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  Economics
KFH expects global Sukuk issuance to surpass USD 200 bln in 2012
17/01/2012   |   06:11 PM | Kuwait News
تصغير الخطالشكل الأساسيتكبير الخط
KUWAIT, Jan 17 (KUNA) -- Sukuk issuance in 2012 will increase by 25-30% to break the USD 200 billion barrier, despite challenges that face prosperity of this industry, such as the financial struggles of some European countries and their effect on the rest of the world, a report prepared by KFH-Research about the horizons of global Sukuk in 2012 expected.
The report noted that several positive indicators forecast a brighter future for Sukuk during this year, such as the increasing role of governmental issuance that will form the backbone of the market to boost the private sector and finance major developmental projects; the economic growth that the region and emerging markets are witnessing; having new parties and the increase in popularity of Sukuk outside Islamic markets, after Sukuk successfully substituted conventional bonds. In addition, the report mentioned that the Sukuk market witnessed unprecedented growth during 2011 that reached 88% compared to last year. It added that Kuwait has returned to the Sukuk issuance market after three years through the issuance of Al-Oula Investment Company. The Islamic finance industry has grown at an average rate of 15.0%-20.0% per annum over the past decade to reach approximately USD 1.3tln in 2011. The sukuk industry has emerged as one of the main components of the Islamic financial system, indicated the report. Between 2001 and 2010 the primary market grew at a compound annual growth rate (CAGR) of 57% to reach USD177bln outstanding at the end-November 2011, and contributes approximately 14.3% of the global Islamic finance assets. The sukuk primary market is expected to grow at a phenomenal 88.0% y-o-y in 2011.
Said the report.
As at end-November 2011, sukuk issuances soared by 59.9% year-to-date from USD45.1bln in 2010 to USD 80 bln.
Sukuk issuance for 2011 took off in January with the largest single sukuk issuance to date, placed by the Qatar central bank worth USD 9.0 bln. This was followed by several issuances by Islamic financial institutions, in both the Asian and Middle Eastern regions, looking at meeting minimum capital and funding requirements, the report said. Of the total issuances in 2011, corporate issuers made up 22.4% of the US dollar amount, an increase from 2010 which saw corporates only market a share of 15.7%. In 2011, corporates have returned to the primary market after either cancelling or delaying plans in 2010 as the Dubai real estate bubble burst and the impact of the financial crisis was felt throughout Asia and the Middle East, said the report. The year 2011 has seen a number of new jurisdictions open up to the sukuk market, among them potentially large Muslim markets including Jordan, Iran and Yemen. Notably, a key development was the introduction of the international financial district of Hong Kong, which was planning to debut the market since 2007 but delayed due to the global financial crisis. Hong Kong will undoubtedly be looking to beat out rival financial hubs in tapping the huge growth potential of the Islamic finance industry. The small island has also been heralded as one of the strategic international markets that can spur growth and acceptance across more western frontiers given its openness to alternative forms of investments, said the report.
Meanwhile, both Kuwait and Sudan returned to the market in 2011 after a few years of silence. First Investment Company's sukuk Wakalah was the first issuance from Kuwait since May 2008 as the company restructured its debt obligations with local banks. Similarly, Sudan saw its third ever issuance in 2011 as Sudan Financial Services Company, which sold the sukuk on behalf of the government, issued USD 286.0 mln worth of sukuk papers during the 2Q11, said the report.
The year 2011 has seen the issuance of a number of notable sukuk. Amongst them are the highly awaited Indonesian global issuance that was priced at only 4.0%, a key indicator that the country is worthy of an investment grade rating, which was awarded to the country on 15 December 2011 by Fitch Ratings. Others include Malaysia's USD2.0bln global sukuk Wakalah that was oversubscribed 4.5 times and the Kuveyt Turk Participation Bank's second issuance to date worth USD350.0mln, said the report.
The global sukuk market grew over the 11M11 by 70.1% to USD10.4bln as expected given the large amount of delayed issuances in 2010. The UAE has issued the largest amount of cross-border papers in 2011 while Bahrain and Indonesia issued their long-awaited sovereign sukuk of USD750.0mln and USD1.
0bln, respectively. Saudi Arabia and Turkey, meanwhile, witnessed successful corporate issuances from the likes of Kuveyt Turk Participation Bank and Bank Aljazeera, said the report.
The political uprisings in the Middle East, followed by the US debt downgrade and the European fiscal contagion in 2011, have resulted in a flight to safety as investors seek to protect wealth by investing in sukuk and commodities. Based on the issuance momentum seen in 2011, the global sukuk issuance for 2012 is expected to illustrate strong growth of 25.0%-30.0%, said the report.
In summary, prospects for the sukuk industry are expected to remain bright. Having grown at a CAGR of 57.0% over the past decade, the sukuk industry is expected to exceed the USD180.0bln-mark as at end-2011, and could potentially exceed the USD200.0bln-mark by year end-2012. Risks to the sukuk market moving forward include the fiscal woes of the European countries, which have no clear cut solutions in sight, the persistent deficit of quality papers and the lack of an application of Shariah principles to suit the growing demand of project-based financing needs in the Middle East and Asia, said the report. (end) fnk.ajs KUNA 171811 Jan 12NNNN
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