Dana El Baltaji & Soraya Permatasari
Islamic bond offerings from the Persian Gulf are struggling to keep up with Malaysia, the global hub for Shariah-compliant financial services, after new sales in the region fell to the lowest level in five years.
Issuance of Islamic debt from the Gulf has declined 24 percent to $2.5 billion so far this year, involving sales by three companies. Asia’s 29 borrowers, including Malaysia, issued $5.7 billion. The Gulf last outstripped Asian sukuk offerings in 2007.
The slump in sales shows investors have yet to fully regain confidence even as Dubai World works toward restructuring $23.5 billion of debt and global economies recover from the deepest financial crisis since the 1930s.
HSBC Holdings, Europe’s largest bank, said planned government Persian Gulf issuance will help revive the market.
“It’s of strategic importance that some of the countries here in the Gulf look toward developing these markets,” said Mohammed Dawood, the Dubai-based director of debt capital markets at HSBC, the second-largest underwriter of Islamic bonds this year.
“Especially to compete with Malaysia, the development of the local market will be crucial.”
Malaysia sold $1.25 billion of notes in May, this year’s largest sovereign offering of debt that complies with Shariah principles.
Companies from Malaysia raised 10.9 billion ringgit ($3.5 billion) from local-currency sukuk so far in 2010.
Governments in the Persian Gulf have not borrowed through global sukuk sales since the Dubai Department of Finance issued a $500 million Islamic bond in November.
This year, Saudi Electricity Co., the region’s largest utility, sold 7 billion riyals ($1.87 billion) of sukuk in April, while Dar Al Arkan Real Estate Development, the nation’s top developer by market value, and National Bank of Abu Dhabi, the second-biggest bank in the United Arab Emirates, sold Shariah-compliant debt in US dollars and Malaysian ringgit.