Opening of Saudi Market will fuel speculation on SUkuk
Saudi Arabia's plan to open its $531 billion stock market to foreigners is prompting analysts' speculation that Islamic bonds will be next. The government's approval of overseas financial institutions to trade equities may herald a similar relaxation of rules in the local-currency primary debt market, according to Mashreq Capital DIFC Limited and Rasmala Investment Bank Limited. Saudi Arabia capital market authority said last week that the stock-market change would take place in the first half (H1) of next year. The world's biggest exporter of oil and de facto leader of OPEC is removing barriers to one of the most restricted major stock exchanges as the government pursues a $130 billion spending plan to boost non-energy industries. The move may lead to the country's inclusion in MSCI indexes, which are used to measure performance by money managers with an estimated $9 trillion of assets. "Capital markets are a package, you can't have one part without the other," John Sfakianakis, chief investment strategist at Riyadh-based investment company MASIC, told Bloomberg on phone last week. "The fact is that Saudi sukuk eventually should also be open to everyone." Opening the local-currency sukuk market would give foreign investors access to companies that sold 42 billion riyals ($11.2bn) through a dozen sales in the past year. That's more than three times the amount of dollar Islamic bond sales, which are open to overseas buyers. In the 12 months through Friday, only four dollar-denominated sukuk have been sold in Saudi Arabia. Those came from two issuers, Dar Al Arkan Real Estate Development Co. and Saudi Electricity Co., according to data compiled by Bloomberg. Twelve different borrowers, including National Commercial Bank and Almarai Co, each issued a riyal-denominated Islamic security in the period. "It's a step in the opening up of Saudi capital markets overall, and that benefits sukuk investors because there will be more potential product if we can get access," Abdul Kadir Hussain, who oversees about $700 million as chief executive officer at Mashreq Capital in Dubai, said in a phone interview. It will also make it easier for domestic borrowers to issue Islamic bonds, he said. Access to the kingdom's debt market may appeal more to investors wanting to broaden their exposure than to those seeking yield, according to Doug Bitcon, a Dubai-based fund manager at Rasmala. Following are major Islamic bond issues in the global pipeline. The Thomson Reuters Global Sukuk Index .TRUSDALL is at 113.99163 points, up from 113.54307 at the end of last month and 109.78969 at the end of last year. The Thomson Reuters Investment Grade Sukuk Index .TRUSDIG is at 111.52093 points, against 110.93472 at end-June and 107.28036 at the end of 2013. PAKISTAN - The Pakistan government is looking to raise $1 billion from a U.S. dollar sukuk and plans to finalise arrangers within two weeks, a finance ministry official said on July 22. The government has shortlisted four banks and plans to launch the deal as early as September. LUXEMBOURG - In early July, Luxembourg's parliament passed a bill that will allow the AAA-rated government to issue its first sukuk later this year; the bill lets Luxembourg securitise three government properties to back sukuk worth 200 million euros ($275 million). SHARJAH - The emirate of Sharjah, part of the United Arab Emirates, is planning its first foray into international bond markets with a debut sukuk deal, bankers said in July; it is rumoured to have appointed banks to manage the transaction and could launch it as early as September. HONG KONG - The Hong Kong government has mandated HSBC, Standard Chartered, CIMB and National Bank of Abu Dhabi for its first Islamic bond issue, sources close to the deal said; it is expected to occur in September. The sukuk are expected to be between $500 million and $1 billion and have a tenor of five years. AQUASAR - Malaysia's Aquasar Capital will open bookbuilding on a multi-tranche, ringgit-denominated sukuk in the week of July 6 via sole lead RHB Investment Bank, bankers said; the issuer hopes to raise up to 1.5 billion ringgit ($468 million) for Sarawak State's sewerage system. ADIRA DINAMIKA - Indonesia's PT Adira Dinamika Multi Finance ADMF.JK plans to raise at least 500 billion rupiah ($42 million) with ringgit-denominated sukuk in Malaysia by the end of the year, bankers said. BUMI ARMADA - Four Malaysian banks are providing a 1.5 billion ringgit unrated sukuk facility for Malaysian oil field services firm Bumi Armada BUAB.KL, sources said in late June. Terms are being finalised; the deal will be privately placed. K-ELECTRIC - Karachi-based utility K-Electric KELE.KA plans to raise as much as 22 billion rupees ($223 million) through sukuk to refinance existing debt, the company said in late June. LIBYA - Libya's central bank is proposing to issue Islamic bonds to help fund the country's budget and offset a loss of oil revenues that could create a deficit of $25 billion this year, a bank official said in June. KENYA - Kenya plans to issue another international bond and may consider a debut sukuk issue, the finance minister said in late June, after a successful debut $2 billion eurobond closed. BANK MUAMALAT - Malaysia's Bank Muamalat BUKHCM.UL, a unit of sovereign fund Khazanah and auto-to-property conglomerate DRB-Hicom Bhd DRBM.KL, will raise up to 2 billion ringgit with Islamic bonds, credit agency Malaysian Rating Corp said in late June. DOGUS - Dogus Varlik Kiralama, an asset leasing company, applied in late June to the Capital Markets Board to issue Turkey's first corporate Islamic bond. The sukuk would be worth up to $400 million and sold in the international markets. BAHRI - National Shipping Co of Saudi Arabia (Bahri) 4030.SE plans to arrange long-term sharia-compliant financing in the next year to replace a bridge loan backing its $1.3 billion acquisition of Saudi Aramco's marine unit, Bahri said in June. Banking sources prebiously told Reuters Bahri was looking at a potential debut sukuk issue to replace the bridge loan. SOCIETE GENERALE - Societe Generale SOGN.PA completed the roadshow for the first issue in its 1 billion ringgit multi-currency sukuk programme in Malaysia, and would decide on the size in days, the bank said on June 18. In early July, banking sources said Societe Generale was still seeking a window to launch. IFC - The International Finance Corp, the World Bank's lender to the private sector, is considering a return to the Islamic bond market, an IFC official said. A sukuk issue is still in the early stages of discussion but would likely be in the fiscal year starting in July 2014. JORDAN - Jordan's government is studying a proposal to issue its first Islamic bond as early as next year, possibly raising over $1 billion in multiple currencies, but a preference for concessionary loans from aid donor countries could hinder the plan, government sources said. MALAYSIAN RESOURCES CORP - Malaysian Resources Corp MYRS.KL, a local construction firm, said on June 12 it would issue Islamic bonds to raise up to 680 million ringgit for land acquisitions and working capital. AKTIF BANK - A special purpose vehicle of Turkish lender Aktif Yatirim Bankasi [CALIKB.UL} said on June 6 it would issue up to 200 million lira ($96 million) of sukuk. It did not give details. RAS AL-KHAIMAH - The emirate of Ras al-Khaimah, part of the UAE, has invited banks to pitch for arranger roles on a potential dollar-denominated sukuk, sources said in early June. A deal isn't expected until at least the third quarter of this year. BOTM - Bank of Tokyo-Mitsubishi UFJ 8306.T said on June 5 it was seeking to raise as much as $500 million through a multi-currency Islamic bond programme in Malaysia, becoming the first Japanese bank to use sukuk for fund-raising. UEM SUNRISE - Malaysian property developer UEM Sunrise UMSB.KL has mandated CIMB and Maybank to lead a potential issuance off a 2 billion ringgit sukuk programme; bookbuilding is likely to kick off over the next couple of weeks after the borrower and its leads sound out investors, bankers said in early June. BANGLADESH - The central bank is seeking to amend rules on its existing sukuk programme to broaden its use and allow for sovereign issuance by the government, a central bank spokesman said in June. BANK ISLAM - Malaysia's Bank Islam plans to raise 1 billion ringgit by selling Islamic bonds to fund organic growth as well as a potential acquisition in Indonesia, two people involved told Reuters in early June. A 300 million ringgit Basel-III compliant Tier 2 sukuk is awaiting approval from the central bank and the Securities Commission for issue in July. AL OTHAIM - Saudi Arabia's Al Othaim Real Estate and Investment Co, owner of five shopping malls in the kingdom, plans to issue its debut local currency sukuk as early as in June, sources aware of the matter said at the start of the month. The transaction is likely to be worth between 500 million and 1 billion riyals ($133-267 million), one of the sources added. INDONESIA - Indonesia mandated HSBC HSBA.L, Standard Chartered STAN.L and CIMB Group CIMB.KL to arrange a sovereign sukuk issue of up to $1.5 billion, sources aware of the matter told Reuters on May 26. AL BARAKA - Bahrain-based Al Baraka Banking Group BARKA.BH said in mid-May that it was considering issuing subordinated Islamic bonds through its South African and Pakistani units to boost their regulatory capital. TUNISIA - Tunisia will sell its first sovereign Islamic bond in September after months of delays, raising $140 million, its finance minister said in mid-May. The ministry had previously planned a $500 million sukuk and gave no reason for the reduction in size. IDB - The Islamic Development Bank plans to issue a benchmark-sized sukuk around May next year, close in size to a $1.5 billion, five-year sukuk which it issued in February this year, president Ahmad Mohamed Ali said. In February, a senior executive said the IDB also aimed to issue its first short-term sukuk this year. JEDDAH ECONOMIC CO - Saudi Arabia's Jeddah Economic Co said in mid-May it was in talks with local banks to raise funds for the 14 billion riyal first phase of its Kingdom City project. For part of the money, "we are looking at the bonds and sukuk market but this will need a structure in place, which we are working on," chief executive Mounib Hammoud said. IOI PROPERTIES - Kuala Lumpur-listed IOI Properties IOIP.KL is considering an offer of Islamic bonds; it is looking to raise up to 750 million ringgit off a 1.5 billion ringgit sukuk programme, the company said in early May. BANK MUSCAT - Bank Muscat BMAO.OM plans a dual-currency U.S. dollar and rial sukuk issue worth around $300 million that would be the first sukuk sale by an Omani bank. The issue, which could carry tenors of three to five years, would be part of a 500 million rial ($1.3 billion) sukuk programme which shareholders approved in March, Sulaiman Al Harthy, group general manager of Meethaq, Bank Muscat's Islamic operation, told Reuters in early May. PELABURAN MARA - Malaysia's Pelaburan MARA, the investment arm of Majlis Amanah Rakyat, plans to issue sukuk worth up to 1 billion ringgit this year or next to finance its investments in the oil and gas and technology sectors, group chief executive Nazim Rahman was quoted as saying in April by The Edge Financial Daily. HUA YANG - Malaysian property development firm Hua Yang Bhd HUAY.KL said on April 29 it had won approval from the securities commission to raise up to 250 million ringgit with an Islamic bond programme. GULF FINANCE HOUSE - Bahrain-based Gulf Finance House GFHB.BH said on April 15 it had obtained shareholder approval to issue sukuk or arrange new debt facilities worth up to $500 million to restructure liabilities, develop projects and fund possible acquisitions; no time frame was given. SABAH - Malaysia's Sabah Credit Corp, a unit of the Sabah state government, will raise up to 1.5 billion ringgit in musharaka sukuk, RAM Ratings said on April 7. OMAN - Omani central bank executive president Hamood Sangour al-Zadjali said in March that the government would probably make its first sovereign sukuk issue at the end of this year. FIRST GULF BANK - Abu Dhabi's First Gulf Bank FGB.AD, the third-largest bank by assets in the United Arab Emirates, plans to raise up to 3.5 billion ringgit with Islamic bonds in Malaysia, RAM Ratings said in March. SOUTH AFRICA - The South African Treasury said in February that it was confident of issuing its first sukuk in the coming few months. KILER REIT - Turkish real estate investment trust Kiler GYO KLGYO.IS plans to issue a five-year sukuk worth at least $100 million in the second half of this year, parent company Kiler Holding's chief financial Officer Kaan Aytogu said in February. BANK ASYA - Turkish Islamic lender Bank Asya ASYAB.IS said in January that it was planning sukuk issues worth $500 million and 800 million lira this year, dependent on obtaining regulatory approval. ACWA - Last December, Saudi Arabia-based water and power project developer ACWA Power said it had raised a 1.77 billion riyal Islamic loan from four local banks to help finance investments including acquisitions and act as a bridge to a sukuk issue in 2014. 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