Sukuk debutants should hit the gas to avoid September congestion
It is a fine testament to the growing stature of the Islamic finance market that various novel borrowers are pressing ahead with plans to issue international sukuk for the first time — the likes of Hong Kong, Luxembourg and Dogus Group among them. But with so many debut deals revving up to join an autumnal convoy, those that can beat the traffic are advised to do so.
The Islamic bond market has hit a lull after June’s rush of deals, as the Muslim holy month of Ramadan combines with the traditionally sluggish Middle East summer. But every day there are new signs and rumours of deals lining up for September and October.
The autumn sukuk 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 has also not written off a long awaited sukuk debut, while Ras Al Khaimah (RAK) is hotly tipped to return to the market. Sharjah Islamic Bank (SIB) still has room on its $1.5bn sukuk 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 tapped the market since. Issues from financial centres Hong Kong and Luxembourg, as with the recent UK debut, will take the market into new territory.
September is typically seen as the earliest that borrowers can expect to find a receptive Gulf investor base, given the searing temperatures of the preceding two months when workers a scarcely to be 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 will have finished by 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 being ahead of the queue rather than sandwiched in the middle of it. Markets can turn and a bad secondary performance by any one deal 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 as it did next to a heavily demanded Al Hilal tier one deal.
Hong Kong has already intimated that it might push forward its debut. Having targeted a September issue, one banker close to the deal suggested on Monday that the territory “might come slightly sooner.” Luxembourg has also stepped up its urgency to pass a sukuk bill before its parliament’s summer recess this month.
The Eid Al Adha religious holiday in October adds incentive to cram deals in beforehand. And of course, 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 certainly benefit from the wave of 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.