Gulf sukuk sales slow down

Arabian Gulf Islamic bond sales fell this year, compared with an increase in Asia, highlighting the reluctance of smaller businesses in the region to issue sukuk.

The number of Shariah-compliant bond offerings in the Gulf Cooperation Council has fallen 29 per cent in 2013 from a year earlier to 17, while Malaysian issuance increased 14 per cent to 230, according to data compiled by Bloomberg. The value of sukuk sales in the GCC and Malaysia, home to the world's biggest sukuk market, has slumped as concern the Federal Reserve will scale back its bond-buying program deterred issuers.

Sovereign or quasi-government issuers, which prefer to sell bonds denominated in dollars to target international investors, dominate sales in the six-nation GCC, leaving them "more exposed" to global market fluctuations, said Rizwan Kanji, Dubai-based partner at King & Spalding. The drop in GCC sales mirrors worldwide bond-sale numbers, which are down 12 per cent in 2013.

"The drop in the number of issues in the GCC is primarily because medium-sized private enterprises don't tap the market," Kanji said by phone on July 22. "We're a few years behind Malaysia, where private companies have access to a liquid local- currency market."

Malaysian volumes have resisted this slowdown mainly because more companies are able to tap the local market for smaller amounts of money. Half of the 34 issuers tracked by Bloomberg each sold less than 400 million ringgit of sukuk in 2013. The total value of sales of Islamic bonds dropped 64 per cent in Malaysia this year to 20 billion ringgit, data compiled by Bloomberg show.

GCC sales retreated 38 per cent to US$11 billion primarily due to the absence of state-linked issuers in the past two months. Since late May, only Saudi Binladin Group, a privately held construction company in the kingdom, has tapped bond markets, selling 1 billion Saudi riyals of sukuk in a private placement.

* Bloomberg News