Thursday, May 05, 2011

CAPITAL MARKETS - Bin Laden’s Demise Gives Sukuk a Boost

Sukuk in Indonesia and Dubai rose and Islamic bond yields reached a six-year low on speculation that the death of Al Qaeda leader Osama bin Laden would ease the risk of terrorist attacks and improve prospects for the industry’s global expansion.

The average yield on Shariah-compliant bonds fell for a sixth day to 4.186 percent on Monday, the lowest level since 2005, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. The yield on Indonesia’s 8.8 percent dollar sukuk due in April 2014 dropped one basis point from Friday to a four-month low of 3.107 percent, while that on Dubai’s 6.396 percent Islamic debt due in November 2014 reached a record low of 5.007 percent. (full story)


A successful dismantling of Al Qaeda would reduce security risks and enable the Islamic finance industry to better contend with concerns that Shariah-compliant debt is used to fund terror, said Akram Laldin, executive director at the International Shariah Research Academy for Islamic Finance.

“It doesn’t change the credit quality of anything, but it boosts sentiment toward the region in terms of political risks and stability,” Adnan Haider, head of fixed-income and equities at Abu Dhabi Commercial Bank, said on Monday. “It gives closure on this issue of Al Qaeda,” he added. “We’ll see a rally on the back of this, but the euphoria won’t last forever. Maybe a day, maybe a week.”

The development of Islamic finance has faced opposition in countries from South Korea to the United States because of concern over the use of proceeds by charities. In February, South Korea delayed a bill to allow the sale of sukuk after church leaders expressed concern that zakat, a tax levied on Muslim investments to provide for the poor, would be channeled to terrorists.

Yahia Abdul-Rahman, the founder of American Finance House Lariba, a provider of Islamic financial services in the United States, said in an October interview that challenges exist in operating Islamic banks in the country. “To claim that you are Islamic, you are working yourself up for potential issues,” he said.

The yield on Malaysia’s 3.928 percent dollar sukuk due June 2015 rose one basis point to 2.44 percent, according to prices from Royal Bank of Scotland. The difference in yield between Malaysia’s sukuk and Dubai’s 6.396 percent note due November 2014 widened four basis points on Monday to 244.

“There’s a misconception that Islamic finance is helping to fund terrorist activities,” Akram said. “The industry can take this opportunity to further clarify that Islamic finance has nothing to do with terrorism.”

Ahmed Talhaoui, the head of investment at Royal Capital PJSC, was restrained in his assessment of the impact of Bin Laden’s death.

“It is a positive catalyst, but it’s mild, and it has so far had a limited impact on regional markets,” he said. “This could suggest reduced US military spending and progress towards the resolution of the conflict in Afghanistan. At this point, however, it’s too early to tell.”  Bloomberg

Source : http://www.thejakartaglobe.com/markets/bin-ladens-demise-gives-sukuk-a-boost/438946 - May 3, 2011

No comments:

Post a Comment