SINGAPORE: Global offerings of sukuk are off to their busiest start on record this year, with bankers at HSBC Holdings Plc and Deutsche Bank AG citing the high price of oil as a driver of the vibrant issuance.

       Sales of new sukuk maturing in at least a year have touched nearly US$24bil (RM100.9bil) so far in 2022, the best start to any year, according to Bloomberg-compiled data going back to 1999.

       Saudi Arabia and Turkey were the two biggest issuers.

       Although it slid yesterday, crude is up roughly 40% this year, leaving investors in oil-producing countries, some of the biggest markets for Islamic finance, flush with cash.

       With fixed-income markets in upheaval as the United States raises interest rates, syariah-compliant debt has fared better than global bonds with investment-grade ratings, losing only 4% versus their 7% dive so far this year, according to Bloomberg indices.

       “There has been pent-up liquidity and demand for Islamic sukuk for quite a while and that, coupled with challenging market conditions overall affecting primary and secondary markets, is driving increasing interest in sukuk issuance relative to conventional bond issuance,” said Khaled Darwish, Middle East and north Africa’s head of debt capital markets at HSBC.

       The bank is the top arranger of sukuk deals this year, Bloomberg-compiled data show.

       In a world of rising interest rates, investors often favour debt with shorter maturities, which adds to the attractiveness of sukuk.

       The average duration of a note in Bloomberg’s index of global dollar sukuks is just about four years.

       That compares with more than seven years for a Bloomberg gauge of global high-grade notes in various currencies.

       “Many issuers are dynamic, with diversified funding avenues, and select to tap the market which offers strong liquidity,” said Agata Raszkiewicz, head of South-East Asia debt capital markets at Deutsche Bank.

       The popularity of sukuk “can be partly attributed to higher oil prices boosting sentiment of some Middle Eastern investors.”

       But the boom may not endure. Accelerating inflation is bad news for fixed income investors, and Russia’s Ukraine invasion has hurt appetite for emerging-market assets, Fitch Ratings wrote earlier this month.

       The commodities boom may actually hamper issuance as it reduces the need for external financing.

       Moody’s Investors Service sees lower sales in 2022 compared with last year.

       CIMB Investment Bank Bhd, a key arranger in Malaysia, the world’s largest sukuk market, isn’t quite so pessimistic.

       “Global sukuk issuance volume is expected to be flat for the remainder of 2022,” CIMB chief executive officer Jefferi Hashim said.

       Elsewhere in the credit markets: Three companies marketed dollar bonds in Asia yesterday as investors monitor whether a US plan to release crude from its reserves will help contain inflation.

       Asia ex-Japan investment-grade credit default swaps widened for a second day, the longest such streak in more than two weeks.

       Spreads on Asian investment-grade dollar bonds were flat to two basis points wider.

       Chinese high-yield dollar bonds, dominated by developers, are on track for their 10th gain in 11 sessions.

       Dollar bond issuance in Asia excluding Japan has dropped off from the week before, with sales of around US$3.8bil (RM16bil) so far this week versus more than US$9bil (RM37.9bil) the week before Americas. —Bloomberg