DOHA: The issuance of sukuk by corporate and infrastructure issuers in the GCC grew a solid 11 percent in the year to September 24, 2013, to reach $14.8bn.
In contrast, volumes decreased about 25 percent in the period in the world’s biggest country of issuance, Malaysia, dulling global performance.
The Standard & Poor’s Ratings Services in a report published yesterday noted that demand for sukuk by corporate and infrastructure issuers in the Gulf is likely to continue growing at a double-digit pace in the year or two ahead, despite weakness globally in the past year.
One of the main factors that continued to support GCC corporate and sukuk issuance during the period to September — and especially in the first half of 2013 — was low yields on average, because many GCC issues are denominated in US dollars and are therefore sensitive to changes in Fed policy.
Other factors included some improvement in the perceived credit quality of sukuk, arising from better economic conditions and higher oil prices, the continued need for infrastructure finance, and calls by GCC governments for greater Islamic issuance by corporate and infrastructure entities.
“The drivers for sukuk in the coming years in the GCC are likely to be refinancing requirements, the vast government programs for building out the infrastructure, and tighter global and local regulation of banks that could dampen their issuance,” said Standard & Poor’s credit analyst Karim Nassif.
Infrastructure plans include much-needed investment in power and water, expansion related to events like the FIFA World Cup in Qatar in 2022, and corporates aiming to diversify their sources of funding with the aim of supporting the development of Islamic finance in the region.
In the tougher regulatory environment, issuers are likely to turn to alternative sources of funding in the capital markets, with corporate and infrastructure entities in the Gulf favouring sukuk.
In Asia, the Asian Development Bank projects infrastructure spending at more than $8bn over the next 10 years. Countries like India and Indonesia have some of the largest infrastructure development plans in the region, and China plans to spend about 9 percent of its GDP on average for infrastructure. In the meantime, regulators in Asia are looking at how to facilitate growth of the sukuk market.
Hong Kong passed an ordinance in July to create a “level playing field” for sukuk. The huge demand for finance and the growing popularity of Islamic finance as an investable asset class among fixed-income investors in Asia, we believe, is likely to improve the supply-demand dynamic of sukuk in the region.
The Peninsula
