Best bank for Islamic finance: HSBC

Events in Dubai had a marked effect on the Islamic finance market over the past year. In November 2009, state-owned holding company Dubai World announced it was to restructure $26 billion of debt, causing Moody’s and Standard & Poor’s to downgrade six government-linked issuers in the emirate as fears of contagion spread.

Mohammed Dawood, director of debt capital markets at HSBC, says the sukuk market has been quiet since the turn of the year, as issuers took stock of the wider consequences of the Dubai crisis. “The market has been relatively slow this year,” he says. “We haven’t seen the volume of issuance that we were expecting.”

But Dawood anticipates more activity in the coming months. Liquidity is high – particularly in the Saudi market, which has seen a number of sizeable government bond redemptions this year. With supply dwindling, sukuk yields have fallen. That could make this a propitious time for issuers across the Middle East and Asia to re-access the market.

“Tourism Development Investment Corp issued bonds in both conventional and Islamic formats last year, both five-year transactions, both $1 billion in size. If you look at it now, the Islamic paper trades around 35–40 basis points tighter than the conventional. That’s largely due to the fact there is currently strong liquidity in the Islamic market and a supply shortage. There’s a very strong case to be made that for the right credits you can get better pricing for sukuks,” says Dawood.

HSBC is looking to take advantage of strong liquidity in the sukuk space, and is working to bring a number of deals to market before year-end. “We’re engaged with a significant number of issuers over specific transactions. We should certainly end the year on a high,” Dawood adds.