Sukuk Market Stable before Steady US Jobs Data; Ras Al Khaimah & Abu Dhabi Affirmed by S&P

8 August 2016

Global Sukuk Markets Weekly

Sukuk Market Stable before Steady US Jobs Data; Ras Al Khaimah & Abu Dhabi Affirmed by S&P 

Highlights & Performance

¨   Bloomberg Malaysia Sukuk Ex-MYR Total Return (BMSXMTR) and Dow Jones Sukuk Total Return (DJSUKTXR) indices were relatively flat at 105.0 (-0.10%) and 162.77 (0.22%) respectively, with yields widening by a marginal 2.5bps to 2.418% concentrated around non-Financial sukuk, before the better-than-expected non-farm payrolls which added 255k in Jul-16 and stable unemployment of 4.9% in July-16 (see Chart of the Week). Among the sovereigns, Oman’s 3.5% 7/22 widened the most to 3.28% (+14bps) during the week given continued pressure of low oil prices to its economy, while other sovereign sukuk yields remained subdued. Financials mostly widened during the week, particularly Turkish names such as TUFIKA 5/18-4/19 at 4.73-4.89% (+5-15bps) especially after a likely downgrade to junk by Moody’s. In addition to this, selected perp names widened more than 10bps DIB Tier 1 Pc1/21 at 5.26% (+10bps) and BUBYAN Pc5/21 at 5.32% (+12bps). Among the non-financials, yields widened by an average of c.5bps during the week, other than DARALA 11/16-4/19 which tightened by more than 20bps at 4.83-6.95%.

¨   Indonesia’s risk premium improved during the week to 151.5bps (-11bps) given its improved GDP of  5.18% YoY in 2Q16 from 4.91% YoY in 1Q16 contributed by growth in government spending which rose 6.28% YoY in 2Q16 (1Q16: 2.93% YoY) and household spending 5.04% YoY in 2Q16 (1Q16: 4.94%). However, investment growth eased slightly to 5.06% YoY (1Q16: 5.57% YoY). Despite a possible downgrade to junk by Moody’s, Turkey’s CDS tightened during the week to 261.3bps (-14.3bps). Russian Minister for Economic Development Alexei Yulukaev visited Turkey on 6-Aug to strengthening bilateral ties. Nevertheless, Turkey’s sovereign CDS widened the most on a monthly basis among our selected sovereigns (see Figure 5).

¨   S&P affirmed the sovereign ratings of Ras al-Khaimah at A and Abu Dhabi at AA with Stable outlooks for both sovereigns due to its strong fiscal and external positions. Looking to the MYR space, RAM ratings assigned Sarawak Hidro MYR5.54bn sukuk Murabahah at AAA with a Stable outlook considering strong systemic support. This is mainly due to the government’s commitment to top up any shortfall in cash flow throughout the tenure of the sukuk, which ensures the company’s service coverage ratio of 2 times is maintained