22 August 2016

Global Sukuk Markets Weekly

BI Keeps Rate Unchanged, but Trims Growth Outlook; Fitch Cuts Turkey’s Outlook to Negative   

Highlights & Performance

¨   Bloomberg Malaysia Sukuk Ex-MYR Total Return (BMSXMTR) and Dow Jones Sukuk Total Return (DJSUKTXR) index gained 0.38-0.73% to 105.7 and 164.6 respectively, with yields declining 5.7bps to 2.314% amid a rebound in Brent oil prices to the USD50/bbl mark. Among the top performers were EIB 1/17 (-28bps to 0.99%), KFINKK (-22bps to 7.31%) and ADIB B3AT1 Pc10/18 (-22bps to 3.66%). DPWDU 7/17 and 5/23 were 2-27bps tighter at 1.44-3.23% after it posted a 48% jump in net profit to USD673m in 1H16. Elsewhere, INDOIS 9/24, MALAYS 4/26, TURKSK 11/24, PAKISTAN 12/19, DPWDU 5/23 and SECO 4/24 will be added to JPM emerging markets indices starting from 31-Oct.

¨   Bank Indonesia (BI) kept the 7-day reverse repo rate, its new official policy rate, unchanged at 5.25%, and trimmed this year’s growth forecast to 4.9-5.3% from 5.0-5.4% previously amid fiscal spending cuts in 2H16; with its CDS tightening 6.5bps to a new low of 137.0 in 17 months.  On the other hand, Turkish risk premiums added 5.2bps to 248.8bps as investors were cautious ahead of the Central Bank of Turkey (CBRT)’s policy meeting on 23-Jul (Wednesday) — which is expected to cut overnight lending rate by 25bps to 8.50%. In addition, the outlook for Turkey was revised to negative from stable by Fitch, on expectations that the July’s unsuccessful coup attempt could pose risks to political stability and economic performance.

¨   Over in the primary market, Sharjah Islamic Bank (A3/BBB+/BBB+) is in the midst of managing its USD sukuk sales with eight banks. Ahli Kuwait Bank (NR/BBB/BBB+) received regulatory approval on its USD200m capital boosting sukuk (see Sovereign/Corporate update). Leburaya Duke Fasa 3 (AA-) attracted good demand with 8x BTC for its MYR3.64bn 10-23y Sukuk (coupon ranging 5.14-6.43%).

SOVEREIGN UPDATES

Country/Issuer	Update	RHBFIC View
Ahli United Bank (AUB) Kuwait (NR; BBB/Sta; BBB+/Sta)	Kuwait’s central bank approved Ahli United Bank (AUB) Kuwait’s plans to issue a capital boosting sukuk of up to USD200m, announced on 16-Aug. Proceeds will be used to enhance the bank’s capital base, keeping up to par with Basel III standards, which is being phased in until 2019 in Kuwait (new by-laws were announced Nov-15). There was no time frame given for the proposed sukuk. To note, AUB Kuwait is a unit of Bahrain’s AUB.	Positive. AUB’s 1H16 financials indicated steady results (released in Aug-16), with a 8.2% increase to USD301.2m in 1H16 from USD278.4m in 1H15. NPL stood at 2.1% (Dec-15: 1.8%), with an increased specific provision coverage ratio of 85.3% (Dec-15: 84.6%). Total provision coverage ratio (inclusive of collective impairment provisions) was 177% in 1H16 (Dec-15: 181.9%). The bank’s ROA rose steadily to 1.9% in comparison to 1.8% in Dec-15. In our opinion, we have not seen enough financials entering the USD sukuk primary space this year, given that 25% of USD sukuk financials will mature within 2016/2017. Thanks to Kuwait’s regulatory support and low interest rates in DMs, we believe this may encourage additional Kuwaiti names in sukuk primaries within 2016 and 2017.