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19 March 2024

Firms set to raise $30bn through sukuks in 2010

Published
By Staff

Companies - mainly sovereign and quasi-sovereign - will raise $30 billion through sukuk issuances this year against $24.65bn in 2009 as tight bank lending is forcing companies to increasingly look at alternative sources to raise funds, according to a study released on Monday.

KFH Research said more sovereign and corporate issuers are expected to tap sukuk market, in 2010, which include potential debuts from Japan, Thailand, Turkey, United Kingdom and Russia.

The sukuk market will be driven by the recovery in global economic activities, record low interest rates, continued sovereign fund raising to support economic growth as well as revival of private sector projects.

Sovereign Sukuk issuances in the first half are expected to help to revive the global Sukuk market as they provide the necessary benchmark pricing for the private sector to gauge investor appetite in 2010.

The study projected that the long-term prospects for the Sukuk market will remain strong given the increasing popularity of Shariah-compliant products, governments' support for Islamic finance, huge investment and financing requirement in the Gulf and Asia regions, and issuers' desire to tap investors from the Middle East and Muslim Asia.

Growing preference for Shariah-compliant products from both conventional and Islamic investors; massive liquidity from emerging markets searching for Shariah-compliant investment products; GCC economic diversification away from oil and gas investments; greater understanding of Sukuk instruments; and governments initiatives to further develop and promote Sukuk instruments and investments will be the other major factors that will drive the demand for Sukuk.

Tight credit market is forcing companies to increasingly tap Sukuk (Islamic bond) market to raise debt with the first half of 2010 witnessing more than 116 per cent jump in new issuances to $16.5 billion against $7.6bn in H1 2009, the studysaid.

Malaysia maintained its leadership position in the global Sukuk market, contributed to 60.5 per cent of total value of Sukuk issued in H1 2010. Saudi Arabia and Indonesia each trailed at 14.1%.
By currency type, Ringgit-denominated Sukuk deals topped at 53.4%, followed by US dollar deals of 10.3% and Qatar Riyal issues of 8.3 per cent.

On a quarterly basis, global Sukuk issuance in the first quarter was up by 114 per cent year-on-year to $4.7bln, while issuance in Q2 increased by 112 per cent to $11.8bn, helped by an emerging markets-led global economic recovery and huge government stimulus packages and infrastructure spending, Kuwait Finance House Research said in a report.

Sovereign and quasi-sovereign fund-raisers topped the list, accounting for 80 per cent, followed by power and utilities sector (11.5 per cent) of total sukuk issues while financial services sector stood at 3.4 per cent, driven by continued infrastructure spending and fund-raising activities by financial institutions globally.