CIMB Looks to Gulf After Beating HSBC as Top Underwriter: Islamic Finance

CIMB Group Holdings Bhd., the top global sukuk underwriter for a fourth year, is seeking to boost its business in the Persian Gulf to fight off HSBC Holdings Plc’s challenge to its dominance.

The Southeast Asian nation’s second-biggest lender arranged $3.6 billion of notes complying with Islam’s ban on receiving and paying interest in 2010, or 23 percent of the total, data compiled by Bloomberg show. Persian Gulf issues made up 3.5 percent of CIMB’s business this year. The Kuala Lumpur-based bank beat HSBC into second place for a fourth year. Global sukuk sales totaled $15.3 billion so far this year, 24 percent less than in 2009. Sales reached a record $31 billion in 2007.

“We should be able to do better” in 2011, Badlisyah Abdul Ghani, chief executive officer of CIMB Bank Islamic Bhd., said in a telephone interview Dec. 22. “With the infrastructure developments in Malaysia and the Gulf Cooperation Council countries, I anticipate sukuk issuance will be about the same as 2007 or better. We are looking at several deals from the Gulf.”

CIMB’s only Persian Gulf deal this year was a $125 million sale in October for a unit of Saudi Arabia’s Islamic Development Bank. The bank also helped arrange IDB’s debt issuance in 2009.

HSBC arranged $1.6 billion of sukuk sales in the Middle East to be the biggest underwriter in the region for a second year with 35 percent of sales, according to data compiled by Bloomberg. The London-based bank expects issuance from Persian Gulf states to climb in 2011 as it tries to break CIMB’s dominance of the global Shariah-compliant market.

Malaysian Market

“Next year, we expect issuances from Saudi and the region to improve,” Mohammed Dawood, Dubai-based director of debt capital markets at HSBC Amanah, said in a telephone interview yesterday. “As a consequence that puts us in good shape to capture that top spot in 2011.”

CIMB helped Malaysia sell $1.25 billion of global sukuk this year with HSBC and Barclays Capital and assisted Celcom Axiata Bhd., the nation’s second-largest mobile-phone operator, with a 1.8 billion ringgit ($575 million) bond in August.

The bank has been hired by Dubai as lead arranger for a planned sale of $1 billion to $1.5 billion of multi-currency Islamic bonds in Malaysia, a person with knowledge of the plan, who asked not to be identified as the details are private, said last month. Badlisyah declined to comment on the matter.

A Malaysian government 10-year private-led project initiative, including a nuclear power plant and an underground rail network, will spur sales of Shariah-compliant debt next year, Kuala Lumpur-based RHB Investment Management Sdn.’s Chief Executive Officer Sharifatul Hanizah Said Ali said Dec. 15.

Saudi Stimulus

Saudi Arabian companies may overtake Malaysia as the largest issuer of Islamic bonds for the first time in 2011 as the kingdom’s 1.44 trillion-riyal ($384 billion) stimulus plan boosts spending, Tariq Al-Rifai, director of Islamic Market Indexes in Dubai for Dow Jones Indexes, said Dec. 17. The world’s largest oil exporter announced in August a five-year development plan to spur growth, create jobs and diversify its economy away from hydrocarbons.

HSBC arranged $2.6 billion of sukuk in 2010, according to data compiled by Bloomberg. Kuala Lumpur-based Maybank Investment Bank Bhd. and AmInvestment Bank Bhd. ranked third and fourth. Three of the top four underwriters are based in Malaysia and arranged 39 percent of Islamic bond sales this year. The country’s investment banks have an advantage in the sukuk market as the nation’s issuers account for more than half of the $144 billion of Shariah-compliant debt outstanding.

Sales by Persian Gulf borrowers in Malaysia surged to 1 billion ringgit ($318 million) this year, the most since 2008 when Gulf companies started tapping the Malaysian market, data compiled by Bloomberg show. Last year, 100 million-ringgit of debt was sold. Total Islamic bond issuance in the Gulf has declined 32 percent to $4.5 billion so far this year.

NBAD Sale

“If there is more Gulf issuance next year, then it’s likely that a regional bank with strong local corporate ties will be on a lot of those deals, even if Gulf companies sell ringgit sukuk,” Khalid Howladar, a Dubai-based senior credit officer at Moody’s Investors Service, said in a telephone interview Dec. 22.

National Bank of Abu Dhabi PJSC, the United Arab Emirates’ second-largest lender by assets, sold 500 million ringgit of 10- year sukuk this month. The bank’s 4.75 percent ringgit- denominated sukuk due June 2015 yielded 4.02 percent when the debt last traded Nov. 19, according to prices provided by Bursa Malaysia Bhd.

The yield on Malaysia’s 3.928 percent Islamic notes due June 2015 was little changed at 3 percent today, according to prices from Royal Bank of Scotland Group Plc.

More Gulf Action

The extra yield investors demand to hold Dubai’s government sukuk rather than Malaysia’s has narrowed 74 basis points, or 0.74 percentage point, since June 30 to 342, data compiled by Bloomberg show. The yield on Dubai’s 6.396 percent sukuk due November 2014 was little changed at 6.50 percent today, according to Bloomberg data.

Global sukuk returned 12.6 percent this year, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. Emerging-market debt returned 11.9 percent, JPMorgan Chase & Co.’s EMBI Global Diversified Index shows.

The difference between the average yield for emerging- market sukuk and the London interbank offered rate narrowed 170 basis points this year to 298 yesterday, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. In the GCC, the gap shrank 177 basis points to 368.

Ringgit Remains Significant

CIMB is working on ringgit-denominated sukuk in January from both Malaysian corporate and government entities, with “initial issuances” from 500 million ringgit to 1 billion ringgit, Badlisyah said.

“As far as prospects are concerned, the ringgit issuances will remain significant for 2011, but definitely there will be more issuances out of the gulf as the market has stabilized,” he said. “I think you’ll probably see a fairly balanced composition for next year in terms of dollar issuances and local currency issuances.”

CIMB has “the largest reach and the biggest pool of investors,” Edward Iskandar Toh, a fixed income manager at Areca Capital Sdn. in Kuala Lumpur, said in a telephone interview yesterday. “They have been very aggressive and very professional and with more Gulf issuers looking at Malaysia, CIMB’s set to continue to lead.”

To contact the reporters on this story: Dana El Baltaji in Dubai at delbaltaji@bloomberg.net; Suryani Omar in Singapore at somar6@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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