Islamic bonds have rallied in the UAE in recent weeks, spurred on by low yields of corporate and treasury bonds around the world and returning demand from global investors for Sharia-compliant finance. Analysts said investors were looking to high-yield alternatives to corporate bonds in the US and Europe, where markets have sunk on traders fears over deflation and a possible double-dip recession.
Demand for Islamic bonds, or sukuk, fell sharply following Dubai World's restructuring, but is now recovering. "Bonds have been recovering nicely post the Nakheel restructuring," Skander Chabbi, a fund manager at DWS Investments in Frankfurt, told Bloomberg. Two of the strongest performers have been Aldar Properties and Dana Gas, both of which have seen increased demand for their convertible Islamic bonds.
Dana Gas's 7.5 per cent bonds due in October 2012 yielded 10.78 per cent yesterday, down from a yield of 13.6 per cent on June 30. Meanwhile, yields on 5.767 per cent sukuk issued byAldar Propertiesdue for repayment in November next year fell to 7.339 per cent. Bond prices are inversely correlated to yields, meaning that the total percentage or "yield" received on an investment rises when the price of a bond falls.
A decrease in yields tends to indicate increased demand from investors. Interest payments are prohibited under Sharia law, so sukuk are instead backed by assets. This lack of interest payments is a key concern to bond investors in developed markets, who are wary of incurring heavy losses when central banks in the US and Europe raise interest rates, currently at historic lows. Ten-year US treasury bonds, traditionally seen as a haven by investors, are currently yielding 2.64 per cent.
Meanwhile, the average redemption yield of the FINRA-Bloomberg Investment Grade US Corporate Bond Index currently stands at 4.43 per cent, which analysts attribute to continuing uncertainty about the strength of economic recovery. "Are we seeing a compression of yields because everyone is pricing in slow growth or a double-dip recession? The answer is yes," said Ahmad Alanani, a fixed-income specialist at Exotix, a London-based boutique investment firm. While corporate bond returns have dwindled, yields on debt sold by Aldar Properties have soared on speculation that the Abu Dhabi Government will step in to repay the company's mounting debts.
Aldar is expected to announce how it will finance a Dh6 billion (US$1.63bn) funding gap. Majed Azzam, an analyst at HC Securities, said a consensus had emerged that despite Aldar's credit rating having been cut to junk status, its bonds were still a safe bet. "At the end of the day, everyone knows that this is a quasi-governmental company and you should fairly assume that similar support should come forward," he said.
Having bailed out Dubai World, "Abu Dhabi isn't going to allow its corporates to default", he said. "It's logical that they'll do the same for their own companies." He said the fall in the value of Aldar's debt was an "overreaction by the market" after the Dubai World crisis. Dana Gas had also been "unfairly punished" by markets after the Dubai World restructuring, Mr Alanani said. "We've started to see demand in Dana Gas increase quite substantially."
gregor.hunter@thenational.ae
UAE currency: the story behind the money in your pockets
Company: Instabug
Founded: 2013
Based: Egypt, Cairo
Sector: IT
Employees: 100
Stage: Series A
Investors: Flat6Labs, Accel, Y Combinator and angel investors
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The White Lotus: Season three
Creator: Mike White
Starring: Walton Goggins, Jason Isaacs, Natasha Rothwell
Rating: 4.5/5
Election pledges on migration
CDU: "Now is the time to control the German borders and enforce strict border rejections"
SPD: "Border closures and blanket rejections at internal borders contradict the spirit of a common area of freedom"
Skewed figures
In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458.
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
Correspondents
By Tim Murphy
(Grove Press)
How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
The%C2%A0specs%20
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A MINECRAFT MOVIE
Director: Jared Hess
Starring: Jack Black, Jennifer Coolidge, Jason Momoa
Rating: 3/5
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Real estate tokenisation project
Dubai launched the pilot phase of its real estate tokenisation project last month.
The initiative focuses on converting real estate assets into digital tokens recorded on blockchain technology and helps in streamlining the process of buying, selling and investing, the Dubai Land Department said.
Dubai’s real estate tokenisation market is projected to reach Dh60 billion ($16.33 billion) by 2033, representing 7 per cent of the emirate’s total property transactions, according to the DLD.
Ms Yang's top tips for parents new to the UAE
- Join parent networks
- Look beyond school fees
- Keep an open mind
HOW TO WATCH
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NO OTHER LAND
Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
Women%E2%80%99s%20Asia%20Cup
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Company%C2%A0profile
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The specs
Engine: Four electric motors, one at each wheel
Power: 579hp
Torque: 859Nm
Transmission: Single-speed automatic
Price: From Dh825,900
On sale: Now
Champions League Last 16
Red Bull Salzburg (AUT) v Bayern Munich (GER)
Sporting Lisbon (POR) v Manchester City (ENG)
Benfica (POR) v Ajax (NED)
Chelsea (ENG) v Lille (FRA)
Atletico Madrid (ESP) v Manchester United (ENG)
Villarreal (ESP) v Juventus (ITA)
Inter Milan (ITA) v Liverpool (ENG)
Paris Saint-Germain v Real Madrid (ESP)
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
Learn more about Qasr Al Hosn
In 2013, The National's History Project went beyond the walls to see what life was like living in Abu Dhabi's fabled fort:
Cry Macho
Director: Clint Eastwood
Stars: Clint Eastwood, Dwight Yoakam
Rating:**
