Just as we predicted, the collapse in the price of oil is making itself felt in the market for Shariah finance’s favorite instrument: sukuk, also known as Islamic bonds or Shariah bonds.
This happened before in 2008-2009.
The sukuk bubble may be bursting…
Tumbling oil prices are battering Bahrain’s Shariah-compliant bonds.
The Gulf nation’s dollar-denominated sukuk that mature in 2018 have dropped 1.3% since the end of September, compared with an average 0.8% gain for more than 30 Islamic sovereign dollar bonds tracked by Bloomberg. Only the five-year $1bn sukuk issued by Pakistan have performed worse.
The decline underscores how oil’s 45% slide since last year is hurting a country where Standard & Poor’s estimates crude accounts for 65% of fiscal revenue and yet has oil reserves that are less than 0.1% of neighbouring Saudi Arabia’s. The retreat threatens to jeopardise some of the $30bn of infrastructure projects the government is planning to sustain economic growth, according to Commerzbank.