The selloff of Maldives' Islamic bonds has intensified, with the dollar-denominated sukuk due in 2026 dropping below 70 cents this week, a record low.
The risk of default looms large. Recent moves by the Bank of Maldives to cap foreign currency spending, coupled with a second Fitch downgrade since June, have triggered a rush to offload holdings. With $500 million in sukuk debt maturing in 2026, all eyes are on the October 8 coupon payment.
Purvi Harlalka, senior emerging-market sovereign debt strategist at M&G, noted in a Bloomberg report, "Without a last-minute foreign exchange infusion from China, the GCC, or India, the non-payment of the October coupon is a plausible scenario."
Despite gross reserves of $395 million in June, usable reserves are just $45 million. The Maldives Monetary Authority is negotiating a $400 million currency swap with India, but Fitch's downgrade to CC underscores rising default concerns.
Soeren Moerch, portfolio manager at Danske Bank, said the bank sold most of its bonds in early summer as reserves fell. "Things are much worse now," he said, adding that the key question is whether Muslim nations will allow Maldives to default on a sukuk bond.
Despite rising tourism revenues, the Maldives remains dependent on imports and a dollar peg that continues to strain reserves. The ruling People’s National Congress, led by pro-China President Mohamed Muizzu, secured a parliamentary majority earlier this year, complicating the geopolitical landscape.
Some investors, like Maciej Woznica of Coeli Frontier Markets, remain cautious. "The ‘India Out’ campaign and lack of USD liquidity are red flags. It’s too early for us to reinvest," Woznica said.