Crisis weighs on Asian Islamic bond market: Moody's

The global economic crisis has slowed down the issuance of Islamic bonds in Asia but the market remains resilient, Moody's Investor Service said Thursday. Issuance of the bonds, or sukuk, in Asian currencies totalled 64.3 billion US dollars in 2008, down 1.5 percent from 2007, as the crisis struck in the third quarter of last year, it said.
The bonds were issued in Malaysian ringgit, Pakistani rupees and Brunei dollars. The drop follows a 50 percent year on year rise to 65.3 billion dollars in 2007, the US-based credit ratings firm said in a report.
"The Asian sukuk market has been impacted by the current financial crisis. As a relatively young asset class, it faces strong challenges in an extremely difficult credit environment," the report said. Sukuk is similar to a bond in Western finance but complies with Islamic Shariah law, which forbids charging interest. Depite the slowdown, however, Moody's said the market has shown resilience, with some governments in the region successfully issuing the bonds recently.
In the first quarter, Indonesia issued its first rupiah-denominated sukuk to retail investors, raising about 465 million dollars. And this month Jakarta sold 650 million dollars of its first dollar-denominated sukuk in the international market.
Indonesian officials said the five-year Islamic bond, which pays a fixed 8.8 percent rate of return, was about seven times oversubscribed when it went on the market on April 16. Middle Eastern and Islamic investors snapped up 30 percent of the issuance while buyers from Asia, including Indonesia, accounted for 40 percent. US investors bought 19 percent and Europeans 11 percent.
Malaysia, the world's biggest sukuk market, said this month it plans to issue 695 million dollars worth of ringgit-denominated bonds. In January, Singapore announced the completion of a sukuk issuance facility to help financial institutions carry out Shariah-compliant activities in the city-state. Moody's said it was still uncertain whether the Hong Kong Airport Authority would launch the city's first sukuk by the end of 2009, as had previously been mooted.