Mahmood Rafique
With the success of the ten largest sukuks deals setting a new benchmark in fund raising of $9.52 billion in the first nine months of 2010, the prospects of the sukuk market are very bright in 2011, according to Kuwait Finance House Research (KFHR) report.
KFHR, a subsidiary of KFH, in its report released on Monday said that the sukuk market in 2011 would be driven by the recovery made in the global economic landscape in line with the flexible monetary policies and sovereign fund-raising efforts to support economic growth as well as the revival of private sector projects.
The report underlined the importance of addressing the importance of Islamic bond market and its impact on stimulating the Islamic economies.
The increasing demand of US dollar and popularity of products and structures compatible with Islamic Sharia’a principles in the wake of the global financial crisis has formed strong Sukuk demand base.
The report forecasts the entry of new players in the emerging markets, as well as new non-Islamic exporters willing to take advantage of Sukuk market with potential debut in Thailand, Japan and Europe, which will boost demand for Islamic Sukuk.
The sukuk industry has emerged as one of the main components of the Islamic financial system and has increasingly become an integral subset of the international financial system. Over the years, the sukuk market has grown by 10% to 15% annually to reach approximately $100 billion in total size and contributed to 12% of the global Islamic finance assets in 2009.
In 2009, according to report, global sukuk issuances surged by 58.8% year-on-year basis to $24.7 billion compared to the $15.5 billion raised in 2008.
In the first nine months of 2010, total sukuk issued globally reached $27.9 billion, 62.3% higher than the $17.2 billion raised in the first three quarters of 2009 and full year sukuk size of $24.7 billion. “This was in line with a gradual global economic recovery and improved market condition and investor sentiment,” the report added.
By issuer type, the report said, approximately 77.3% of three quarters of 2010 fundraisers were sovereign and quasi-sovereign entities, in line with the general interest of investors which saw a shift in preference to safe-havens and high quality issues.
Financial services sector trailed behind at 9.8% of total sukuk issues while power and utilities sector stood at 7.6 %, driven by financial institutions’ fundraising activities and continued infrastructure spending.
By country, Malaysia continued to dominate the global sukuk market, contributed to 72.3% of total value of sukuk issued during the first nine months of 2010. Indonesia and Saudi Arabia trailed behind at 10.3% and 9.1% respectively. As such, by currency type, Ringgit-denominated sukuk deals topped at 63.8%, followed by Rupiah-denominated deals at 10.2% and Saudi Riyal-denominated deals at 7.4%.