The Islamic bond market has quietened after June’s rush, as the Muslim holy month of Ramadan combines with the traditionally sluggish Middle East summer. But every day there are signs and rumours of deals lining up for September and October.
The autumn pipeline already looks likely to include the first Turkish corporate sukuk from Dogus Group, as well as sovereign issues from Hong Kong, Indonesia, Luxembourg, Pakistan, Sharjah, Tunisia and Turkey.
South Africa could also bring a long awaited sukuk debut, while Ras Al Khaimah (RAK) is tipped to return to the market. Sharjah Islamic Bank (SIB) still has room on its $1.5bn programme, should it choose to follow the sovereign, and has just received an A3 first-time rating from Moody’s.
Of these potential borrowers, only Indonesia, RAK, SIB and Turkey have any sukuk pedigree. Pakistan issued a debut dollar sukuk in 2005 but has not repeated it. Issues from financial centres Hong Kong and Luxembourg, as with the recent UK debut, will take the market into new territory.
September is typically the earliest that borrowers can expect to find a receptive Gulf investor base, given the searing temperatures of the preceding two months when workers are scarcely found at their desks. There have been no August dollar sukuk for the past three years, beyond the International Islamic Liquidity Management Corp commercial paper debut.
But this year there are good reasons for breaking with tradition, particularly for borrowers who are more novel than others. Ramadan finishes at the end of July and, while Gulf investors may be slow to re-engage, those borrowers who are not largely dependent on the GCC can steal a lead on the pack.
There is good sense in heading the queue rather than being sandwiched in the middle. Markets can turn and one deal’s bad secondary performance can quickly dampen appetite for those that follow. The proximity of other borrowers can also force compromises as Albaraka Turk found out recently when it had to settle for $350m instead of its $400m ideal, coming next to a heavily demanded Al Hilal tier one.
Hong Kong has already intimated it might push forward its debut. Having targeted a September issue, one banker close to the deal suggested that the territory “might come slightly sooner”. Luxembourg also moved swiftly to pass its sukuk bill this week, before its parliament’s summer recess.
The Eid Al Adha religious holiday in October adds incentive to cram deals in beforehand. For debutants, there is also the lure to be the first of a kind. Hong Kong and Luxembourg can no longer win this crown among non-Islamic financial centres, but they can benefit from positive feeling that is still in fresh in the market from the UK’s debut last month.
However quiet the market seems, borrowers should be working hard to get their plans in motion and investors should be prepared to pounce a little earlier than usual on some exciting new deals.