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

Highlights and Performance

Bloomberg Malaysia Sukuk

Ex-MYR Total Return (BMSXMTR) and Dow Jones Sukuk Total Return (DJSUKTXR) indices were relatively flat at 103.8 (+0.15%) and 159.9 (+0.29%) respectively, with yields rising 3.0bps to 2.43% with top gainers being MALAYS 4/25-4/26, and AXIATA 3/26. Brent oil jumped to USD47.8/bbl (+5.4% WoW), due to unexpected decline in US crude inventories (3.4m barrels) and concerns over supply disruptions in Nigeria and Canada. Meanwhile, Saudi Arabia, Oman and Bahrain were downgraded by Moody’s due to weaker credit profile expected from cheap oil, while the Aa2 ratings of Kuwait, Qatar, UAE and Abu Dhabi were affirmed but outlook remains negative. Looking ahead, focus will be on the minutes of FOMC’s April meeting (19 May), as well as Bank Negara Malaysia’s (BNM) and Bank Indonesia’s (BI) interest-rate decisions (19 May) which are expected to remain unchanged.

Malaysia GDP

Malaysia’s 1Q GDP grew moderately to 4.2% (4Q15: 4.5%), led by 5.3% growth in private consumption despite high base effects from frontloading of purchases prior to the GST implementation. The slower growth appears in line with other data received last week — 1Q current account surplus narrowed to MYR5.0bn from MYR10.5bn in 4Q15, and industrial production growth fell to 2.8% in March from 3.9% in February. Malaysia CDS narrowed 4.7bps to 158.5bps. On the other hand, Turkey’s CDS widened by 5.9bps to 270.8bps due to concerns over the political environment in Turkey, weaker current account balance (March: – USD3.7bn; Feb: -USD2.0bn) and industrial production growth (March: 2.9%; Feb: 5.9%). Indonesia recorded a narrower current account deficit of USD4.7bn in 1Q16 from USD5.1bn in 4Q15, with its CDS trading at 187bps (-6.6bps).

GCC Sukuk

Ezdan Holding (Ba1/BBB-/NR) sold USD500m 5y senior sukuk at 4.375% (MS+337.5bps) with a 1.6x BTC, pursuant to its USD2bn Trust Certificate Issuance Programme to finance current real estate  development projects; while Boubyan Bank (Baa1/NR/A+) priced USD250m AT1 Pc5/21 at 6.75% (MS+558.8bps) with BTC of 5x.

Sunrise Murabahah

UEM Sunrise (MARC: AA-) priced MYR500m 7y sukuk Murabahah at 5.0%. Turning to ratings, RAM assigned preliminary AAA/Sta and AA3/Sta to Al Dzahab Asset’s MYR95m Class A sukuk and MYR25m  Class B sukuk which are backed by RCE Marketing’s personal-financing facilities and to be repaid through non-discretionary salary deductions.