According to Mohieddine Kronfol (pictured left), managing director of Algebra Capital, a Dubai-based investment firm, pricing of Bahrain’s $750m, five-year sovereign sukuk (Islamic bond) issue–which is being managed by Calyon S.A., Deutsche Bank and HSBC and is expected to yield somewhere 340-350 basis points above similar maturity U.S. Treasuries–is on the “low end of expectations” and will thus limit liquidity. Abu Dhabi’s conventional April issuance yielded 400 points, for instance. “It would have been better had they left some juice in there to attract a wider audience,” he said, adding that more generous pricing would have helped to ensure secondary trading and liquidity “for the long-term interest of the region.” Yet critique of the pricing aside, Kronfol did admit that “the issue would be a success regardless the pricing, as Islamic banks in the region have enough liquidity to absorb it.” He also told Bloomberg that Algebra, which manages a fund dedicated to Islamic bonds, is investing in the issue.

Bahrain’s sukuk is the first Islamic sovereign issue from the Persian Gulf region this year. According to S&P, global sukuk markets fell by roughly 56% last year from 2007, down to to $14.9bn. Experts note that a mature sovereign bond market in the Gulf is needed to help serve as a benchmark for corporate issuers who, upon seeing adequate movement in the sovereign markets, can feel relatively secure in issuing higher-yielding paper with which to raise cash.


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