Global Sukuks’ Feisty Feast Period

First half sukuk issuance mainly from Malaysia, Saudi Arabia, the UAE and Turkey was up over 8 percent to $65 billion as the total outstanding neared $300 billion according to Kuala Lumpur’s Islamic Finance Center. Second quarter volume “surged” to $35 billion despite the shortened Ramadan holiday stretch. Malaysia’s corporate and sovereign share was two-thirds at $40 billion including a pioneer real estate investment trust and the GCC followed with one-quarter of the sum consisting of $9 billion in Saudi and $4 billion in Emirates instruments. Turkey’s sharia-compliant banks accounted for $1.5 billion in Q2 with a ringgit-denominated operation. The UK debuted with 200 million pound offering in June oversubscribed a dozen times with 40 percent domestic buyers. The mid-year sovereign-corporate breakdown was $50 billion-$15 billion as the latter’s financial sector was increasingly active for Basel III capital-raising. The power and real estate industries are also prominent, and yields have come down in the key markets with Malaysia’s 5-year benchmark easing 7 basis points and Turkey’s 65 basis points after 2013’s brief Fed tapering bump. The report cited the first insurance company flotation and geographic diversification into Africa with a launch by Senegal preceding a conventional Eurobond. The full 2014 pace should exceed last year’s $120 billion with 30 countries and offshore centers like Hong Kong and Luxembourg participating. The Saudi local market could open to non-residents along with the announced equity access beginning in early 2015 under a qualified institutional investor scheme. In Egypt the Al-Sisi government could pursue the channel as recommended by Gulf aid providers as it asserts fiscal discipline to cut the deficit to 10 percent of GDP with fuel subsidy changes. Reserves have been steady at $16.5 billion despite the Sinai border hostilities between Israel and the Palestinians, as Suez Canal revenue rose 5 percent through June. Indonesia with the world’s largest Moslem population has been a focus and President-elect Jokowi has been a proponent of sound borrowing alternatives in his previous official posts. Although candidate Prabowo has contested the results, the currency has firmed at 11,500/dollar and benchmark bond yields at 8 percent with the victory. Although the current account gap may be around 3 percent of GDP on oil and gas imports portfolio inflows over $20 billion should help close it as growth repeats at 5 percent.

In Turkey, Islamic banks have heeded the Prime Minister’s call as he runs for a more powerful Presidency to lower lending costs as the central bank continues its own easing under an annual 7.5 percent inflation forecast. In Nigeria federal sukuks were due to follow state taps but plans are on hold with monetary authority and political leadership transitions. The former’s new head kept rates in place in his inaugural meeting as foreign reserves topped $40 billion to support the naira. Petroleum industry overhaul remains stuck in the legislature as Boko Haram terror attacks multiply to depress securities appetite into the election cycle.