Sharjah Islamic Plans Dollar Sukuk as Issues Surge to July High

Sharjah Islamic Bank (NBS) is planning to sell dollar-denominated sukuk after offerings of the securities in the U.S. currency reached an eight-month high in March. Bond risk in Asia was little changed today.

The lender, from the third-largest of the seven emirates in the U.A.E., is planning to meet investors in Asia and Europe from April 4 ahead of a possible sale of Islamic securities, according to a person familiar with the deal, who asked not to be identified because the matter is private.

Sales of Islamic bonds in dollars rose to $4 billion worldwide in March, the highest since $5 billion in July, according to data compiled by Bloomberg. Saudi Electricity Co. received $13 billion in bids for its $2 billion of 10-year and 30-year bonds last week after Malaysia’s Sime Darby Bhd., the world’s biggest listed palm oil producer, priced $800 million of the notes in January.

“From an investor’s standpoint, dollar sukuks are attractive mainly because of secondary market liquidity and asset diversification,” said Fariza Taib, a fixed-income manager overseeing 1 billion ringgit ($324 million) at Kuala Lumpur-based Asian Islamic Investment Management Bhd. “Trading volumes on these bonds are much higher than other Shariah- compliant local currency.”

Islamic bonds are structured to comply with Sharia law which bans interest payments.

Sime Darby sold $400 million each of five- and 10-year notes, data compiled by Bloomberg show. Other issuers include Japan’s Nomura Holdings Inc. in July 2010 and Malaysia’s Petroliam Nasional Bhd. in August 2009.

Bond Risk

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan was little changed at 122 basis points as of 8:57 a.m. in Hong Kong, Royal Bank of Scotland Group Plc prices show. The benchmark has ranged from 100.5 to 122.3 basis points since Dec. 31, CMA data show.

The Markit iTraxx Japan index climbed 2.5 basis points to 116.5 as of 9:32 a.m. in Tokyo, according to Citigroup Inc. prices. The gauge, which has ranged from 101 to 148.1 this year, is on course for its highest close since March 5, CMA data show. The 50-member index rolled to a new series on March 21, with contracts on Ricoh Co. and Sumitomo Chemical Co. replacing Sharp Corp. and Mitsui & Co.

The Markit iTraxx Australia index fell 2 basis points to 120 as of 10:53 a.m. in Sydney, Westpac Banking Corp. prices show. The measure dropped last quarter for the third consecutive period, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.

Credit-default swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.

To contact the reporter on this story: Tanya Angerer in Singapore at tangerer@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net

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