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
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
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)
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