Saudi Arabia’s Islamic Development Bank has sold $850mn five-year sukuk at 77 basis points over US treasuries
European and Asian investors are increasingly buying into Middle East Islamic bonds in a bid to diversify their portfolios into a market showing greater signs of recovery.
“There’s a strong pent-up demand for Middle East conventional and Islamic bonds from international investors,” Mark Waters, BNP Paribas’s head of Debt Capital Markets in the Middle East, told Zawya Dow Jones .
“The fixed income secondary market is very vibrant now. Spreads are tightening and the markets are definitely opening up,” he said.
Investors are putting more faith in the sukuk market as the financial crisis eases and global market conditions improve rapidly.
French lender BNP Paribas recently worked on two major debt issues from the Middle East, which closed last week.
Saudi Arabia’s Islamic Development Bank (IDB) sold $850mn five-year sukuk at 77 basis points over US treasuries.
Abu Dhabi National Energy Co (Taqa), also sold a $1.5bn sukuk in two tranches.
“During the past few weeks we saw huge demand from Asian and European investors. Close to 11% of the IDB sukuk was bought by Swiss investors,” Water said.
The total size of the global primary sukuk market in 2009 stood at $11.1bn at the end of August, a 20% drop from $14bn in the same period last year, data from Zawya Sukuk Monitor shows. The global market for primary Islamic bonds shrank by more than half to $15.2bn in 2008.
Islamic bonds comply with Islam’s ban on interest and are backed by physical assets from which returns are derived and paid to bondholders instead.