cent since January 13, after declining by about 50 per cent last year as the fastest US production in three decades helped trigger a global glut and the Organisation of Petroleum Exporting Countries maintained output. “Activity will pick up markedly over the coming weeks,” Andy Cairns, the global head of debt origination and distribution at the National Bank of Abu Dhabi, the GCC’s biggest regional bond underwriter in 2014, said by phone from Abu Dhabi on Monday. “We have a strong mandated pipeline, both traditional sukuk issuers and debut names, from the region and outside.”
NBAD is one of the banks mandated to arrange Islamic Development Bank’s investor meetings. The Saudi Arabiabased bank, Emirates and Petronas are all established sukuk issuers. Sales in 2014 reached $46.3 billion as the market expanded with debut sovereign sukuk sales from the UK, Luxembourg, Hong Kong and South Africa.
A rebound in sales probably won’t be enough to erase the slow start, according to Richard Segal, the head of emergingmarket credit strategy at Jefferies International Ltd.
“I would be very surprised if we approach last year,” Segal said by phone from London on February 19. “Corporates as a whole, there isn’t that much appetite. They are turning to go to the banks instead of the bond markets.” Dubai Islamic Bank’s $1 billion Tier 1 sukuk is the only dollar-denominated Islamic bond sold this year, according to data compiled by Bloomberg. For the first time since 2009, there have been no non-financial corporate bond sales at all in the GCC.
The GCC includes four members of Opec, which supplies about 40 per cent of the world’s crude output. Governments in the region rely on income from oil to help fund their budgets. “Now we’re seeing some sort of stability, you’re going to start seeing more issuance,” Mashreq’s Hussain said. “From what I’m hearing in the market, the pipeline is pretty strong.”
If they came in an environment where the prices are invesunstable, tors would either demand a higher risk premium or they may not look at the deal. Abdul Kadir Hussain | CEO of Mashreq Capital