IFR Debt Capital Markets 2008

Raising new debt in the covered bond market over the past year has been far less simple than before the credit crisis. There was a time when vastly oversubscribed books were the norm, pricing often took place at the tight end of the proposed spread range and borrowers could access almost any maturity they needed. But despite the bear market for credit, covered bond supply has continued – at a price. Access to the market has been limited to the short end of the curve, and issuers have had to accept a marked increase in their cost of funding. However, the events of late September sent shock-waves through the sector as news that two of the largest and most important players in the covered bond market, Hypo Real Estate and Dexia, had to be rescued in a dramatic bail-out. With a combined €230bn of covered bonds outstanding, the rescue of the two institutions dealt a severe blow to the public sector covered bonds of France and Germany – the two countries that had previously shown the most stability and performance of all the covered bonds. Spreads of DexMA and the Hypo Real Estate Group moved around 50bp–80bp wider in the days following the bail-out, according to covered bond traders, with Hypo Real Estate reportedly trading in excess of 200bp over mid-swaps. It is a far cry from the mid-swaps plus 9bp funding level the bank achieved for its €1bn April 2010 Hypotheken Pfandbrief in April. Where jumbo new issue spreads of Pfandbriefe have for the most part stayed around the low single digits to mid-swaps, it will now be far more difficult and expensive for Pfandbrief issuers to raise liquid funds through the Pfandbrief product - an important cornerstone of the German capital markets. While most analysts and market-makers appeared pessimistic on spread levels, some commented that any resultant widening was in part because these jurisdictions had a fair amount of "pain deficit" to catch up on anyway. But, the problem now is more with balance sheet than price. Some syndicate officials warned that there might not be any public jumbo deals in the coming weeks, or even for the remainder of this year, if the flight to quality continues. This flight to quality no longer includes public-sector covered bonds.One possibility is that the huge widening of these jurisdictions could drag other covered bonds segments in its wake. Yet far from seeing recent events as the final nail in the coffin, covered bond professionals actually have reason to be upbeat.Not all bad newsDespite the fact that marking-to-market has been costly as a result of the widening, Dan Shane, who heads Morgan Stanley's frequent issuer syndicate, believes there have been some positives to come out of the recent situation. "When banks have got into difficulties, covered bonds have been well looked after. Once people have had a chance to reflect, they will appreciate that different products pay different spreads for a reason," he said. Adding to this sentiment, Ted Lord, global head of covered bonds at Barclays Capital, said that recent moves by governments in the US, the UK, the Republic of Ireland, Germany, France, and Luxembourg all highlight their serious support of the covered bond market. "The bank rescue actions have all had one common pattern – the one non-depository security that was supported in all of these situations is the covered bond," he said.Where securitised products – and even senior, unsecured debt in the case of the US and WaMu – have been left out in the cold, covered bonds, so far, have received immense support. But with only €5.4bn of gross covered bonds issued in September, such support may not be enough to save the dried-up market while the great unwind continues. "Before anything else, we need to re-establish the money markets and the CP market. Until we get the basic liquidity back, the rest is academic," said Tim Skeet, head of covered bonds at Merrill Lynch. "Since covered bonds have proven themselves to be significantly less risky, and government

Since July 2007, the international bond markets have had limited appetite for new Russian debt issuances. Although the first half of 2007 started very strongly, with issuances in the first seven months of 2007 almost exceeding the entire volume of issuances in 2006, the amount of issuances in the second half of 2007 was much lower. This year was slow to start, but by April issuances were back on a monthly level comparable to the first half of 2007. Although many of these 2008 issues were characterised by higher pricing than in the previous year, they provided a useful source of liquidity to issuers able to tap the markets.Since September 1 2008, the primary international bond markets have been effectively closed. September's bitter harvest of insolvencies and takeovers, together with the war with Georgia, has meant that it is unclear when investor appetite for new issuances from Russia will emerge. Deep discounts and over-supply in the secondary bond market put additional pressure on primary issuers as they attempt to make primary issuances. These circumstances, combined with other developments, such as the drop on September 15 in crude prices to a seven month low, triggered panic on Russia's main trading platforms RTS and MICEX. September 2008 saw the RTS down 60% since May 2008 – the largest single drop in a Russian stock exchange for more than a decade. The Russian Government and the Central Bank of Russia (CBR) were quick to react and closed both exchanges several times in the week starting 15 September. This was intended to buy time to allow them to decide on action to stabilise the market and bring an end to the panic selling, which had been gathering momentum. The panic selling in the RTS and the MICEX, along with the continued fall-out in the major world markets, has been greeted with dismay by Russian issuers that had hoped to re-enter the bond markets to raise new funds and refinance their existing debt obligations. The drop in securities prices also impacted the market by triggering the instability that results from margin calls and tight liquidity. The first notable casualties of the knock-on effects were KIT Finance and Svyaz Bank. In the case of KIT Finance, it reportedly failed to meet its liabilities as a result of its own clients' failure to satisfy their liabilities to KIT Finance on time. The public failure of two prominent Russian banks has also contributed to the suppressed appetite of the bond market for Russian banks.For Svyaz Bank, the main trigger that pushed it into difficulty appears to have been the large drop in the value of the RTS. Svyaz Bank reportedly had a large proportion of equities on its balance sheet, which it used as collateral for repo transactions. When the price of Russian equities fell dramatically, Svyaz Bank faced margin calls from its creditors that it was unable to satisfy.The bear acts quicklyIn both cases, the issues have no doubt been exacerbated by the reduced liquidity in the banking sector, partly as a result of the patchy access to the bond markets since August 2007. The Russian Government has recognised this and has been quick to react. For KIT Finance, Government-controlled Gazprombank provided KIT Finance with Rbs22.5bn to satisfy its current liabilities within three days of Kit Finance's announcement (September 17). Around the same time, Gazprom's pension fund manager began negotiations to acquire a controlling stake in KIT Finance. In the case of Svyaz Bank, Government-owned Vneshekonombank announced that it had received the go-ahead to buy Svyaz Bank and that it had taken steps to enable Svyaz Bank to meet its current liabilities.The Russian Government has taken further measures to compensate for the lack of bond funds. Such measures include making available Rbs600bn in emergency funds through Ministry of Finance auctions. It also extended participation in such auctions from the largest Government-controlled banks – Sberbank, VTB and Gazprombank – to include 25 a

The US$15.4bn total of G3 issuance from Asia (ex-Japan, ex-Australia) is a grim tally for the region’s struggling DCM bankers, who are desperately trying to justify their existence. This is the lowest total in five years, and pales in comparison to the US$51.5bn brought last year.But Asia’s domestic bond markets tell a different story. Some US$121.4bn-equivalent has printed in the year to date, with the region comfortably on track to beat last year’s US$140bn total. Moreover this outpaces by a considerable margin the US$70bn-equivalent which has printed in the region’s domestic markets on average over the past five years. Perhaps most tellingly between June and November last year, when sub-prime emerged, a remarkable US$74.7bn-equivalent of Asian domestic bonds were sold, via 870 issues, according to figures from Thomson Reuters. This represents a fourfold increase on the US$18.1bn sold through the 63 deals achieved in the G3 market. In the year since sub-prime hit, the region’s domestic markets have remained open and liquid throughout. Conversely, G3 has staggered, seemingly on its last legs. This hints at the long-term secular growth trend of the Asian domestic bond markets.Keeping it simpleUnderpinning this trend is what the Monetary Authority of Singapore alluded to as “the region’s conservative approach to reforming the domestic bond markets.” It results in an a stock of largely vanilla debt outstanding, rather than a ream of bafflingly complex structured products that might at the most be worth 20 cents on the dollar – as is the case in the US and European bond markets. This year, China held on to the top spot in terms of issuance volume. Its US$42.05.bn-equivalent of deals for a 31.2% market share seems likely to improve this year on the US$56.3bn-equivalent which printed from the country in 2007. This is the third year in a row China has topped the domestic issuance tables, having displaced South Korea, which for the previous seven years was the biggest domestic bond market in the region. The introduction of an MTN market in April helped boost the issuance tally, with Chinese corporates rushing to take advantage of the relative ease of issuance, cheap cost of funds and broad investor base. It saw a hefty Rmb73.2bn (US$10.7bn) printing in just two months. That issuance has stalled, thanks to infighting amongst the financial regulators, but issuance from the enterprise bond sector is holding up, as evidenced by a stunning Rmb20bn (US$2.9bn) 10 and 15-year brought at the end of September by the Ministry of Railways. That deal managed to print 10bp inside one-year Shibor. Meanwhile, in the US and Europe, borrowing costs were rocketing by the day and overnight Libor breeching 7% as banks refused to lend to each other. Issuance from South Korea, at US$15.6bn-equivalent, puts the country second in terms of issuance volume so far this year, with India third on US$18bn-equivalent. In Korea, corporate issuance has dominated again, as G3 bond markets have remained shut to anything other than the highest quality investment grade names.Indian issuance has benefited from the closure of G3 public offshore markets, with borrowers forced to look onshore instead. Meanwhile a rise in the ceiling on investment by FIIs (foreign institutional investors) to US$3bn-equivalent from US$1.5bn-equivalent in May helped boost demand for Indian domestic corporate paper. The Malaysian ringgit domestic bond market is the most interesting story of all the region’s domestic bond markets this year: South Korean banks have been lining up to tap into the country’s ample liquidity and book a benign basis swap from ringgit back to dollars and into won. Some US$10bn-equivalent of deals has printed this year in the Malaysian domestic market.This rush into Malaysia underlines Korean banks’ increasing willingness to explore alternative avenues of funding. The ringgit joins a growing list of domestic market forays, including issuance in the Brazilian real, Turki

Every crisis has a turning point. The Lehman Brothers bankruptcy filing on September 15th was arguably the watershed moment in the current one. After attempts to sell the broker as a whole failed, Lehman Brothers was left with little option but to file for bankruptcy. It opened a Pandora's Box of counterparty risk and recovery rate suppositions, and turned the too-big-to-fail assumption on its head.Why was an assisted takeover handed out to Bear Stearns in March, while Lehman was left to fend for itself? The US authorities felt that the bankruptcy of Bear Stearns would have caused systemic risk, while that of Lehman would not. Yet the market disruption caused by Lehman's demise has prompted the authorities to look at a US$700bn bank bailout package, dubbed Troubled Asset Relief Programme (TARP). Though the initial proposal was rejected by the US Congress, the diluted second version eventually was approved on October 3rd."With the TARP solution being passed in the US Congress, at least a back stop bid has been created for troubled assets and that should help liquidity," said a senior FIG DCM banker.Prior to the Lehman collapse, the Fed put Fannie Mae and Freddie Mac on conservatorship, undertaking to inject capital to keep them solvent. The expected cost is around US$100bn each, and the move effectively guarantees senior and subordinated bonds. These entities were seen as too big to fail.Within a fortnight of the Lehman collapse the US authorities extended an US$85bn term liquidity line to AIG, at a penal rate of 8.5%, in exchange for 80% government ownership whilst the line is outstanding. AIG was seen as systemically important, but the Fed was reluctant to provide a full guarantee.A commercial solution was hastily worked out by Merrill Lynch, before it too fell prey to market forces following Lehman's downfall and was acquired by Bank of America. That just left Morgan Stanley and Goldman Sachs as pure investment banks. The writing on the wall was clear: pure investment banking as a model will not work if access to the wholesale funding market is disrupted.Before the full weight of the market fell upon them, the two opted for a dignified exit, converting themselves into commercial banks. It gave them immediate access to liquidity provided by the Fed and future access to cheaper source of funding, via bank deposits, when they open shop under their newly acquired status.This, along with some capital infusions – from Mitsubishi UFJ for Morgan, and Warren Buffet for Goldman – calmed collective nerves. The changes in status, however, will put them under the Fed's oversight, which means more stringent regulation and a considerable scale-back on risky businesses.On September 25, battered Washington Mutual was shut and its assets seized by the Federal Deposit Insurance Corp, following US$16.7bn of deposit outflows since September 15.While selling the bulk of WaMu's assets to JPMorgan, the FDIC said the acquisition does not cover claims of Washington Mutual equity, senior debt and subordinated debt holders. It was Wachovia's turn next: an assisted takeover was proposed, with Citi set to acquire almost all of Wachovia Bank, using the negative goodwill to write down the problem loan book. FDIC were to take loan losses above a certain level in exchange for a hybrid note issue by Citi.The fluid state of the current market was amply reflected on October 3rd, when Wells Fargo surprised the markets by announcing that it had signed a definitive agreement with Wachovia for the merger of the two companies - including all of Wachovia's banking operations in a whole company transaction requiring no financial assistance from the FDIC or any other government agency. Wells Fargo said it will buy Wachovia for about US$15.1bn in an all-share merger. The deal, if approved by the regulators, will see Wells Fargo acquiring all of Wachovia's preferred equity, indebtedness and banking deposits.In Europe, which had seen IKB Industriebank, Northern Rock and R

For more cyclical names further down the rating spectrum (mid/low Triple B), it may not be the high funding costs that provide the biggest hurdle for borrowers. Convincing selective investors to top up on this level of risk at all is a greater challenge, as recent events have made accounts even more cautious than before. This is reflected by the downbeat outlook for the corporate sector. Expectations are rife that the deteriorating macroeconomic backdrop will lead to recession, eating into corporate earnings in the process and increasing funding costs further. A recent report by Moody's highlights the refunding risks for EMEA non-financial corporate issuers rated Baa and below in 2008-2010: "It is expected that markets will remain broadly uncertain over the next six to 12-months until the overall financial and economic landscape is better understood. Against this background and considering recent issuance volumes, market liquidity could become stretched to meet future refinancing and new funding requirements", said Sabine Renner, analyst at Moody's. Rodrigo E. Araya Arancibia, head of fixed income at Lombard Odier Darier Hentsch, said now might not be the right time to top up on corporate bond risk, but it is definitely time to start looking at when to increase allocations or add risk. He believes the outlook for the higher rated non-cyclical industrials is better that it has been during previous recessionary periods. "Balance sheets are still reasonably strong and actual default rates still very low. While the deteriorating macro outlook indicates [that default rates] will increase, the situation should remain fairly contained." However, he stressed the importance of being selective: "We will take a conservative approach to the industries, and prefer a more defensive strategy, favouring the likes of healthcare, telecoms and utilities at the expense of more cyclical names. We are surprised that Single A chemical companies such as BASF, DSM and Air Products are still trading as tight as 50bp-70bp in five-year CDS." This was echoed by Nigel Sillis, head of fixed-income and currency research at Baring Asset Management, and who also runs a corporate bond fund at the group. "We don't like cyclical names and high-yield bonds, despite current distressed valuations,” he said. “There are a large number of companies with little pricing power and product differentiation that have significant refinancing requirements, that will be operating in adverse conditions in a market that is not conducive to keeping them going. Default risk should therefore continue to increase heading into 2009. Specific industries that spring to mind include the retailers, commodities, chemicals, building materials and forestry products." Saint Gobain, the building materials producer rated Baa1/BBB+, will be looking back on it's €750m five-year issue launched in early September with satisfaction. The deal was placed at swaps plus 270bp on the back of a book of around €1.1bn, equating to a premium of about 56bp versus CDS and 70bp to cash. Interestingly, this is also one of the very few post-summer transactions that actually performed in the secondary market, having tightened in by over 25bp to an equivalent Bunds plus 305bp/295bp at the time of writing. It underlines the importance of strong domestic support: French investors took about 61% of the deal.Historically, about 60%–70% of European corporate funding has been through the loan market – significantly higher than in the US, where about 75% of companies fund through the bond market. This dynamic has already started to change as banks have become more conservative about how they operate. Relationships with borrowers have consequently become strained, as corporates draw down on these committed lines of credit.The difficulty for corporates is accentuated by a lack of liquidity in the short-term commercial paper (CP) market that had often provided funding opportunities this year. "The ECP market has virtually

In the short term, Argentina faces bigger financing problems than Venezuela. It is approaching the amortisation of US$23bn of debt next year and during 2010, while the latter can rely on its vast ‘petrodollars’. However, if the price of crude remains below US$100 per barrel for a sustained period, Venezuela may have to find external financing within two to three years.Peter Hakim, president of the Inter-American Dialogue, a Washington DC-based thinktank, said: “Argentina is being forced to move closer to the international financial community, as it can no longer depend on Hugo Chavez for external financing and faces a spike in amortization payments. Currently, Venezuela does not need to tap the international markets but that could change within the next few years.”According to JP Morgan’s EMBI index, Venezuela and Argentina have two of the highest spreads in Latin America: on 23 September, Argentina’s spread was 785 basis points while Venezuela’s was 838bps. Only Ecuador, one of the other main followers of heterodox economics in the region, has a higher spread, at 910bps. In comparison, Chile’s spread was 195bps while Brazil’s stood at 290bps.Argentinean and Venezuelan spreads have worsened, and displayed among the highest volatility during the past three months, as international financial turmoil deepened. On July 7, Argentina’s spread stood at 627bps while Venezuela’s was at 585bps.Argentina’s problems were caused, at least in part, by Hugo Chavez’s decision to churn a US$1bn bond issued by Argentina in August this year. The Argentine government faced considerable criticism from local commentators for issuing this bond at 15% interest, but it faced even more attacks when the Venezuelan government decided to churn it the following day. It led to a big drop in the price of sovereign Argentine paper.Chavez’s move prompted the government, led by Cristina Fernández de Kirchner, to review its dependence on the Venezuelans. A total of US$6bn of debt has been bought by its tropical neighbour during the past few years. On September 2, the Argentine president surprised the international financial community by announcing that the government would use Central Bank’s reserves to re-pay US$6.7bn of Paris Club debt. However, on September 22, Cristina Kirchner had an even bigger surprise: before the Council on Foreign Relations in New York, she said that she was keen to reach an accord with the hold-outs on US$29bn of defaulted sovereign debt. On September 25, Barclays Capital was awarded the mandate by the government to work out a deal with the hold-outs.It is not yet clear what the government will offer the hold-outs, but the bond-holders are demanding something more generous than the 76% hair-cut under the 2005 restructuring of US$88bn of debt. It is likely to offer them a longer-dated obligation, which could include a warrant linked to economic growth. However, economic growth is expected to slow to around 4%-5% next year, from highs of more than 8% during the past few years.International investors saw settlement of issues with the Paris Club and the hold-outs as major hurdles in Argentina’s path to re-entering international capital markets, which have largely been closed to it since its 2001 to 2002 economic meltdown. But analysts said they are not the only hurdles. “Cristina Kirchner, and her husband Néstor, realised they were being taken for a ride by Chavez after he churned this bond,” said Claudio Loser, former head of the western hemisphere at the IMF. “However, I think the Paris Club announcement was not handled in the best of fashions. The Argentine government did not sit down with the organisation before the move; they did not present it jointly. Furthermore, within a few days, the Paris Club said the true sum amounted to US$7.9bn after accrued interest.“The move on the hold-outs is a necessary condition for the Argentines to access the markets but it will not be enough.”In February 2007 the government began manipulating infla

Investors are behind the popularity of the front-end for debt issuance since the advent of the credit crunch: it is the natural preserve of the central banks which now make up much of the SSA investor base. Accordingly fund raising has focused much more on the short end than in previous years, accompanied by an almost total absence of issuance in the 10-year part of the curve. Consequently, the maturity profile of most issuers' outstanding debt has shortened, and their overall liability duration has fallen. "While the factors behind this remain in place, this situation is expected to continue for the foreseeable future, namely the steepness of the US yield curve and the inflated level of interest rate swap spreads at the short end which itself is a product of the banking crisis," said Myles Clarke, director of the frequent borrower group at RBS.Just over a year ago the SSA market was reopened by the EIB with a US$3bn three-year trade at mid-swaps less 20bp, 1bp tighter than a similar transaction it completed well before the onset of the credit crunch. By comparison, it completed a similar trade this year at roughly the same time at a spread of mid-swaps less 35bp, raising US$4bn in the process. This dramatic change can be attributed to two complimentary factors: the deterioration in the credit of the banking sector (represented by the Libor curve) and the premium investors will pay for the credit quality of a borrowing institution such as the Triple A rated EIB.Similarly, KfW the largest of the SSA borrowers, has also seen a contraction in the sub-Libor margins at which it has been able to fund its expected €75bn annual borrowing requirement for 2008. Recently it completed a three-year global transaction at swaps less 28bp, which was around 10bp tighter than it might have achieved before the credit crunch. Both issuers have been overall beneficiaries of the flight to quality trade that has occurred, although one banker suggested there was a differentiation between supranational and agencies: the EIB is less comparable to other issuers, affording it a greater rarity value than KfW, which shares the guarantee of Germany with a number of other issuers. Other less frequent Triple A issuers such as Export Development Canada have also been able to join the party, most recently completing funding at swaps less 35bp in three-years – also around 15bp tighter than last year's trade at less 20.5bp. The list goes on of borrowers that have achieved previously unthinkable sub-Libor funding, as investors have chosen to focus on the short end of both the euro and US dollar markets.Basis helps sovereignsMany European issuers have been able to optimise their funding cost by raising US dollar funds and swapping the proceeds back into euros, because of the distortion to the basis swap market created in the wake of the credit crunch. This recently enabled the Triple A rated European Bank for Reconstruction and Development (EBRD) to issue two-year debt at US dollar Libor less 35bp, before gaining as much as another 17bp (before costs) by swapping the proceeds into euros. In fact the overall cost of funding was so attractive, the EBRD bought back some of its other outstanding debt to increase the size of this issue to US$450m. This incremental benefit for European-based issuers has not been lost on some of Europe's sovereign borrowers, with the Kingdoms of Belgium and Spain, as well as the Hellenic Republic, issuing in US dollars for the first time in many years to capture the full value of the basis swap. "Although such is the disenchantment with the euro market overall – as the ECB maintains its hawkish monetary posture at a time of rising inflation – that investors have between the beginning of 2007 and this September, failed to return €340bn to the fixed income market as a whole, this being the difference between redemptions compared to new issue volumes," said Zeina Bignier, head of SSA debt origination at Societe Generale CIB. One consequence

Ramadan ensured Islamic markets were muted during September but, before the onset of the latest chapter in the banking crisis at least, syndication desks were confident that issuers would gear back up for the fourth quarter. "The post-Ramadan outlook for sukuk issuance looks healthy, with about US$20bn–$30bn in the pipeline globally and growing interest in the structure worldwide," according to Mohamed Damak, a Paris-based S&P analyst.Islamic financing as it is now known is only 25 years old, despite an illustrious history dating back more than a thousands years. In recent years it has become a significant player on the financing scene: in its recent report, the International Monetary Fund (IMF) estimated global sukuk debt at US$200bn in outstanding, with almost 80% of primary sukuk issuance coming from corporates. As recently as the end of 2007 outstanding sukuk global issuance stood at US$90bn, according to the IMF. Issuance of structured Islamic securities alone grew to nearly US$40bn in 2007, up from US$7bn in 2004.Last year, around half of outstanding sukuk was originated in Asia – particularly Malaysia – with much of the remainder issued out of member states of the Gulf Co-operation Council – particularly Bahrain, the United Arab Emirates (UAE) and Saudi Arabia. Europe has a growing status in this area: the first Islamic deal in Europe was structured in London in 1985, since which time the City has also cemented its position as one of the global Islamic finance hubs. Its growing status in international financing has seen commensurate growth in the popularity of Islamic instruments, and a number of platforms are being developed outside the Middle East. Western investors now make up to 80% of sukuk buyers. The International Islamic Financial Market (IIFM) predicts the pipeline for Islamic instruments will reach US$52bn globally in 2008. By mid-September nearly 30 deals – both Islamic and conventional – had been priced in the Middle East alone, worth a combined US$15.3bn.This success has led to calls for further development, homogenisation and improvement of Sharia-compliant instruments. Such products are already available in all asset classes, from mudaraba loan facilities to ijara asset bonds and musharaka financing. There are around 15 different types of sukuk debt. There has also been a proliferation of ethical investing, which Sharia-compliant instruments are well placed to serve. Sharia products serve non-Muslim ethical investors well, adhering to principles that satisfy a range of ethical sensibilities. There could even come a time when the majority of investable products are Sharia-compliant, to maximise their appeal, just as meat sold in non-Muslim butchers and restaurants is typically halal, said Jane Dellar, managing director at Bahrain Financial Services Development.The scale of the opportunity is likely to attract more Islamic banks to the UK and Europe, as Muslims increasingly strive to adopt financial instruments that accord with their faith. There are already five FSA-licensed Islamic banks in London. Western banks are also getting in on the act. Many have created dedicated teams, or even Islamic subsidiaries: among western banks the biggest market share of sukuk bond underwriting this year belongs to Calyon, HSBC, Citi and Standard Chartered Bank; Dubai Islamic Bank tops the Middle Eastern financials list, followed by the Emirates NBD.Growth is now projected to move beyond traditional sukuk issuers, and to new markets. Credits in around 50 countries are planning to issue Islamic instruments.Yet the first-ever decline in sukuk issuance, expected this year as the banking crisis continues, will be a set-back for the industry. Issuance could fall as much as 50% from 2007, according to studies in Malaysia. Last year saw sukuk issuance of around US$46.6bn – a 70% increase from 2006 – while only US$12.5bn sukuk was printed in the first eight months of this year, of which nearly US$6.5bn were sold internationally,