Bank Of London And The Middle East Sees Gulf Sukuk Issuance Picking Up

Bank of London and The Middle East (BLME) expects Islamic bond issuance to pick up in the Gulf next year as companies refinance maturing debt in a strong economic climate, its chief executive said.

During the first nine months of 2013, global sukuk issuance in all currencies fell by over a quarter to $79 billion from $109 billion a year ago, Thomson Reuters data shows. The prospect of the US central bank cutting back its monetary stimulus has widened spreads and put some issues on hold.

But Humphrey Percy, who heads Europe’s largest stand-alone Islamic bank, said scheduled sukuk maturities in Gulf Arab countries next year would trigger a flurry of fresh issues. Many of the new sukuk would be larger than the instruments they replaced.

“There’s a lot of issuance which has maturities in 2014, and that I suspect is going to give more prominence to the market,” Percy said in an interview.

“They will refinance, and with progress in the economic situation, they will refinance to a larger extent. So we expect issuance to increase.”

BLME’s assets under management include a $65 million sukuk fund rated A by Moody’s Investors Service, an unusually high rating for a group of sukuk.

Percy also predicted that because of rising economic confidence in the Gulf, tenors of newly issued sukuk would tend to become longer, with some moving out towards seven years from the five-year tenors which have dominated in recent years.

London-based BLME, which provides corporate banking and wealth management services, expanded its global staff by about 10 percent to 100 people this year and expects similar growth in staffing next year, Percy said.

“We’ve gone out recruiting people rather than buying businesses, and that will probably continue.”

The bank opened a Dubai representative office in the third quarter of this year. Traditionally it has used the United Arab Emirates and the Gulf mainly as a source of liquidity for its British business, but it is now increasingly joining transactions in the Gulf and steering deals to other institutions in the region, Percy said.

In October it listed its shares on Nasdaq Dubai, becoming the first new listing in Dubai for over four years as the stock market recovers from the global financial crisis. BLME shares have not yet traded on the exchange, which Percy attributed to a lack of analyst coverage that would be rectified after the bank released its 2013 results.

BLME was founded in 2006 by Kuwait’s Boubyan Bank and Percy, who had over 20 years of international experience at conventional banks. While all of BLME’s operations are sharia-compliant, many of its Western clients are not motivated by religious considerations.

Instead, they are keen to diversify their exposure and open to new funding structures such as those offered by Islamic finance after the global financial crisis shook up their existing arrangements, Percy said.

BLME’s balance sheet grew to 1.04 billion pounds ($1.7 billion) at the end of last year from 807 million pounds in 2011. The bank’s main shareholder is Boubyan, which last month raised its stake to 25.6 percent.