Sukuk issuances to be over-subscribed – BLME

Sharia bonds will be increasingly attractive following Moody’s latest downgrades of Western banks, Paul Bateman of BLME has said.

RBS, Barclays, HSBC BNP Parbas, Credit Suisse and UBS were among 15 European and US banks downgraded by the rating agency on 21 June.

In a statement, Batemen, senior risk manager at BLME, a UK based Sharia compliant bank, said: “2011 was a record year for Islamic bonds and we expect this trend to continue. In the first half of 2012, we have seen a number of Sukuk issuances including by First Gulf Bank, Emirates Islamic Bank, and Majid Al Futtaim totalling $1.4bn, which were oversubscribed by at least four times. This continues to highlight the extent to which Islamic bonds are a strong alternative to conventional bonds.”

Islamic banks are generally less exposed to capital markets, as the assets on their books relate to traditional lending and trade business, and the use of derivatives is prohibited for Shariah compliant institutions.

“In the future we expect new Sukuk issuances to continue to be over-subscribed and the yields at which they are issued to be commensurately low. The attraction of Sukuk is partly due to investors looking for alternative investments and turning to the GCC as a safe haven from the ongoing volatility in Europe. However the consistent and positive performance in the Sukuk market should not be discounted as one of the key drivers of this increase in demand.”

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