KUALA LUMPUR/MANAMA: Global issuance of Islamic bonds, or sukuk, may surpass $20bn, recovering from a lull this year, helped by government spending and energy financing needs, a poll shows.
According to the poll of 12 Islamic finance bankers and experts, six respondents said the new issuance would exceed $20bn, while four said it would be $15bn-$17bn and only one put the figure of less than $15bn.
Sukuk issuance received a double blow last year from the global liquidity freeze and a debate on the compliance of some of its structures with Islamic law, with issuance slumping more than 50 percent to $14.9bn, according to Standard & Poor’s.
Issuance during the first seven months of this year came in at $9.3bn compared with $11.1bn for the same period in 2008, the ratings agency has said.
further boost
“Government-related projects, which are to be implemented as part of the fiscal stimulus package, will also provide a further boost to the primary bond market, particularly in the infrastructure and utilities sectors,” said Wan Murezani Wan Mohamad, fixed income analyst at the Malaysian Rating Corporation.
Infrastructure and energy projects are expected to be the most important sectors for issuance, followed by financial institutions.
The key energy industry in the Gulf region needs hundreds of billions of dollars for investments in its infrastructure over the coming years. Malaysia is defending its position as the world’s largest sukuk market, but the Gulf Arab region is seen to be catching up, with three respondents expecting the region to surpass Malaysian issuance.
A controversial sukuk ruling by senior cleric Sheikh Muhammad Taqi Usmani in late 2007 that said most Islamic bonds did not comply with Islamic law will continue to weigh on markets, three respondents said.
2008 slump
Analysts have said 2010 issuance levels will show whether the global financial crisis or the debate on Sheikh Muhammad’s ruling played a greater role in the 2008 slump in issuance.
The health of global capital markets will also be a factor for 2010 issuance.
“2010 is expected to be better with encouraging statistics emanating from major economies ... but sukuk market investors may still take a ‘flight to safety’ approach in subscribing to papers,” said Alhami Mohd Abdan, head of international finance and capital markets at OCBC Al Amin Bank Berhad.
“Risk aversion towards lower rated papers will still be strong.”
Kuwait Finance House, the country’s biggest Islamic lender, has said it forecasts new global sukuk issues at between $15bn and $18bn in 2009 while CIMB Islamic, the world’s top sukuk arranger, sees $16bn of issuance this year.
