Islamic finance deals soar on high oil price

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Global offerings of sukuk are off to their busiest start on record in 2022, with bankers at HSBC and Deutsche Bank citing the high price of oil as a driver of the vibrant issuance.

Sales of new sukuk maturing in at least a year have touched nearly $24bn so far in 2022, the best start to any year, according to Bloomberg-compiled data going back to 1999.

Saudi Arabia and Turkey were the two biggest issuers.Although it slid on Thursday, crude is up roughly 40% in 2022, leaving investors in oil-producing countries, some of the biggest markets for Islamic finance, flush with cash.

With fixed-income markets in upheaval as the US raises interest rates, sharia-compliant debt has fared better than global bonds with investment-grade ratings, losing only 4% vs their 7% dive so far in 2022, according to Bloomberg indexes.

“There has been pent-up liquidity and demand for Islamic Sukuk for quite a while and that, coupled with challenging market conditions overall affecting primary and secondary markets, is driving increasing interest in Sukuk issuance relative to conventional bond issuance,” said Khaled Darwish, Middle East and North Africa’s head of debt capital markets at HSBC.

The bank is the top arranger of sukuk deals in 2022, Bloomberg-compiled data shows.In a world of rising interest rates, investors often favour debt with shorter maturities, which adds to the attractiveness of sukuk.

The average duration of a note in Bloomberg’s index of global dollar sukuks is just about four years.

That compares with more than seven years for a Bloomberg gauge of global high-grade notes in various currencies.

“Many issuers are dynamic, with diversified funding avenues, and select to tap the market which offers strong liquidity,” said Agata Raszkiewicz, head of Southeast Asia debt capital markets at Deutsche Bank.— businesslive

 

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