The GCC sukuk market has reached an “inflection point” in terms of new issuance, propelled by a fast growing appetite for infrastructure finance as the UAE emerged as the third global growth market for Islamic bonds, Standard & Poor’s said on Monday.
In the GCC, the UAE has become the second market for sukuk in the year to July with $5.3 billion. Saudi Arabia now leads the GCC ranks with $8.8 billion, replacing Qatar, which is currently in third with $4 billion. The kingdom is currently the second-largest global issuer behind Malaysia at $51.6 billion, after the government made moves to support Islamic finance.
“The GCC market crossed $19 billion in issuance as at July 2012, about the same as for all of 2011. Of that, infrastructure represented 30 per cent, compared with just seven per cent the previous year, said S&P credit analyst Karim Nassif. “The reasons for the surge are low yields, relatively high liquidity, large capital expenditure needs, and strong investor appetite,” he said at a media roundtable on Monday.
“We consider the market for Islamic infrastructure in Asia and the GCC to have reached an inflection point in terms of new issuance after a relative lull from 2009 to 2011. What’s more, we’ve seen the emergence of the first project finance sukuk within the infrastructure asset class,” said Nassif.
Total sukuk issued out of Asia reached $57.9 billion in July 2012, compared with $64.9 billion for all of last year. Malaysia is now the world leader in sukuk issuance. Political will, recognition of beneficial ownership, tax incentives, and a rising investor base have all supported the country’s continued growth trajectory.
Tapping the sukuk market could help improve the capital structure and liquidity profiles of GCC and Asian companies, particularly those operating in capital-intensive industries such as infrastructure, said Stuart Anderson, managing director and regional head for Middle East at S&P.
Sukuks could provide such companies the longer-term funding they need via a different funding source. This source is becoming more liquid as it reaches across border and becomes more global and grows in scale, Anderson said.
The ratings agency analysts observed GCC companies have been crossing the figurative border into Asia for infrastructure finance. Abu Dhabi National Energy Co and Bahrain-based Gulf Investment Corp are the first to issue sukuk in Malaysian ringgit.
“These types of cross-border deals are more than a smart funding solution, in our view. They could also develop the trade relationship between the countries of the GCC and Asia to their mutual benefit.
“But what is also compelling is that such transactions could be a bellwether for the further standardisation and globalisation of the Islamic finance market.”
They said such deals might signal the start of more cross-border transactions between the Gulf and Asia, which could help the market become more mature and truly global, and stimulate even more deals and trade between the two regions.
The global sukuk market is set to break the $100 billion mark this year, compared with issuance of $84.5 billion in 2011, but still represents about one per cent of the global bond market.
“We believe sentiment will remain positive this year despite economic soft spots in Europe, decelerating Chinese growth, and fallout from the Arab Spring. Sukuk growth is particularly healthy in the GCC and Asia,” they said.
(Khalejj Times / 25 Sep 2012)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com
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