Sukuk Sales May Narrow Persian Gulf Yield Gap: Islamic Finance - BusinessWeek

The yield premium that Persian Gulf borrowers pay on sukuk compared to the rest of the Islamic finance industry may narrow as companies with higher credit ratings plan at least $1.75 billion of sales.

Islamic Development Bank, the Jeddah, Saudi Arabia financial group with Aaa ratings from Moody’s Investors Service, is planning a $1 billion sale of bonds based on the exchange of assets rather than interest. Doha-based Qatar Islamic Bank, the state’s biggest Shariah-compliant lender, plans to sell as much as $750 million, Chief Executive Officer Salah Mohammed Jaidah said in May. The bank is ranked A by Fitch Ratings.

Those sales may improve investor sentiment toward Persian Gulf borrowers after Dubai World, whose unit Nakheel PJSC is building palm-shaped islands off Dubai’s coast, reached an agreement with its main creditor group in May to restructure $23.5 billion of liabilities. The extra yield investors demand for the region’s securities compared with the broader Islamic debt market widened more than 100 basis points, or 1 percentage point, in the past eight months to 119 on July 9, according to HSBC Holdings Plc Islamic indexes.