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U.S., Canadian firms eye Malaysian bond market

Mon Feb 4, 2008 8:28am EST

By John Irish

DUBAI (Reuters) – North American corporates are set to sell Islamic bonds in Malaysia this year as they seek to tap excess liquidity in emerging markets, while sales in the Gulf could reach $20 billion in 2008, a Deutsche Bank executive said.

“We are working on a couple of issues from really international companies, with brand name, rated and listed on the S&P 500,” Geert Bossuyt, managing director, regional head of Middle East structuring at Deutsche Bank (DBKGn.DE: Quote, Profile, Research), told the Reuters Islamic Finance summit on Monday.

U.S. and Canadian firms could sell Islamic bonds, or sukuk, worth between $300 million to $500 million in the equivalent Malaysian ringgitt, he said, declining to name the companies.

“It will not solve their financing issues, but they want to set a benchmark to tap those markets in the future,” Bossuyt said.

Non-Gulf Arab firms — hit by a credit crunch triggered by defaults on U.S. home loans last year — could also look to sell bonds in the Gulf, the world’s top oil exporting region, to tap a flood of cash from a quadrupling in oil prices since 2002, he said.

The volume of Islamic bond sales from Gulf issuers could reach as much as $20 billion this year, Bossuyt said, adding that he expected the market to pick up in the second half of the year with the fourth quarter the most promising.

“I think some issuers don’t have the luxury to wait,” he said. “It will come in intensive periods when there is a window of opportunity,” he said.

The United Arab Emirates, through quasi-government enties, was likely continue to lead the way, although issuance from Qatar and Kuwait would rise this year.

Demand in Islamic derivatives, such as sharia-compliant hedge funds, will also increase towards the end of the year.

“There is demand from ultra high-net worth individuals that are used to conventional hedge funds, but have a preference to do them in an Islamic way,” he said.

The structuring of the products and credibility of certain hedge fund managers still needed to be defined to be taken up more widely.

“2008 could see the new birth of Islamic hedge funds,” he said. “The market is ready … demand is there, but it won’t be easy. “We’re almost there with reasonably big names and investment banks, including Deutsche.

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