By Mohammed Abbas
MANAMA (Reuters) - Greed and fear linked to the subprime debt crisis are holding back Gulf Arab Islamic bond sales, even though issuers have little to do with the bad loans that triggered the crisis, a Gulf bond arranger said.
Gulf policymakers and bankers have said the region has had little exposure to subprime debt, but sales of Islamic bonds, or sukuk, have dried up as regional investors hold back and wait for better pricing, said Ahmed Abbas, chief executive of Bahrain's Liquidity Management Centre (LMC).
"Nine out of 10 issuers can't even spell subprime," Abbas told the Reuters Islamic Finance Summit.
"I think investors are holding back because of the greed factor ... and are saying, 'We know global liquidity is scarce. I have liquidity. You dance to my tune. End of story,'" Abbas said of regional investors.
Islamic bonds comply with Islam's ban on interest, and are based on physical assets from which returns are derived and paid to bondholders instead.
Spreads for more than $15 billion of Islamic bonds on the HSBC-DIFX GCC Sukuk Index have more than doubled since June to 217 basis points on January 23.
Gulf borrowers are increasingly turning to syndicated loans for fundraising and turning away from the once red-hot sukuk market because of widening spreads and the fear that a sale of the high-profile instrument could fail, Abbas said.
"The value added from publicity is no longer there. You don't want to be seen to be paying now what you did not want to pay yesterday ... Plus, you have the possibility of failure," Abbas said. Continued...
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