NBAD and FGB Set to Merge; Indonesia Approves Tax Amnesty to Fund Widening Fiscal Gap; Oman Priced USD500m 6y at 3.5%

04 July 2016

Global Sukuk Markets Weekly

NBAD and FGB Set to Merge; Indonesia Approves Tax Amnesty to Fund Widening Fiscal Gap; Oman Priced USD500m 6y at 3.5%

Highlights & Performance

¨   Bloomberg Malaysia Sukuk Ex-MYR Total Return (BMSXMTR) and Dow Jones Sukuk Total Return (DJSUKTXR) gained 0.6% and 1.0% to 104.7 and 162.0 respectively, with financial and real estate players in Dubai such as DIB 3/21, EIB 5/21, DAMAC 4/19 and EZDAN 5/21 experiencing a significant rally of -30bps to -34bps. Yields continued to fall by 3.6bps to 2.419% with Treasury rally, but quieter and low-volume session are expected ahead of the Eid al-Fitr holidays. Elsewhere, the merger of National Bank of Abu Dhabi (NBAD) and First Gulf Bank (FGB) has won board approval on July 3. The merger plan will form the biggest bank in Middle East and Africa region with USD175bn in assets, and is expected to be completed in the first quarter of 2017.

¨   Malaysia’s exports declined by 0.9% in May while imports grew by 3.1%. This led to a narrower trade surplus of MYR3.3bn from MR9.1bn, with its CDS trading at 151bps (-16bps). Similarly, Indonesia risk premium tightened 18bps to 182bps, following the parliament approval of (1) a tax amnesty bill that is expected to increase government revenue by IDR165trn (USD12.5bn), and (2) revised budget with deficit of 2.35% of GDP (from 2.15%) based on lower oil price assumption of USD40/bbl (from USD50bbl). Elsewhere, Saudi Arabia’s non-oil exports further deteriorated to -18.4% YoY in April from -9.1% in March YoY, whereas net foreign assets increased 0.12% to SAR2.1trn in May; with its CDS tightened 14bps to 170bps.

¨   Turning to the USD primary front, Oman (Baa1/BBB-/NR) priced USD500m 6y sukuk via private placement at 3.5%.  On the ratings front, Bahrain was downgraded to BB+/Sta from A by Fitch, putting it more in line other rating agencies. The rating action has no material impact on spreads for Bahrain 11/18 and Mumtalakat 11/21 which traded flat to -5bps given its spreads that are already more than pricing in the junk status.

¨   In the MYR space, Islamic Development Bank via its SPV, Tadamun Services (AAA), issued MYR350m 8y IMTN at 4.36%. Meanwhile, Maxis Broadband, a subsidiary of Maxis Bhd, established an unrated MYR10bn IMTN Programme partly to finance the group’s internal restructuring plan.