Islamic bond issuance in the Gulf region is forecast to accelerate in the fourth quarter as economy continues growth and some companies reach agreements to restructure debt. Gulf Sukuk have returned 4.7 percent this quarter, according to the HSBC/NASDAQ Dubai GCC US Dollar Sukuk Index. Debt in developing markets gained 6.7 percent, JPMorgan Chase & Co.'s EMBI Global Diversified Index shows. The spread between the average yield for emerging-market Sukuk and the London interbank offered rate shrank 68 basis points to 375 this quarter, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. The extra yield investors demand to hold developing nation debt rather than US Treasuries narrowed 44 basis points to 292 in the same period, according to JPMorgan Chase EMBI+ indexes. “Confidence in the industry needs to strengthen in order for Sukuk sales to pick up,” Dubai-based Bashar Al-Natoor, director at Fitch Ratings Europe Middle East Africa corporates team, said on Monday. Issuance may pick up in the fourth quarter “provided economies worldwide stabilize and market sentiment toward Islamic bonds in the region improves,” he said. Ahmed Salem Bugshan Group, a Saudi Arabian company that owns and operates steel plants, plans to raise as much as $100 million from Islamic bonds to fund projects, Mohamed H. Zakaria, senior vice president of the group, said in June. Doha-based Qatar Islamic Bank, the emirate's biggest Shariah-compliant lender, plans to sell as much as $750 million, Chief Executive Officer Salah Mohammed Jaidah said in May. Nakheel PJSC, the property unit of Dubai World, may issue as much as $3.2 billion of five-year Sukuk to pay contractors as part of its debt restructuring plan, JPMorgan Chase London-based analyst Zafar Nazim wrote in a report Aug. 26. This year, Saudi Electricity Co., the region's largest utility, issued SR7 billion ($1.9 billion) in April. Dar Al Arkan Real Estate Development Co., the biggest Saudi Arabian developer by market value, sold $450 million of Shariah-compliant debt in February. National Bank of Abu Dhabi PJSC, the UAE's second-largest lender by assets, sold 500 million ringgit ($161 million) in the only Islamic debt offering from the emirate so far this year. Saudi Arabia plans to invest $385 billion over the next five years on infrastructure, education and health, the Saudi Arabian embassy in Washington said on Aug. 12. Qatar and its state-owned companies plan to spend as much as $100 billion within the next four years, Finance Minister Yousef Hussain Kamal said June 10. The Jeddah-based Islamic Development Bank said on Aug. 24 it would raise $1 billion selling debt that complies with Shariah law's ban on interest, bringing to $5.5 billion the planned offerings for the remainder of the year. That would be the most since the third quarter of 2007, when sales reached $5.7 billion, according to data compiled by Bloomberg. Sales from the region have declined 24 percent to $2.5 billion so far in 2010, as three companies sold Islamic debt, the data show. Dubai World's agreement earlier this month with 99 percent of its creditors to restructure $24.9 billion of borrowings reduced the risk that the company will default, bolstering investor appetite for higher-yielding Islamic debt after two- year Treasury yields fell to record lows. Economic growth in the Middle East will accelerate to 4.5 percent this year, from 2.4 percent in 2009, the International Monetary Fund said on July 7. The UAE may also sell Islamic securities, central bank Governor Sultan bin Nasser Al-Suwaidi said in March. Albaraka Banking Group, the largest publicly traded Islamic lender in Bahrain, plans to sell $200 million of Sukuk by the end of the year, Chief Executive Officer Adnan Ahmed Yousif said on Wednesday. Average yield on Sukuk sold by GCC issuers fell 26 basis points, or 0.26 percentage point, this month to 6.26 percent on Tuesday. Though global sales of Sukuk fell 24 percent to $10.7 billion this year from the same period in 2009, issuance, nonetheless, totaled $20.2 billion last year, up from $14.1 billion in 2008. Citigroup Inc. plans to arrange more sales of Islamic bonds from Turkey after managing a $100 million issue for Kuveyt Turk Katilim Bankasi AS, said Hulusi Horozoglu, director of global Islamic banking at Citigroup.
