SUKUK - Opinion - Sukuk Edged Out Again by Emerging Debt in August

Soraya Permatasari Khalid Qayum

New York. Islamic bonds lost to emerging-market debt for the fourth-straight month in August and fund managers say returns wont catch up until trading increases and Persian Gulf companies restructure their debt.

Shariah-compliant notes rose 1.4 percent last month, down from 2.6 percent in July, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. They have underperformed emerging-market bonds for the longest stretch since JutyOWrBebt in developing nations climbed 2.4 percent, add ing to the 4.1 percent return in the prior month, JPMorgan Chase said.


Sukuk, or Islamic bonds, wont close the gap until investors gain confidence in the global economy and creditworthiness in the Gulf improves, according to Nomura Islamic Asset Management and Aberdeen Asset Management. New sales after the Ramadan ends in mid-September will help boost trading, CIMB-Prin-cipal Islamic Asset Management and Exotix said.

"The most immediate catalyst to a recovery would come in November when Dubai Worlds restructuring should be concluded," Ahmad Alanani, an associate director for the Middle East and North Africa at Exotix, an investment bank specializingin illiquid assets, said in an interview in Dubai on Sept. 1.

"The sukuk market still lacksdepth and you have all these problems and defaults."

Dubai World, the state-owned company renegotiating terms on $23.5 billion of debt, reached an agreement with its main creditor group in May and said in July it expected to complete the talks in the "coming months."
Global sukuk sales this year have fallen 12 percent to $10.3 billion over the year-earlier period, according to data compiled by Bloomberg. Gulf issuance dropped 24 percent to $2.47 billion. Plans for issuing almost $16 billion of Islamic bonds over the next few years have been announced by various governments and companies.

Investors cant always trade sukuk on a daily basis because there arent enough buyers orsellers in the market, according to Zeid Ayer, who helps manage $1.6 billion in Shariah-compliant assets at Kuala Lumpur-based CIMB-Principal. During the fasting month, Muslims tend to work fewer hours, especially in the Middle East, he said in an interview on Thursday.

"The spread between the bid and ask price could be as wide as two points for some of the less liquid debt in the Gulf and thats what discourages frequent trading," said Zeid, whose firm is a joint venture between US-based Principal Global Investors and Malaysias CIMB Group Holdings. Bondholders may have to wait "quite a bit" before they can realize gains, he said.

Bloomberg

Source : http://bataviase.co.id/node/372152 - Sept 4, 2010