KUALA LUMPUR: Sales of new Southeast Asian Islamic bonds are unlikely to recover from a four-year low in 2009 as the global downturn weighs, although government issuance will keep the market afloat, a Reuters poll shows.
A recent flood of Islamic bond sales – which have helped fund Gulf property developers and European and Asian state budgets — has slowed to a trickle as prospects of a global recession shuts down credit lines.
Falling property and commodity prices have battered the $1tn Islamic finance industry, dispelling ideas that the sector could soften the blow of the global downturn and offer investors a safer refuge.
Southeast Asia, which accounted for just under half of the $15.8bn global Islamic bond sales in 2008, is expected to see at least $5bn of new issuance this year, according to the Reuters poll.
New Islamic bond issuance in the region last year stood at $6.6bn, the lowest since $5bn in 2004, Islamic Finance Information Service (IFIS) said.
Four of the survey’s 10 respondents said issuance would total at least $5bn, two saw sales of at least $7bn, one each forecast at least $6bn and $4bn of issuance and two expect sales to fall below $3bn.
Government debt would probably drive the Islamic bonds, or sukuk, pipeline this year with many corporate issuers expected to be deterred by tough market conditions, the survey shows.
“Governments are likely to increase borrowings via sukuk to finance higher fiscal deficits,” said Syed Abdul Aziz Syed Kechik, chief executive of OCBC Al-Amin Bank.
“This is based on the fact that most governments have committed to support expansionary policies to help to jump-start the sluggish economy.”
Malaysia and Indonesia are expected to account for most of this year’s sukuk issuance, with Thailand and Singapore also seen as growing markets.
Singapore launched its first Islamic bond programme, worth a total of S$200mn, this month.
The infrastructure and financial sectors are likely to be most active issuers among corporates, according to the poll.
Asia’s brisk economic growth in recent years had sparked a flurry of sukuk issuance by companies and governments eager to tap demand for ethical investments and assets which comply with Islamic beliefs.
“Widening market spreads over benchmark securities resulting in higher absolute yields will crowd out lower rated borrowers and push up investors mark-to-market losses thereby further exacerbating deteriorating market sentiment,” said Malaysian national mortgage firm Cagamas.
Standard & Poor’s has forecast that the global sukuk market will not recover before the second half of 2009 or early 2010 although long term prospects are positive due to investment needs in the Gulf and the growing popularity of Islamic products.
