JEDDAH: A rebound in Gulf Islamic bond market depends on the performance of the property prices. Islamic bonds in the GCC returned 13 percent this year, according to the HSBC/NASDAQ Dubai GCC US Dollar Sukuk Index, compared with 12 percent for global Sukuk, the HSBC/NASDAQ Dubai US Dollar Index shows. Bonds in developing markets returned 16 percent this year, JPMorgan Chase & Co.'s EMBI Global Diversified Index. Real estate prices in Dubai have tumbled more than 50 percent since their 2008 peak and 30 percent in neighboring Abu Dhabi as banks tightened mortgage lending and speculators fled the market. Property is used as collateral for Shariah-compliant bonds, which are backed by assets and pay a share of profit instead of interest. “This asset class is less attractive than it used to be and has made Sukuk issuers struggle to gather the right type of underlying assets that would attract investors,” Ashar Nazim, Manama-based executive director and head of Islamic financial services for Ernst & Young LLP, Bahrain said. Saudi Aramco and Total SA said last month they plan a $1 billion Sukuk sale and Albaraka Banking Group, Bahrain's largest listed Islamic bank, said Oct. 31 it expects to issue $200 million of Shariah-compliant bonds by year's end. Those are the only deals announced for the rest of 2010. Moody's Investors Service cut its credit ratings for Dar Al Arkan Real Estate Development Co, Saudi Arabia's biggest developer by market value, one level to Ba3, the third-highest non-investment grade. Lower land sales that hurt earnings, a higher proportion of debt and a decision to pay a dividend this year prompted the cut, Martin Kohlhase, a Dubai-based analyst at Moody's wrote in a report Wednesday. Dar Al Arkan said October 20 third-quarter profit fell 53 percent to SR289.6 million ($77 million). The shares have declined 38 percent this year, compared with a 5.3 percent gain for Saudi Arabia's benchmark stock index. The price on the company's $1billon Islamic bond maturing in July 2012 has dropped 2.5 cents this quarter to 82.80 cents on the dollar. “Moody's is monitoring how liquidity and operating cash flows continue evolving in light of the Sukuk maturity in 2012,” the report said. The company's short-term liquidity profile for the 12 months from the end of September is “adequate, based primarily on expected funds from operations stemming from land sales and collections from sales of residential units,” Moody's said. The average yield on Sukuk sold by GCC issuers rose six basis points yesterday to 5.37 percent, paring its decline this quarter to 72 points, according to the HSBC/NASDAQ Dubai GCC US Dollar Sukuk Index. The difference between the average yield for emerging-market Sukuk and the London interbank offered rate widened 0.8 basis point to 336.6 yesterday and has narrowed 36 points since Sept. 30, the HSBC/NASDAQ Dubai US Dollar Sukuk Index showed. The yield on Malaysia's 3.928 percent Islamic note due in June 2015 rose 2 basis points to 2.5 percent Thursday, data from Royal Bank of Scotland Plc said. “The growth in the Sukuk market is parallel to a recovery in real estate,” Muhammad Said Abdel Wahab, chief financial officer of Kuwait Finance House, the country's largest Islamic bank, said in Dubai Nov. 3. “Till now, the Sukuk market does not offer a lot of diversification in assets” and it has been slow to recover, he said. Not all Islamic bonds use real estate as collateral, Louis Najem, fixed-income sales trader at Dubai's Rasmala Investment Bank Ltd. said Nov. 9. Saudi Electricity Co.'s SR7 billion ($1.87 billion) Sukuk sold earlier this year is underwritten by the company's income from fees, such as connection charges, according to the note's prospectus. – Saudi Gazette with agenciesFrom Australia to South Africa, governments are scrambling to change the law to accommodate the $1 trillion Islamic finance industry, whose avoidance of toxic debt has looked increasingly attractive since the global crisis. But in the Gulf Arab region, governments have taken a more passive approach, which experts say is slowing the industry's growth. “Aside from Malaysia, Sudan and Iran, no government has really owned the Islamic finance project,” Humayon Dar, chief executive of London-based Shariahh advisory and structuring firm BMB Islamic, said. In Malaysia, there is a national Shariah Council that sets rules for Islamic financial institutions. Rules are standardized under the central bank, which has made an active push towards supporting Islamic finance. In the first three quarters of 2010, the Malaysian government accounted for 62.5 percent of all Islamic bonds, or Sukuk, issuances globally, valued at $18.4 billion, according to Thomson Reuters data. By comparison, not one sovereign Sukuk came out of the Gulf Arab region during the same period. — Saudi Gazette with agenciescompanies pretty hard, and played a role in the Dubai World restructuring through Nakheel and its paper, making Islamic bonds less attractive to investors,” Najem said in an e-mailed response to questions. Nakheel PJSC, a unit of Dubai World and the developer of the palm-shaped islands off Dubai's coast, said July 14 a group of its creditors unanimously supported a plan to alter the terms on $10.5 billion debt. The yield on Nakheel's 2.75 percent $750 million Islamic notes due in January 2011 gained 214 basis points this quarter to 12.2 percent yesterday, according to prices compiled by Bloomberg.Dubai will need another 20 months to absorb an oversupply of homes and offices, Mohamed Alabbar, the chairman of Emaar Properties PJSC, the United Arab Emirates' biggest developer, said Nov. 5. Aldar Properties PJSC, Abu Dhabi's largest real- estate company, posted its biggest loss on record in the third quarter and said two days ago it's working with the emirate's government to help cover cash requirements. The yield on Aldar's 5.767 percent convertible sukuk due in November 2011 gained 88 basis points, or 0.88 percentage point, this quarter to 8.79 percent yesterday, according to data compiled by Bloomberg. It reached this year's high of 11.37 percent on Aug. 11. The company will need 9.8 billion dirhams ($2.7 billion) by 2011 to “survive,” Bank of America Merrill Lynch said in a report dated Nov. 2. Aldar's Needs Sukuk sales in the six-nation Gulf Cooperation Council have slumped 78 percent so far this year to $4 billion from a record $18.2 billion in all of 2007, according to data compiled by Bloomberg. One company in the GCC, Abu Dhabi Islamic Bank PJSC, has sold sukuk since state-owned Dubai World said in September it reached an accord with most its creditors to restructure $24.9 billion of debt. Abu Dhabi Islamic Bank sold $750 million of bonds this quarter, according to data compiled by Bloomberg. Issuers raised $3.2 billion in the previous nine months. Non- Islamic issuers have sold $12.6 billion in the fourth quarter, the data show. Sukuk YieldsGrowth, Real Estate __
