Differences in sukuk markets within the GCC - FT Tilt

As I mentioned in an earlier post, the sukuk market is not a unified market. It is made up of many different markets, each with their own characteristics. In that earlier post, I broke down the sukuk market into 4 separate regional markets for sukuk: GCC, South Asia, Malaysia and primarily non-Muslim countries. However, even within these regions there are stark differences in the factors which impact the sukuk market health and today I saw four different article that demonstrate the differences within half of the GCC countries: Qatar, Bahrain and the UAE.

In the UAE, the sukuk markets could be on the verge of coming back strongly with what is reported to be a heavily oversubscribed $400 million sukuk issued by Sharjah Islamic Bank. The sukuk, which is in the mid-range in terms of size from the expectation is rated BBB+ by S&P and Fitch, at the bottom end of the investment grade rating category. The order book is reported to have attracted $5 for every $1 in sukuk being issued ($2 billion reported order book). Given the overwhelming dominance of sovereign sukuk issuance in the years since the markets froze up, it is a positive development to see corporate issuers, particularly one with a low-investment-grade rating to see strong reception for its sukuk. In part, this could be due to the UAE being viewed as a safe haven having not seen the protests that spread across much of the region, including the financial hub of Bahrain.

In Bahrain, the government's harsh crackdown on protests and assistance from Saudi troops stationed in the country has restored some level of calm in the markets with the yield on the sovereign sukuk from the Central Bank of Bahrain at its lowest yields since the protests began in mid-February. However, there remains a lot of uncertainty about whether the grievances which led to the protests will be dealt with or whether the calm is just a lull created by the government crackdown on protesters. For example, the US government lifted its 'voluntary departure' status for US embassy staff also noted that "potential for spontaneous civil and political unrest continues" and "Clearly, fears have subsided to an extent but given current spreads and CDS levels the market is telling you things are not back to normal" according to a director, Akber Khan, of Al Rayan Investments as quoted by Bloomberg from Qatar. Bahrain, which had become a large hub for finance--including Islamic finance--in the region has lost its status as a stable country, at least for the time being. Still, it will remain at the center of a good deal of Islamic finance in the region due to its accommodative central bank and the presence of international organizations like the International Islamic Financial Market (IIFM) and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). However, the reputation for stability has not (and probably cannot entirely) return to the pre-protest levels, which will impact future sukuk issuance coming out of Bahrain.