“The market confidence is coming back ... We should probably see two or three (sukuk issues) every quarter over the next year ... 10 more issues coming in 2011,” Haroon Nisar, senior manager for Islamic banking at SHB, told Reuters Middle East Summit in Riyadh.
Key factors that will spur demand for Saudi sukuk issues will be a low interest rate environment in Saudi and Dubai World’s restructuring accord with 99 percent of its bank lenders as well as Dubai’s successful $1.25 billion conventional bond issue in late September.
Saudi Arabia has had four sukuk issues this year so far, Nisar said, but declined to comment on the expected size of issues and only cited Jeddah-based Islamic Development Bank (IDB) and an Aramco-Total joint-venture as being among the prospective issuers.
Nisar said, however, that the majority of the other eight issues would have short-term maturities amid a preference for private placements. “Private placements is relatively easy to do, there is less disclosure for companies,” he said.
The interest rate environment in Saudi Arabia — the main repo interest rate stands at 2 percent — might seem discouraging for prospective sukuk buyers. “But investors do not have any option ... That’s why the best option is coming with shorter-term instruments where you don’t have to lock yourself in for three years or five years, so coming in with the commercial paper segment in the sukuk market. “That is the best way for this (sukuk) market to grow,” Nisar said.
As an example he cited the sale in July of a nine-month corporate Islamic bond by contracting firm Saudi Binladin Group.
In a related development, Murray Sims, general manager of personal banking group at SHB, has emphasized his bank’s resolve to provide innovative solutions to meet the increased demand for Islamic banking services in the Kingdom.
In a statement on the occasion of the opening of SHB’s Olisha Branch for Islamic Banking southeast of Riyadh, Sims said the new branch follows Islamic Shariah principles in all its operations.
“SHB places Islamic banking services as one of its key priorities and every effort will be made to provide innovative solutions to meet the growing demand in the sector,” he said.
He stressed that Olisha Branch would have a dedicated branch for ladies as part of SHB’s efforts to enhance women’s banking services, which will open shortly.
The opening ceremony was attended by Shariah Board Committee members Sheikh Abdullah Al-Manie, Sheikh Mohammed Bin Eid and Sheikh Abdullah Al-Mosleh.
Dr. Bernd van Linder, managing director of SHB, and a number of senior executives of the bank were also present.
“The Olisha Branch is one of several branches that have been enhanced with the Open Branch concept. It is equipped with automated Teller Cash Recycling machines (TCR), which we plan to make available throughout the Kingdom,” Sims said.
