Yields on Islamic bonds from the Persian Gulf are climbing even as rates on regular debt decline, after four defaults in the past 16 months prompted investors to demand higher returns.
The average yield on sukuk sold by Gulf Cooperation Council issuers rose 38 basis points to 6.99 percent yesterday from this year’s low on April 15, according to the HSBC/NASDAQ Dubai GCC US Dollar Sukuk Index. The average yield on the HSBC/NASDAQ Dubai GCC Conventional US Bond Index, made up of notes that don’t comply with Muslim tenets from Qatar to Saudi Arabia, fell 24 basis points in the same period to 5.35 percent. The spread between the two has widened 62 basis points to 164.
International Investment Group KSCC, an Islamic financial company based in Safat, Kuwait, said on July 26 it was unable to pay $152.5 million to bondholders who demanded immediate repayment after it defaulted on a $200 million Islamic bond. Persian Gulf companies have $28 billion of debt maturing in 2012, Moody’s Investors Service said in a report on June 14. Dubai-based companies have $10.4 billion of obligations maturing that same year, according to Moody’s."
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