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King Salman has reorganised his cabinet, removed princes from government roles, merged ministries and realigned succession since ascending to the throne in January. Half a year into his reign, Saudi companies have yet to market a single security in 2015, making it the country’s quietest start for Islamic sales in nine years. The inactivity in Saudi Arabia comes as more financial centres seek to compete in the sukuk market. Saudi Arabia is pursuing a $130 billion spending plan to diversify its economy away from oil, and has vowed to invest in major infrastructure projects. King Salman’s changes will impact many areas, especially financial markets. The country’s economy may expand 2.5 per cent this year, after growing at an average rate of 5.4 per cent in the previous four years.

The Malaysia unit of Japan's Toyota Motor Corp. plans to setup a 2.5 billion ringgit ($667 million) programme to raise funds via both conventional and Islamic bonds. The proposed programme from Toyota Capital Malaysia Sdn Bhd was rated AAA by RAM Ratings, and follows a 1 billion ringgit sukuk programme setup in 2008 that matured earlier this month. The Malaysia unit has two other conventional debt programmes that can raise a combined 1.8 billion ringgit; It sold a debut sukuk in 2008. The move comes at a time when Japanese firms are renewing efforts in the sector, with Japan's financial regulator relaxing rules for domestic banks to use Islamic financial products.

1Malaysia Development Bhd (1MDB) today rebutted claims by former prime minister Tun Dr Mahathir Mohamad saying that a cabinet paper was presented and approved for the issuance of a government guarantee RM5 billion sukuk by Terengganu Investment Authority (TIA). TIA was renamed 1MDB in 2009 after the federal government took over. In a statement today, 1MDB also said that the guarantee was not off-budget, and that Putrajaya was fully liable for the amount it had guaranteed. 1MDB also denied Dr Mahathir's claim that the RM2 billion loan it obtained from Ananda Krishnan was used to pay interest on its loans. It also questioned the "motivation" behind Dr Mahathir's allegations, which it said had numbers and figures changing every time.

The Thomson Reuters Global Sukuk Index is at 117.76047 points, down from 118.42537 at the end of last month but up from 115.79726 at the end of last year. The Thomson Reuters Investment Grade Sukuk Index is at 116.64082 against 117.32893 at end-May and 113.69014 at end-2014. Some of the sukuk in the pipeline are: Saudi Arabia's Al Othaim Real Estate and Investment Co has revived plans to issue a debut local currency Islamic bond, probably after the summer. Dubai's Drake & Scull International set initial price guidance for its senior perpetual U.S. dollar sukuk at around 9 percent. The Islamic Development Bank increased the ceiling of its Islamic bond programme to $25 billion from $10 billion. Malaysian mortgage lender Cagamas still hopes to issue sukuk this year off a $2.5 billion multi-currency programme set up last November.

The credit crunch in the US and Europe, coupled with the ongoing Eurozone crisis, has resulted in more companies turning to the increasingly liquid sukuk market. Besides, countries in the Gulf Cooperation Council (GCC) are set to host world events in 2020 which is fuelling investment in infrastructure. Despite the plummeting oil price, GCC countries — such as the United Arab Emirates and Saudi Arabia — enjoyed strong economic growth in 2014, which led to an increase in the liquidity of local and regional banks. This considerable liquidity has enabled regional financial institutions to become important investors in the growing sukuk market. Global sukuk issuances will be driven by relatively limited levels of supply coupled with the continued level of liquidity within the overall Islamic investor base, in particular from Islamic banks.

Malaysia's efforts to create a market for ethical Islamic bonds are the latest in a series of government-led initiatives to develop Islamic finance, but further expansion will require a greater buy-in from a sometimes reluctant private sector. In May, sovereign wealth fund Khazanah Nasional launched the country's first sustainable and responsible investment (SRI) sukuk, nearly two years after the format was first announced by the government. Last year, $74.9 billion worth of sukuk were issued out of Malaysia but only $13.5 billion came from corporate issuers. There is little sign of this changing soon.

The recent decline in oil prices has sparked expectations that Saudi Arabia may issue domestic sovereign debt this year for the first time since 2007. Much of this debt would probably be long term and would be bought by the country’s banks. Sovereign debt issuance would create another benefit for potential corporate issuers by helping create a pricing benchmark. Another factor that is likely to spur Saudi sukuk issuance in the medium term is the Capital Market Authority’s plan to reform the corporate debt market, including measures to make regulatory approval of debt products easier. The main factor likely to slow or limit sukuk growth is higher initial costs compared to other forms of borrowing.

Saudi Arabia's Al Othaim Real Estate and Investment Co, owner of five shopping malls in the kingdom, has revived plans to issue a debut local currency Islamic bond, probably after the summer. The firm has picked the investment banking arms of Banque Saudi Fransi, Gulf International Bank and National Commercial Bank as lead arrangers for the riyal-denominated bond. Timing is now centred on issuing after the summer, as activity in the Saudi capital markets slows down for the holy month of Ramadan, expected to start later this month, and then the long summer break away from the desert heat. After a slow start to the year, sukuk issuance in the riyal-denominated market has picked up in recent weeks.

The Thomson Reuters Global Sukuk Index is at 118.04136 points, down from 118.42537 at the end of last month but up from 115.79726 at the end of last year. The Thomson Reuters Investment Grade Sukuk Index is at 116.78976 against 117.32893 at end-May and 113.69014 at end-2014. Sukuk in the pipeline include: Malaysian mortgage lender Cagamas still hopes to issue sukuk this year off a $2.5 billion multi-currency programme set up last November, but foreign exchange volatility is hampering any issue in U.S. dollars. Shareholders of Qatar's Barwa Bank approved plans for a $2 billion senior unsecured sukuk programme that could be issued in various currencies. Dubai's Drake & Scull mandated five banks to arrange a series of fixed income investor meetings starting on June 4 for a potential issue of perpetual U.S. dollar sukuk.

Dubai Islamic Bank on Sunday said its $750 million sukuk issuance maturing in June 2020 carries a profit rate of 2.921 per cent and saw a strong oversubscription. The bank had held road show in London, Singapore and Kuala Lumpur for the issuance which is part of its $2.5 billion sukuk programme. The order book was driven by strong demand across the globe, and given the fact that it was oversubscribed nearly three times. Dubai Islamic Bank, First Gulf Bank, HSBC, Maybank, National Bank of Abu Dhabi, and Standard Chartered Bank acted as joint lead managers. Arab Banking Corporation, Abu Dhabi Islamic Bank, Sharjah Islamic Bank and Union National Bank acted as co-lead managers.

The annual meeting of the Islamic Development Bank began in the Mozambique capital of Maputo on Sunday that would consider a report on the Medium-Term Sukuk Program for which the bank had already allocated $10 billion. The meeting will also consider the progress made so far in the implementation of its member country partnership strategic program; 20 member countries have so far signed up with the bank. In line with the four day official event, various activities will be organized on Thursday, one of which is a private sector forum where Islamic Corporation for Insurance of Investments and Export Credits will present the importance of export credit and investment insurance in Africa.

Volatile currency markets could hamper Malaysian mortgage lender Cagamas Bhd's plans for its first foreign currency sukuk, the state-backed firm's chief executive Chung Chee Leong said. In November, Cagamas set up a US$2.5 billion (RM9.2 billion) programme to issue multi-currency sukuk in an effort to broaden its investor base. Chung said that at this moment, dollar was just not attractive, adding that US dollar issue was still the most likely option. He hopes the issue could still come this year. Asked about expansion plans, Chung said Cagamas was not working on opening subsidiaries in other countries, but would rather aim to take on loans that Malaysian lenders made outside the country through their Malaysian offices.

Drake & Scull International (DSI) announced it has mandated five banks for an issue of perpetual USD sukuk, subject to market conditions. Emirates NBD Capital and HSBC have been mandated as joint global coordinators, and Al Hilal Bank, Emirates NBD Capital, HSBC and Standard Chartered Bank as joint lead managers to arrange a series of fixed income investor meetings in the Middle East and Europe commencing on 4 June, 2015. DSI reported $302m (AED1.11bn) in revenues and $7.6m (AED27.8m) in net profit in Q1 2015. DSI's order backlog closed at $375m (AED13.8bn) as of March 31, 2015.

Shareholders of Qatar's Barwa Bank approved plans for a $2 billion senior unsecured sukuk programme that could be issued in various currencies, the lender said in a statement on Tuesday. The Islamic bank did not specify a timeframe or size for a potential debut deal. It also received approval to pay a cash dividend of 10 percent to shareholders, the statement said.

TH Plantations Bhd has issued RM1bil of sukuk murabahah to parent company Lembaga Tabung Haji (LTH) to raise funds for its subsidiaries to repay their bridging loans. The RM1bil sukuk is part of the sukuk murabahah programme of up to RM1.2bil in nominal value set up by its unit, THP Suria Mekar Sdn Bhd, with LTH. RHB Investment Bank Bhd has been appointed as the principal adviser, lead arranger, facility agent and lead manager for the sukuk programme. In separate announcements, TH Plantations said it had appointed as directors LTH deputy group managing director and chief executive officer Datuk Johan Abdullah, Datuk Md Yusop Omar and Datuk Shari Osman.

The new 10y INDOIS 25 4.325% issued this month was oversubscribed 3.4 times (x) vs. 10y INDOIS 24 4.35% was at 6.82x. Another example is the Hong Kong sukuk that was issued this week (5y GBHK 20 1.84%) had a bid-to-cover (BTC) of 2x compared to its inaugural sukuk was oversubscribed at 4.7x. We believe the slower orders could partly be due to some liquidity tightening expectation later this year or in 2016 from lower oil prices and/or US Fed rate hike. We also see a similar trend in GCC issuers. We opine geopolitics, liquidity pressures, low oil prices and rate hike expectations may slow demand in 2015, but will remain within a healthy range.

Looking forward, market conditions should continue to support growth but we also need to consider what structural changes will add depth to the GCC market and assist it in moving to the next level. To date key drivers of the sukuk market growth have included the need for banks’ to prudently manage funding risks and address changing regulatory requirements. Non-bank issuers have followed suite to diversify their funding sources and access cheaper financing. The current trend of influential factors should continue to be supportive for the GCC sukuk market. However, there are additional factors that must be addressed like improved public disclosure by issuers, improving investor knowledge and sukuk market liquidity.

Asian sukuk offerings are drawing more demand from the Middle East, boding well for regional hubs such as Hong Kong as they try to raise their profiles in the Islamic finance market. When the Government of Hong Kong issued a $1bn five-year sukuk last week, 42% was allocated to the Middle East, up from 36% for the borrower's debut Islamic bond last September. Middle-Eastern buyers also snapped up 56% of a five-year $500 million offering by Indonesian airline Garuda Indonesia. The momentum in Asian sukuk offerings is raising hopes that Hong Kong will be able to achieve its goal of stimulating more Islamic issuance from the city. Alexi Chan, HSBC's global co-head of debt capital markets believes the time is right for issuers from Greater China to consider the sukuk market as a viable option in a diversified funding approach.

The Thomson Reuters Global Sukuk Index is at 118.42537 points, down from 118.50812 at the end of last month but up from 115.79726 at the end of last year. The Thomson Reuters Investment Grade Sukuk Index is at 117.32893 against 117.54139 at end-April and 113.69014 at end-2014. Some of the sukuk in the pipeline are: The Turkish Treasury said in late May it would issue local currency sukuk in August with volume of 1.5 billion lira ($563 million). Saudi Binladin Group began marketing a 364-day sukuk issue to local investors in the kingdom which could raise up to 1 billion riyals ($265 million). Abu Dhabi Islamic Bank will ask shareholders on June 21 to approve an increase in the size of its Tier 1 sukuk programme to $3 billion from $2 billion.

Upside for sovereign Sukuk issuance in countries in the Gulf Cooperation Council is limited in 2015, in Standard & Poor's Ratings Services' opinion. The rating agency expects that lower oil prices will lead to fiscal deficits in some countries in the GCC, but nonetheless most governments' net asset positions will likely remain strong enough to enable their financing. Most sovereign Sukuk issues will relate to essential infrastructure projects and refinancing needs. Government-related entities' (GREs) financing activity, the availability of large government assets, and healthy liquidity in the banking sector all limit the linkage between changes in oil prices and the potential for sovereign Sukuk issuance, according to S&P.