Sukuk Fell as Oil Suffered; Eyes on Fed, BI and CBRT Meetings

19 September 2016

Global Sukuk Markets Weekly

Sukuk Fell as Oil Suffered; Eyes on Fed, BI and CBRT Meetings

Highlights & Performance

¨   Bloomberg Malaysia Sukuk Ex-MYR Total Return (BMSXMTR) and Dow Jones Sukuk Total Return (DJSUKTXR) index closed slightly weaker at 105.3 (-0.16%) and 163.4 (-0.40%) respectively, with the index yield adding 3.1bps to 2.419%. Losses in perpetual banking papers such as ADIB B3AT1 Pc10/18 (+23bps to 4.09%), DIB B3AT1 Pc3/19 (+15bps to 4.12%) and AHB B3AT1 Pc6/19 (+13bps to 4.59%) as well as DPWDU 7/17-5/23 (+14-23bps to 1.75-3.24%) led the overall indices lower. Brent oil touched USD45.77/bbl (-4.7%) after the International Energy Agency (IEA) cut its crude-demand forecast and warned that the oil market would remain oversupplied at least through the first half of 2017. Meanwhile, the market viewed a low likelihood of a 25bps rate hike on 20-21 Sept FOMC meeting with implied probability of 20%, following disappointing recent data releases – manufacturing and services data and speech by Fed Brainard on “prudence in the removal of policy accommodation”.

¨   Indonesia’s trade surplus narrowed to USD294m in Aug from USD514m in July despite export growth improving significantly to -0.74% from -16.9%. With these trade data and subdued inflation, BI is expected to cut 7-day reverse repo rate (RRP) by 25bps to 5.00% at the 22-Sept meeting if Fed stays on hold with interest rates at the meeting which will be held before BI’s decision. Elsewhere, investors also eye possible Central Bank of Turkey CBRT) 25bps cuts in overnight lending rate to 8.25% on 22-Sept (Thurs). Indonesia and Turkey’s CDS premiums widened to 145.9bps (+4.0bps) and 246.0bps (+3.8bps) respectively.

SOVEREIGN UPDATES

Country/Issuer	Update	RHBFIC View
DP World (Baa3/Sta; NR; BBB/Sta)	DP World has been allowing Hanjin Shipping ships to unload at its Jebel Ali Port but is charging other customers, whom have been awaiting goods, a premium in order to attain their cargo, according to an article in The National. DP World is only allowing containers to leave its facility once a security deposit is paid. South Korean line Hanjin Shipping, the seventh largest carrier in the world, has filed for bankruptcy, with debts of USD5.5bn disrupting of about USD14bn of cargo tied to ships.  This has already impacted shipping rates globally.	Neutral. We view this development as neutral given that DP World has reacted quickly to minimize impact on global trade. Given that DP World is geographically diversified, has a high utilization rate of its terminals, well established access to the capital markets,  solid liquidity position, and systemic support from the Dubai government, we believe that DP World should be able to withstand the disruption from the bankruptcy of Hanjin Shipping. Nevertheless, yields widened during the week; DPWDU 17’ and DPWDU 23’ widened by 23 bps to 1.75% and 14bps to 3.34% respectively.