DUBAI (Bloomberg) – Morgan Stanley plans to bring the first “multinational” to the Islamic bond market as early as this quarter with a sale that may spur other international companies to sell securities targeting Muslim investors.

“They have links to the Middle East and are looking to diversify sources of funding” as U.S. mortgage losses crimp global investor demand for debt, Yavar Moini, Morgan Stanley’s executive director of global capital markets in Dubai, said in a telephone interview, declining to name his client.
The multinational’s first sale of Islamic bonds, known as sukuk, will be part of a $5 billion medium-term note program, Moini said. The second-biggest U.S. securities firm defines multinationals as companies with global operations that have a “household name.”
Middle East borrowers have largely sidestepped the turmoil in global credit markets triggered by the collapse of the U.S. sub-prime home-loan market, raising $17.9 billion from Islamic securities in 2007, 75 percent more than the previous year. Global sukuk sales jumped 70 percent last year to a record $30.8 billion, data compiled by Bloomberg show.
The sale will be a “landmark that will encourage others to tap the sukuk market,” Moini said, declining to be more specific.
Gulf borrowing costs increased by as much as 0.2 percentage point from the first half of 2007, before the collapse of the sub-prime mortgage markets paralyzed debt sales worldwide, Declan Hegarty, HSBC Holdings Plc's Middle East head of debt capital, said Jan. 30.
That compares with an almost doubling in yield to 2.31 percentage points over government debt for U.S. investment-grade companies to borrow for 10 years, a Merrill Lynch & Co. index shows.
Sukuk costs issuers about the same amount as conventional bonds, Moini said. “It’s not about arbitrage but about tapping new liquidity,” he said. Sukuk avoid breaching Islamic restrictions on the payment or receipt of interest by providing a predetermined income from specified assets.