| Global sukuk issuance amounted to USD13.7 billion in the first half of 2010, or nearly doubled from the USD7.1 billion recorded in the same period last year with the slight improvement in international market conditions fuelling some of the impetus for the higher volume.
A report by Standard & Poor’s shows that sovereigns accounted for the bulk of the issuance at 75% of the total volume as governments strived to revive the market. At the same time, some private sector issuers returned to the market as both corporates and financial institutions from both the Gulf Cooperation Council (GCC) countries and Asia gradually crept back to the market.
In July, Nomura Holdings launched the first sukuk issuance out of Japan, which S&P says sends a signal that the sukuk market is continuing its march towards globalization. “We believe that many issuers around the world may be willing to enter the market as more favourable conditions materialize,” it adds. “We foresee sustained growth for the second half of 2010, given the issuers’ interest in tapping this market, both in historical locations such as Asia, especially Malaysia, and in regions newer to sukuk.”
By region, Asia continues to dominate the global sukuk issuance with 70% of the total, with Malaysia alone accounting for 52.7% of the amount. Malaysia has funded infrastructure projects using a sizable portion of its domestic currency issuance. S&P says infrastructure programmes are attracting considerable interest from Islamic investors because of the asset-backing nature of these projects in general.
A number of the GCC countries are slowly re-entering the market, bringing their share of the total issuance to about 30% in the first half of 2010. Among the biggest issuances during the period included Saudi Electric Company for USD1.8 billion, the State of Qatar USD1.3 billion and Dar Al Arkan USD450 million.
Dollar-denominated sukuk accounted for a modest 12.4% of the total issuance in the first six months of 2010 due to the dollar weakness and as issuers tap ped the local liquidity pockets. S&P reckons the dollar issuance over the next six months will likely remain limited, given the ongoing dominance of Asia, and mainly Malaysia, in the market and the limited need for dollar-denominated sukuk. It adds the US dollar will likely slowly regain some lost ground as some issuers seek deeper access to capital markets than what the local markets offer.
The sukuk market saw one default in the first half of 2010. According to S&P, based on public information, the unrated Kuwait-based International Investment Group defaulted on its obligations toward investors on a USD200 million sukuk issued in 2007. [More]
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