Appetite for sukuk surges across the Gulf this year

Companies and governments in the Gulf sold Islamic bonds this year at the fastest clip since 2007 in the wake of the sovereign-debt crisis sweeping Europe.

Companies and governments in the Gulf sold Islamic bonds this year at the fastest clip since 2007, underscoring a trend where borrowers are seeing more appetite for their debt among regional investors in the wake of the sovereign-debt crisis sweeping Europe.

Sales of Islamic bonds, or sukuk, by Gulf issuers reached US$7.3 billion (Dh26.81bn) this year, according to Bloomberg News data. That was 62 per cent higher than last year and the largest amount of Islamic debt on offer in four years.

Conventional bonds, meanwhile, which unlike Sharia-compliant sukuk do not comply with Islam's prohibition on charging or receiving interest, have taken a hit this year. Bond sales in the region have fallen 27 per cent compared with last year.

Major sukuk sales have come from regional governments and banks including Abu Dhabi Islamic Bank, which launched a $500 million Islamic bond last month.

"Regional banks and banks in South East Asia have so far been less affected by the problems in Europe, and so tapping the Islamic market is a way to access investors that have been less impacted by European problems," said Nick Stadtmiller, the head of fixed-income research at Emirates NBD.

Average yields on Islamic debt in the Gulf slumped 1.14 percentage points this year, outpacing the decline in average emerging-market bonds yields. With euro-zone countries looking to raise $1.1 trillion next year, according to Deutsche Bank forecasts, borrowers may try to entice more GCC wealth next year.

"Issuers are taking advantage of the pools of liquidity in the Islamic space," said Mohammed Dawood, the managing director of global capital financing at HSBC Amanah, the Islamic banking unit of HSBC Holdings.

* with Bloomberg News