More Gulf sukuk issuers are expected to tap the Malaysian market in the coming months although global issuance would be lower this year due to turmoil in the Middle East, HSBC's Malaysian Islamic banking head said on Friday.
Kuwait-based Gulf Investment Corporation and National Bank of Abu Dhabi both sourced funds from the Southeast Asian country in the past year, and the Dubai government is mulling a Malaysian sukuk sale, setting a trend of Gulf issuers looking outside the region for financing.
Malaysia is home to the world's largest Islamic bond market and has an estimated $79 billion in excess liquidity. HSBC Amanah Malaysia chief executive Rafe Haneef said the bank has several benchmark-sized sukuk deals by Gulf issuers in the pipeline, and these are expected to be launched soon.
"The ringgit market has a lot of liquidity and they may not end up paying a huge premium if they come to Malaysia because Malaysian investors still have a good understanding of the GCC risk, to some extent," Haneef said in an interview.
"The global market may end up putting a GCC credit in the Middle East basket. You're from Middle East and there's unrest in the Middle East, they don't distinguish between GCC and the Middle East. There is unrest in the Middle East but it doesn't mean all the GCC credits are impacted."
Political conflicts and anti-government protests have rattled financial markets in the Middle East, prompting some banks and investors to delay corporate activity and fund-raising plans.
Rating agencies have downgraded Bahrain and several banks, while retail lender Bahrain Islamic Bank postponed a planned $143 million rights issue. Bankers also expect a planned $1 billion Bahrain sovereign bond issue to be delayed as the Gulf Arab kingdom grapples with anti-government protests.
Haneef said the sukuk market was likely to be subdued in the first half of the year and then pick up, mirroring the pattern seen in 2010 when the Dubai debt crisis kept a lid on the market early in the year.
He forecast that global sukuk issuance would total about $20 billion this year with the bulk of sales coming from Malaysia. In 2010, global issuance was $23.3 billion. "The market is overreacting to the situation. It will settle down very soon but until then, you will find that issuers may not get their expected pricing," he said.
More issuance could emerge from Asian countries such as Indonesia, the Philippines, Hong Kong and Japan. "A lot of the refinancing is happening this year," Haneef said. "The government of Malaysia has a (conventional) bond which is going to mature, Indonesia may seek dollar funding for various projects and they all may consider a sukuk issuance."
Malaysian Prime Minister Najib Razak said early this year the country could sell sovereign Islamic bonds in 2011 while Indonesia is expected to issue $650 million in global Islamic bonds this year.
The Kazakhstan government, Albaraka Turk, First Gulf Bank , Abu Dhabi's Aldar Properties and London's Gatehouse Bank could also issue Islamic bonds.