Commentary by RHB Global Sukuk Markets Research, Kuala Lumpur, Malaysia

Highlights and Performance

Bloomberg Malaysia Sukuk

Bloomberg Malaysia Sukuk Ex-MYR Total Return (BMSXMTR) and Dow Jones Sukuk Total Return (DJSUKTXR) indices ended relatively  flat at 103.9 (+0.02%) and 159.8  +0.01%) respectively, with yields  tightened marginally by 0.6bps to 2.470%. Combined with the Fed‘s  dovish meeting (June 15), uncertainty over the Brexit referendum jitters (June 23) and mixed signals from China over slowing economy bring the risk-adverse sentiment. The top performers over the week were INDOIS 3/26 and GS 9/19, which moved -11bps to -13bps; while the underperformers were dominated by banking papers — EIB 1/17, Noor Bank B3T1 and DIB B2T1 which widened 12bps each.

Bank Indonesia

Bank Indonesia (BI) cuts key policy rates by 25bps in a surprise move, with the BI rate, deposit facility rate and 7-day reverse repo rate now stand at 6.50%, 4.50% and 5.25% respectively. In addition to the rate cut, BI also raised the minimum threshold on loan-to-funding ratio to 80% from 78%. Indonesia risk premiums widened 1.5bps to 196.0bps.

Elsewhere, Saudi Arabia missed out on MSCI emerging markets status as MSCI stated easier access for foreign investors is needed, as its CDS widened 4.4bps to 185.5bps. Similarly, Turkey CDS added 9.6bps to 264.0bps which was led by lower government budget balance of TRY3.7bn in May-16 from TRY5.4bn in Apr-16; and high unemployment although it edged down slightly to 10.1% in Mar-16 from 10.9% in Feb-16. Consensus expect further monetary easing by the Central Bank of Turkey (CBRT) will not be warranted on this June 21 meeting.

Sukuk Ratings Updates from Moody’s

On ratings, Moody’s upgraded Emaar Sukuk’s rating to Baa3/Sta from Ba1 to reflect ownership in mature recurring-revenue assets (which contributed about half of Group‘s EBITDA in 2015), substantial property sales backlog of AED40.3bn, access to sizeable 27m sqm land bank and robust liquidity. Moody’s also upgraded EIB Sukuk Company’s rating to A3/Sta followed by the same revision on its guarantor — Emirates NBD‘s rating.

In the MYR space, Bank Rakyat issued MYR300m 10nc5 B3T2 at 4.95% via Mumtaz Rakyat Sukuk (RAM: AA3), while TSH Sukuk (MARC: AA-) printed 5y at 5.10% and 7y at 5.30% on combined MYR150m. Meanwhile, Islamic Development Bank (MARC: AAA) plans to issue MYR400m Sukuk Wakalah through Tamadun Services Bhd (MARC: AAA).

Sukuk Issuance 20.06.16