Sukuk Market Expected to See Revival In 2011, Issuance to Rise 60 Percent
Liau Y-Sing & Frederik Richter
Global sales of Islamic bonds are forecast to rise nearly 60 percent this year to more than $22 billion as economic recoveries and high crude oil prices revive the market, a Reuters quarterly poll demonstrated.
An upswing in corporate spending, an increase in issuers seeking to diversify their sources of funding and improving investor sentiment in the Gulf are also expected to fuel fund-raising activities, according to the 15 respondents.
Issuance fell 26 percent to $14 billion in 2010 in the aftermath of Dubai’s debt restructuring and high-profile sukuk defaults.
That estimate excludes issues which are callable in less than a year, those which are not rank eligible or underwritten and self-funded ineligible issues.
“On the part of financial institutions, they will need to strengthen their balance sheets. Corporates will need funding for expansion,” said Simon Eedle, Credit Agricole CIB’s Islamic finance head. “Sovereigns will push sukuk as part of fulfilling their national agenda.”
Qatar Islamic Bank and National Bank of Abu Dhabi have launched sukuk sales in recent months, with the Dubai government, Saudi Arabia’s civil aviation authority, Gulf Investment Corporation and Saudi International Petrochemical Company expected to tap the market too.
However, some experts have said global issuance of Islamic bonds would take another year to fully recover, with new markets in Europe and Asia yet to offset the fall in Gulf issuance.
“Obstacles are pricing and liquidity versus conventional bond issuance (and) potential tax implications for the Western countries surrounding assets in special purpose vehicles for structuring purposes,” said Nida Raza, capital markets senior vice president at Unicorn Investment Bank.
Sukuk issuance can be more costly than conventional bonds as they tend to involve the transfer of assets that attract tax.
The bulk of sukuk in 2011 are expected to emerge from issuers in Malaysia and the Middle East, although some issuance could also come from the United States, Singapore and Indonesia. Banks, governments and companies in the infrastructure, real estate and energy businesses are expected to be the main issuers.