The Maldives will test the global market for Islamic finance in the coming weeks, as the debt-burdened archipelago nation hunts for a bailout that will prevent it becoming the first country to default on a key form of sharia-compliant debt.
The price of a $500mn bond-like sukuk issued by the government has collapsed to about 70 cents on the dollar over the past month ahead of a payment due in October, as its foreign reserves run low. A default on the bond, which matures in 2026, would be the first by a sovereign for sukuk debt, of which about $860bn were in issue at the start of the year, according to Fitch Ratings.
“The questions everyone is asking: will the Maldives be the first [sovereign] sukuk to default,” said Joshua Loud, senior emerging markets portfolio manager at Danske Bank. “Given this has never happened, I don’t think the market fully understands the impact.” The country has struggled to pay back its two main bilateral creditors, India and China, from which it borrowed heavily to finance growing budget deficits. Debt repayments now threaten to drain its reserves. (Financial Times)
