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Indonesian and Malaysian Islamic bonds are diverging as cheaper oil has opposite impacts on fiscal budgets. The yield on Indonesia’s US dollar Sukuk due 2022 fell to a 21-month low of 3.72 per cent in February, while Malaysia’s 2021 debt yield climbed to 3.05 per cent. Default risk for Indonesia has dropped nine basis points this year to 148, while that for Malaysia rose 15 to 121 just as both nations plan US currency global offerings before the Federal Reserve starts raising interest rates. Barclays Plc forecast a sovereign credit upgrade for Indonesia after an overhaul of a decades-old fuel-subsidy program last month. Malaysia, the region’s only major crude exporter, is contending with a drop in revenue and a higher budget-deficit target, prompting Fitch Ratings to warn of a possible rating downgrade.

The Malaysia-based International Islamic Liquidity Management Corp (IILM) will hold two auctions next week to issue a combined $990 million worth of sukuk, under a programme that is now authorised to issue $3 billion in short-term paper. The IILM will auction $490 million worth of three-month sukuk and $500 million of six-month sukuk next Tuesday. It is only the second time the IILM has issued six-month paper. The IILM programme, rated A-1 by Standard and Poor's, has $1.85 billion worth of sukuk currently outstanding. Its sukuk programme permits maturities of up to one year.

The Thomson Reuters Global Sukuk Index is at 117.18203 points, down from 117.48601 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 115.24315 against 115.34912 at the end of January and 113.69014 at end-2014. The sukuk in the pipeline include: Jordan Islamic Bank plans a 10-year local currency sukuk issue by year-end. The Turkish Treasury said it would issue two-year, lira-denominated sukuk on Feb. 18 in volume of 1.8 billion lira ($736 million). Abu Dhabi Islamic Bank plans to issue capital-boosting Islamic bonds in Malaysia. Qatar International Islamic Bank is seeking shareholder approval to raise up to 3 billion riyals ($825 million) through a capital-boosting sukuk issue.

Malaysia reportedly plans to tap the global Islamic bond market for the first time in almost four years. Banks have been asked to submit proposals for a dollar-denominated debt offering. Malaysia will become the first sovereign to tap the overseas Islamic bond market this year and Indonesia also plans an offering. Malaysia’s state-owned Petroliam Nasional Bhd. is seeking to sell a dollar Sukuk of as much as $7 billion. Malaysia last tapped the market in 2011, when it sold $2 billion of Shari’ah-compliant notes with maturities of five and 10 years. The yield on the 2.991 percent securities due in 2016 has climbed to 1.4 percent from 2014’s low of 0.98 percent.

Bahrain-based Al Baraka Banking Group is planning on issuing its first sukuk for its Jordanian unit later this year, chief executive Adnan Ahmed Yousif said. Jordan Islamic Bank is planning a 10-year local currency sukuk by year-end, said Yousif, without giving a size for the transaction. This would mirror deals by Al Baraka units in Pakistan and Turkey which have allowed them to boost regulatory capital as Basel III global banking standards are being phased in around the globe. In December, Jordan Islamic amended its articles of association to allow it to both issue and buy sukuk, as well as to establish special purpose vehicles for such transactions. Al Baraka is also planning a sukuk for its South African unit this year, said Yousif.

Liquidity management has become easier for Islamic banking institutions as well as for the State Bank with the Sukuk-backed open market operations gaining momentum. The central bank has so far conducted about a dozen Sukuk OMOs since the introduction of this concept in October 2014 and IBIs have responded to it in good spirit. Central bankers say holding of OMOs using Islamic financial concept of Bai-Muajjal is but one component of a broader plan for better liquidity management. The plan, drawn up after seeking inputs from stakeholders, also envisages establishment of a discount window for IBIs later this year. But in addition to several other things, IBI’s want of interest in human resource building also impedes fast-tracking of the planned moves for this purpose.

The Gulf Bond and Sukuk Association (GBSA), the trade association representing the Arabian Gulf fixed income market, has endorsed proposed standard language for collective action clauses and pari passu clauses for sovereign bond contracts. The language would enhance the predictability and orderliness of sovereign debt restructurings by bolstering existing "collective action clauses" through the introduction of a single vote mechanism that would bind all bondholders to a restructuring proposal, as long as 75 percent of bondholders vote in favor. The documents and further information are available on the website of International Capital Market Association: www.icmagroup.org/resources/Sovereign-Debt-Information/

The date for the Kazan Sukuk Conference has been shifted to Thursday, April 9, 2015. The location of the conference will remain the same, the 5-star Mirage Hotel in Kazan, Tatarstan, Russia. This change was made according to the desire of participants and speakers of the Conference. The Conference brings together over 100 representatives of the Russian government, regulators, business entities and international sukuk market players to discuss sukuk structures and their application, jurisdictions and platforms for sukuk issuances, investment projects and underlying asset pools, regulation and Sharia issues. To get more information about the event please visit: www.kazansukuk.ru.

Funding for infrastructure projects will be the driver for sukuk issuances this year, says CIMB Islamic Bank chief executive officer, Badlisyah Abdul Ghani. He said the sukuk issuance in 2015 could emulate the peak of 2012, if all planned infrastructure projects such as My Rapid Transit, the Pan-Borneo highway and Kuala Lumpur-Singapore high speed train venture come on stream. Badlisyah said for the market to be sustainable, more mid size offerings of between RM1 billion and RM2 billion are needed, as compared to a single mega size issuance of RM20 billion. Meanwhile, on CIMB Islamic,Badlisyah said the bank is currently working on a few sovereign deals which are expected to come on stream in the middle of this year.

The Thomson Reuters Global Sukuk Index is at 117.48601 points, up from 115.79726 at the end of last year. The Thomson Reuters Investment Grade Sukuk Index is at 115.34912 against 113.69014 at end-2014. Some of the sukuk in the pipeline are: Ivory Coast plans to make a debut 200 billion CFA franc ($340 million) sukuk issue in 2015. Qatar Islamic Bank plans to raise up to 2 billion riyals ($549 million) through a capital-boosting sukuk issue. The Islamic Corporation for the Development of the Private Sector plans to tap Islamic capital markets to raise as much as $1.2 billion in long-term funds during its current financial year.

Tunisia was once one of Africa's most sophisticated and prolific bond issuers, selling bonds denominated in euros, dollars and yen, and later this year it is expected to issue its first Islamic government bond. International investors keen to capitalise on the country's recent presidential elections put in orders of more than $4bn for the $1bn bond, allowing the country to borrow at a lower than expected rate of 5.875 per cent over 10 years.

The Thomson Reuters Global Sukuk Index is at 116.87897 points, up from 115.79726 at the end of last month. The Thomson Reuters Investment Grade Sukuk Index is at 114.80806 points against 113.69014 at end-December. The sukuk in the pipeline include: Ivory Coast plans to make a debut 200 billion CFA franc ($340 million) sukuk issue in 2015. International Bank of Azerbaijan also plans to issue $200-300 million of debut sukuk this year. Malaysia's UniTapah Sdn Bhd plans to issue up sukuk murabaha of up to 600 million ringgit. Kenya will issue its debut sukuk in the next financial year to June 2016.

Emerging headwinds could slow progress in the global Sukuk markets compared to 2014, even though 2015 is likely to be a solid year overall. Supporting Sukuk issuance is the still-positive economic performance of core markets such as the GCC and Malaysia, the implementation of new regulatory requirements, and increasing interest in Sukuk from countries that have not yet tapped the Sukuk market looking to diversify their investor base. However overall issuance volumes could be lower in 2015 as a result of reduced global liquidity should the US Federal Reserve begin increasing interest rates in the 2nd half of 2015. Lower oil prices also pose a threat to issuances.

Qatar Islamic Bank ( QIB ) plans to raise up to 2 billion riyals ($549.4 million) through a capital-boosting sukuk. Qatar's largest sharia-compliant institution by assets announced the sukuk after reporting fourth-quarter net profit that was up an estimate-beating 30.4 percent year on year. On Sunday QIB said that its board had proposed a Basel III-compliant Tier 1 sukuk worth up to 2 billion riyals, subject to shareholder and regulatory approval. QIB's total capital adequacy ratio, a combination of Tier 1 and Tier 2 capital, stood at 14 percent at the end of 2014, against a 12.5 percent minimum prescribed by Qatar's central bank.

Malaysia-based International Islamic Liquidity Management Corp (IILM) has reissued $860 million worth of three-month Islamic bonds. The auction drew 11 bids worth $1.065 billion, with the sukuk priced at a profit rate of 0.553 percent. The IILM last went to the market in November when it increased its outstanding sukuk programme, rated A-1 by Standard and Poor's, to $1.85 billion from $1.65 billion. IILM sukuk are designed to meet a shortage of highly liquid, investment-grade financial instruments which Islamic banks can trade to manage their short-term funding needs.

The Thomson Reuters Global Sukuk Index is at 116.70135 points, up from 115.79726 at the end of last month. The Thomson Reuters Investment Grade Sukuk Index is at 114.76183 points against 113.69014 at end-December. The sukuk in the pipeline include the following: Bank Islami Pakistan plans to raise 3.5 billion rupees ($34.8 million) via subordinated sukuk. Turkiye Finans received regulatory approval for a 71 million lira sukuk issue by trailer manufacturer Tirsan Treyler Sanayi ve Ticaret. Malaysia Building Society Berhad is planning a second issuance of its structured covered sukuk commodity murabaha programme, aiming to raise up to 700 million ringgit. Oman's government will make its first issue of rial-denominated sukuk for the domestic market as soon as in the first quarter of 2015.

Bank Islami Pakistan aims to raise Rs3.5 billion ($34.8 million) via subordinated sukuk. With Basel III global banking standards being introduced around the globe, several Islamic banks have issued such capital-boosting instruments, including those in Turkey, Malaysia, Saudi Arabia and the United Arab Emirates. Last week, Bank Islami’s board of directors approved a plan to raise Tier 2 capital in tranches of Rs500m to help fund its expansion, the Karachi-based lender said in a bourse filing.

Nasdaq Dubai said on Wednesday flydubai listed its $500 million (Dh1.8 billion) sukuk on its exchange. This is the 18th Sukuk to have listed on Nasdaq Dubai since the beginning of 2014. The emirate is one of the three largest venues in the world for Sukuk listings, with current nominal value on its two exchanges totalling $24.05 billion. The sukuk saw a geographic distribution of 64 per cent to Middle East accounts, 25 per cent to European accounts, 7 per cent to Asia, and 4 per cent to US offshore.

The first sukuk auction this year, held on Tuesday, attracted incoming bids of Rp 13.7 trillion (US$1.1 billion), representing a more than sixfold oversubscription, with the government having set an issuance target of Rp 2 trillion. In comparison, incoming bids in the previous sukuk auction on Oct. 21 barely reached Rp 3.5 trillion. In response to the high demand, the Finance Ministry then decided to upsize the issuance, selling Rp 6.8 trillion of sukuk bonds. Nevertheless, the government will first assess upcoming auction results before deciding to raise more financing from sukuk this year. The high demand could be a seasonal phenomenon due to the market’s long closure for the year-end holiday.

Pakistan Mobile Communications (Mobilink) plans to raise Rs6.9 billion ($68.6 million) via Islamic bonds this quarter. The sukuk will help fund the network expansion of Mobilink, a subsidiary of Global Telecom Holding, and majority-owned by Russia’s VimpelCom. The credit guarantee will be extended by Mauritius-based GuarantCo, a specialised financial guarantor, indirectly owned by the development agencies of Britain, Switzerland, Sweden and the Netherlands. Credit guarantees for sukuk are rare because of the profit-sharing nature of Islamic finance, but they could prove to be an important development, attracting a wider range of corporate and sovereign issuers to the Islamic bond market.