(MENAFN- Khaleej Times) Islamic bond sales in Saudi Arabia are dominating issuance in the Gulf Cooperation Council, driven by local demand, as companies in other countries hold off on concern the US Federal Reserve will slow asset purchases.
Almarai Co, the Riyadh-based foodmaker, said last week it would meet investors to privately place a 1.7 billion-riyal ($453 million) perpetual sukuk, the first sale in the GCC since July 10. Saudi entities have sold more than 60 per cent of all Islamic bonds in the region this year, compared with 43 per cent in 2012, according to data compiled by Bloomberg.
Saudi Arabia's economy, the largest in the six-nation GCC, has grown an average 7.6 per cent in the three years to 2012 as the government pursues an expansionary fiscal policy in a bid to avoid the unrest seen in countries including Bahrain and Tunisia during the so-called Arab Spring.
GCC sukuk sales made up 46 per cent of global sales last year as a record $46.4 billion of Islamic bonds were issued. Concern the Fed could start reducing its quantitative easing measures this month prompted a surge in global borrowing costs.
"Given global conditions and Saudi liquidity, it's safer to stay domestic," Michael Grifferty, president of the Gulf Bond and Sukuk Association, said by phone September 5.
"It would take real stomach to come into the emerging market with an issue right now. There is a case to be made for waiting a little while."
Average global sukuk yields are at their highest since April 2011, having climbed 148 basis points, or 1.48 percentage points, this year to 4.29 per cent on September 6, according to HSBC/Nasdaq Dubai indexes.
US 10-year treasuries breached three per cent for the first time since July 2011, up from 1.76 per cent at the start of the year, as the Fed contemplates a reduction in its $85 billion a month bond-buying programme.
"Most issuers planning bonds or sukuk have backed off because of the Fed or other interest rate issues," Amol Shitole, an analyst at SJS Markets in Bangalore, India, said by phone September 5. "The Saudi sukuk market is dominated by domestic issues and strong domestic demand, so there's no change in direction."
General Authority of Civil Aviation is said to have hired banks to arrange a local-currency sukuk, according to a banker familiar with the matter. Saudi British Bank plans to sell Islamic bonds by the end of the year, Reuters reported August 26.
More than half of Islamic bonds from the kingdom this year are denominated in riyals, data compiled by Bloomberg show.
Sukuk sales from the GCC total $10.8 billion this year compared with $17.7 billion in the same period last year. Bahrain Mumtalakat Holding Co. was the last non-Saudi issuer, raising 150 million ringgit ($45 million) on April 22. Sharjah Islamic Bank PJSC, the United Arab Emirates-based bank, was the last non-Saudi entity to sell a dollar sukuk on April 9.
"It's a matter of getting used used to a new kind of reality in rates and spreads," Grifferty said. "We'll have a good rest of year, geopolitics permitting."
Dubai-based airlines Emirates and flydubai said they will consider Islamic bonds to help pay for planes. Dubai Multi Commodities Centre said it may sell sukuk to finance the construction of the world's tallest commercial tower.
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