Bahrain’s decision to end a three- month state of emergency is restoring confidence in the island nation’s Islamic bonds. While protests toppled leaders in Egypt and Tunisia and fighting rages in Libya and Syria, Bahrain quelled violent street protests. The yield on Bahrain’s 6.247 percent sukuk maturing June 2014 dropped 115 basis points since March 31 to 2.81 percent, approaching a four-month low reached last week. The notes returned 4 percent this quarter, compared with 3.2 percent for sukuk in Dubai, 2.5 percent for Malaysia and 1.7 percent in Indonesia.
The rally in Bahrain’s bonds may help revive issuance from the Arabian Gulf after Albaraka Banking Group, the kingdom’s biggest publicly traded lender, delayed its plan to sell sukuk until September because of political turmoil. Sales of Shariah- compliant securities from the six-member Gulf Cooperation Council dropped 20 percent to $1.9bn in 2011 from the year-earlier period, data compiled by Bloomberg show.
“Now that the fear of political unrest is starting to move into the background, people are looking to buy Bahrain’s sukuk again,” Dubai-based Abdul Kadir Hussain, who helps oversee $2bn in fixed-income assets as chief executive officer at Mashreq Capital DIFC, said in an interview June 16. “The fact the sukuk is investment grade allows some people to buy it, while Dubai still isn’t rated.”