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WELCOME Flexible Business Solutions Company (FBS Ltd) is an independent, international consulting company providing solutions and globally integrated services to the international banking industry. FBS promotes and enhances the soundness and stability of the Islamic financial services industry by introduction innovation programs and guiding principles for the industry broadly defined to include banking and capital markets.

IFN Weekly Poll: With the current market climate, will we see more players trying to achieve a negative yield on their Sukuk issuance this year?

As the Sukuk market starts picking up again, one cannot help but wonder what kind of unique and innovative offerings the market would see this year. One of the interesting Sukuk deals we have seen over the past year is negative yield Sukuk offerings. On the back of a rising interest in negative yield bonds in the conventional space and the hazy forecast of the global financial landscape, IFN asks the industry if more issuers would try to achieve a negative yield on their Sukuk offerings this year. NABILAH ANNUAR reports.

Said to be an anomaly in the global capital markets, negative yield bonds are starting to become a trend in the conventional scene. Bonds in Europe in countries such as Germany, Finland, Australia, the Netherlands, Sweden and Denmark were trading at negative yields – something that the industry did not expect to see, ever. Nevertheless, although trading at a negative yield, there is still a strong demand for the issues.

According to a recent report by CNBC, the wire relayed that there are six types of investors who buy into these bonds, according to JPMorgan: (1) traders, as even negative-yield bonds can look attractive if expected deflation turns the real yield into a gain; (2) those who buy negative yield to make a bet that some currencies will appreciate; (3) buyers who are betting that the bond price will rise further, spurred by additional interest rate cuts from central banks or quantitative easing as many investors have already seen strong capital gains; (4) institutional investors such as central banks who are already saying its quantitative easing program will include negative-yield bonds; (5) index funds such as bond exchange-traded funds who have limited investment options; and (6) financial institutions such as banks and insurers who are said to be making the best out of a bad situation, buying negative-yield bonds to get a less negative yield.

The first negative yield Sukuk was documented in 2013 when Malaysian sovereign wealth fund, Khazanah Nasional, managed to secure a negative yield on its SG$600 million (US$437.88 million) exchangeable Sukuk. The securities were exchangeable into ordinary shares of IHH Healthcare, one of the world’s largest healthcare providers by market capitalization. Offering exposure to the rapidly growing healthcare sector, the issuance was engineered in such a way that it provided greater flexibility for Khazanah to use various types of assets including shares and allowing for the disposal of shares in a progressive and orderly manner.

The sovereign fund is, according to IFN records, the only issuer in Islamic industry that made such an issuance. Its Sukuk was five times oversubscribed attracting investors from Asia and Europe. Echoing this positive sentiment, the IFN poll results this week showed an optimism for negative yield Sukuk; 64% believed that the Islamic capital market would see more negative yield offerings this year. Perhaps with investors becoming more familiar with such certificates, seeing it as a viable investment option, this premise could potentially be true. As global financial markets remain volatile in certain regions, it is more likely for negative yield bonds to become a norm in the near future.

Added:30 March, 2015 06:11, Views:958, ]]>Print]]>
 
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