Unchanged ECB Decision Minimized Sukuk Gains; Emaar Prices 10y USD750m Sukuk at 3.635%; USD Sukuk Supply Surpasses USD15bn

13 September 2016

Global Sukuk Markets Weekly

Unchanged ECB Decision Minimized Sukuk Gains; Emaar Prices 10y USD750m Sukuk at 3.635%; USD Sukuk Supply Surpasses USD15bn

Highlights & Performance

¨   Bloomberg Malaysia Sukuk Ex-MYR Total Return (BMSXMTR) and Dow Jones Sukuk Total Return (DJSUKTXR) index marginally improved last week to 105.5 (+0.01%) and 164.0 (+0.07%) respectively, with the index yield tightening 0.3bps to 2.388%. Among the best performers were KFINKK 2/26 (-24bps to 6.96%), SOAFSK 6/20 (-39bps to 2.74%) and DAMAC 4/19 (-44bps to 6.19%). Returns improved as mixed data in the US diminished chances of a US Fed rate hike in Sep-16. However, returns were weighed, mainly toward the end of the week, as the European Central Bank (ECB) kept interest rates unchanged and maintained its EUR1.7trn stimulus. Mario Draghi stated that the ECB will maintain its stimulus programme until at least March 2017, leaving room for further expansion to push inflation towards its 2% target.

¨   Bahrain’s risk premium tightened to 370bps (-12bps) during the week after China International Marine Containers Group Ltd. (CIMC) Vehicle Group announced that it will invest in a reefer trailer manufacturing facility in Bahrain. This indicates some support for growth as the manufacturing sector accounts for over 14.6% of real GDP, as well as being the second largest contributor to Bahrain’s non-oil GDP. Meanwhile in Turkey, 5y CDS tightened to 242.2bps (-3.8bps) after it was announced by the central bank that the current account deficit shrank 13% YoY to USD21.7bn in Jan-July 2016 period (official 2016 target: USD28.6bn or 3.9% of GDP).

¨   Looking to the MYR primary market, Malaysia’s Home Financing Board (LPPSA) issued a total of MYR3.4bn of sukuk with maturities of up to 30 years, making this the first issue from its MYR25bn sukuk/bond programme since its announcement in June-16. This programme will allow the LPPSA to finance the provision of housing loans to civil servants, and will be guaranteed by the government. LPPSA chairman Tan Sri Mohd Irwan Serigar Abdullah mentioned that the LPPSA will issue MYR7bn to MYR10bn per year with a tenure of 3 to 30 years. In the USD primary market, Emaar Properties priced its 9/26 USD750m 10y sukuk at MS+225bps or 3.635%, where it was initially targeted in the low-to-mid 200 bps range.