Saudi Sukuks’ Well Gusher
Saudi Arabia blazed onto the Islamic debt scene with a Gulf-leading $6.5 billion in issuance in Q1, with the sudden entry of banks and utilities as Western-sourced project and syndicated finance vanished. One-quarter that amount came from a two-tranche state electric company instrument that was heavily subscribed from regional investors at a 150 basis point premium over the mid-swaps rate. The global total for the period was $45 billion, already half 2011’s overall activity, according to industry trackers. The UAE continued to be prominent despite headline rescheduling attempts by additional government-linked groups following the DW package. Family groups are tapping the market for the first time, and Abu Dhabi Oil diversified with a direct placement in Malaysia. However Dubai World’s Drydocks unit sought refuge in bankruptcy court as creditors took a hard line, and the parade of names in search of refinancing now includes the airline and its duty-free shops. Yields on the HSBC Gulf sukuk index had dropped to 4.5 percent at end-March but have since crept up as oil prices have moved in the opposite direction. Both the Saudi and UAE stock markets have jumped 20 percent, behind only Egypt, and the former may join the MSCI roster this year with a formal opening to qualified international institutions and individuals. The dual Emirates exchanges missed the last promotion chance to the core universe, but are working on infrastructure and short-selling issues that may allow admission. Smaller area bourses have lagged, with Kuwait, Oman and Qatar in negative territory while Lebanon and Tunisia were flat. Despite the carnage in next-door Syria, a Lebanese Eurobond was well bid by banks and expatriates, and Tunisia’s government has secured a US bilateral guarantee to facilitate possible near-term external debt rollover. It can back a $500 million placement following a Treasury bond operation of that size with Qatar. The Islamic-party headed administration has emphasized job creation and capital mobilization efforts and has invited outside advice and support for small business startups as untangling of the previous Ben Ali legal and illegal holdings slowly proceeds.
Egyptian stock performance has veered to the top from the bottom of the pack, although the early year 40 percent surge has faded. The central bank has laid the foundation for its own sukuk thrust as Treasury auctions fail and longer-term yields approach 17 percent. Foreign reserves are off 60 percent since Mubarak’s resignation to a critical import coverage level, and a diaspora launch of special certificates of deposit is designed to gather funds with talks over a $3 billion IMF loan at a stalemate pending the outcome of Muslim Brotherhood-military jockeying for power and scheduled May presidential elections Withholding tax may be modified to stimulate domestic debt inflows while other stimulus is off the table with promised subsidy reductions to bring the fiscal deficit under 10 percent of GDP.
