sukuk

Investors have piled into Indonesia’s $1.5bn worth of Islamic bonds, making bids for over six times that amount. So is the strong demand for the sukuk another sign that Indonesia’s economy is becoming less fragile?

The 10-year sukuk, rated Baa3 by Moody’s, was marketed at the country’s lowest yield since 2012 on optimism over the incoming administration of president-elect Joko Widodo. Strong demand – order books were worth $10bn – pushed down the yield, which started at around 4.65 on Monday before being reduced to 4.35 per cent. 

Senegal is days away from launching sub-Saharan Africa’s biggest sukuk, with the CHF100bn ($208m) bond expected to receive strong investor demand and create further momentum for sovereigns and banks in the region to offer Islamic financial products.

After concluding an investor roadshow on Friday, Senegal is due to end the bookbuilding process for its debut Islamic bond on July 18. The four-year instrument, which has an annual 6.25 per cent profit margin, is targeted at banks and institutional investors in the eight member West African Economic and Monetary Union (WAEMU), though it is also open to international investors. Unlike conventional bonds, sukuk do not pay interest, which is forbidden under Islamic law, but grant investors a share in an underlying asset. 

Two African countries – Senegal and South Africa – are just months away from issuing sukuk, or Islamic bonds, seeking to attract cash-rich Middle Eastern and Asian investors to finance their large infrastructure programmes, Islamic finance bankers told a meeting of the African Development Bank.

The move represents a potentially significant boost for the profile of Islamic finance in Africa. Until now, Gambia and Sudan have been the only countries on the continent to issue a sukuk – and they were only for tiny sums. 

This was supposed to be the year of the rise of sukuk markets. As the Malaysian economy recovered and the Arab spring passed, another record year of sharia-compliant debt issuance was predicted.

But that changed after a day in May. Ben Bernanke dropped hints that the Fed would taper its bond-buying programme, and sukuk sales shrivelled in the third quarter. The number of issues this year is expected to be just above that of 2011. 

The UK’s decision to launch an Islamic bond has been a long time coming. For a decade the prospect has been raised at the many Islamic finance conferences that have been held in London; Ed Balls, when he was City of London minister, announced the first Shariah-compliant government bonds from the UK Treasury back in April 2007.

The rationale then, as now, was to bolster London’s standing as an international financial centre. The logic then, as now, was that London ought to offer everything it can to financial markets, and that if launching a sovereign sukuk bond helps to create a benchmark for others to issue against, then that’s what it should do so as not to miss out. 

By Chiara Francavilla of This is Africa

Morocco is finalising a new securitisation law that will allow the state and companies to issue sukuk, the Islamic equivalent of bonds. Preparations for a corporate and a sovereign sukuk are already underway, according to Islamic finance experts. 

Tunisia is hoping that the country’s first government sukuk, or Islamic bond, scheduled for later this year could spur companies in the North African country to raise Islamic debt and boost its sharia-compliant finance industry, writes Camilla Hall.

The government is working alongside the Islamic Development Bank – the multilateral lender – to pave the way for a 1bn dinar ($700m) sukuk sale that would set a benchmark for companies seeking to tap the Islamic debt markets, Elyes Fakhfakh, finance minister, told the Financial Times. 

April looks set to be a busy time for the IMF. Two crucial meetings have been put in the diary – one with Tunisia, and one with Egypt (again).

The two potential deals have a lot at stake, and not just in monetary terms. Tunisia’s possible $1.7bn loan will help shield the country from the European downturn. Egypt’s on-off $4.8bn loan is even more important, as it should unlock other sources of funding, and avert what could become a complete collapse of the economy. 

Egypt’s continued political turmoil has made its life hard in international debt markets, but its government is hoping to secure new funds by less conventional means through the issue of the country’s first sovereign Islamic bonds.

According to a Bloomberg report, the government plans to raise up to $1bn by June through sukuk sales, with one for domestic investors and one for foreign investors. 

Last year was supposed to represent the pivotal moment in which sukuk debt – Islamic versions of bonds – came into their own as a deep, mature and liquid source of funding.

Issuance data from January suggest the jury is still out. 

By Simeon Kerr and Camilla Hall

People close to Dana Gas, the Sharjah-based natural gas company, say creditors including funds Blackrock and Ashmore have agreed to a standstill that would allow talks over extending the maturity of its $920m sukuk to continue through the deadline of midnight on Wednesday.

But people aware of the creditors’ position “categorically deny” that a standstill agreement has been reached with Dana Gas, whose revenues have been interrupted in troubled operating environments including Egypt and Iraqi Kurdistan. 

It’s no fun being a bond investor these days. You either invest in safe havens like US and German bonds and get a negative return, or go on adventure in countries like Spain and can’t be sure you’ll get your money back.

So the emergence of Shariah compliant sukuk offers an appealing middle way. With the London 2012 Sukuk Summit being held on June 6 and 7, beyondbrics reviews the latest developments in the market. 

By Ghassan Chehayeb of Exotix Limited

A showdown is brewing in Sharjah, the UAE’s third largest emirate. Sharjah-based Dana Gas, a natural gas-focused E&P company, has a $920m sukuk due in five months, yet the issuer is far short of the required funds to repay the obligation. The sukuk’s price has fallen from above 95 in July 2011 to just 68, as restructuring headlines continue to spook investors.