The number of issues rose to 53 from 38 in the Gulf Cooperation Council (GCC) countries, with most of the growth coming from the UAE, said a report by Lond-based Islamic Finance Information Service (IFIS).
The sukuk market continues to enjoy a year-on-year increase despite a slowdown in the rate of growth, the report titled Sukuk in 2007: Key Trends and Market Highlights said.
The report indicates that despite the rise, there has been a decline in growth rates, as the 2007 increase is lesser than that witnessed in 2006, when it stood at 125.75 per cent.
IFIS, which is owned by global publishing company Euromoney Institutional Investor, revealed in its report that the total number of sukuk issued was 207 in 2007, compared with 199 in 2006 and 89 in 2005. In terms of value, the number of sukuk issued in 2007 added up to $47.099bn compared with about $25bn in 2006 and $10bn in 2005.
“There was, however, a drop in the number of sukuk issued in Southeast Asia, mainly as a result of a fall in Malaysian corporate medium-sized issuance. Despite this, Malaysia remains the world’s leader in sukuk issuance by both number and value, with 2007 trade totalling about $25bn,” the report said.
In addition, the Malaysian ringgit remains the most common currency for sukuk issuance, followed by the dollar. In Malaysia, most sukuk are issued in ringgits, while in the GCC, the majority are issued in dollars.
Firas Abi Ali, IFIS’s senior analyst and product manager, said: “We expect the number of issuances to continue to increase, both for corporate borrowers and for sovereign borrowers, especially in the GCC, where the market is starting from a much smaller base compared to Southeast Asia. The market weathered the global credit turmoil rather well and showed strong resilience.”
The number of sukuk issued in Malaysia will continue to exceed the number issued in the Gulf countries. “We expect this tenacity to survive the coming year. In all likelihood the number of sukuk issued in Malaysia will continue to exceed the number issued in the GCC. However, with the tendency for mega-sukuk expanding in the GCC, we would not be surprised if total value of sukuk issued there were to exceed that of Malaysia in the coming years,” he said.
According to the report, Pakistan was the fastest growing market in 2007, enjoying a substantial rise in volumes, with the number of sukuk issued rising to 20 from four in 2006. Another remarkable feature of 2007 was the explosion in the number of sukuk worth more than $1bn.
There were only four such sukuk in 2006 – two in the UAE and two in Malaysia – but in 2007 there were 14 such issues, spread between Malaysia with six, the UAE with five and Saudi Arabia with three. These 14 sukuk alone represented 56 per cent of the total value of the global market.
Also according to the IFIS report, Southeast Asia and specifically Malaysia, continue to offer the most accessible markets for small- and medium-sized borrowers. It added that 55 of the sukuk issued in Southeast Asia during 2007 have been worth between $1m and $10m, whereas not a single sukuk in the GCC has fallen within that range.
As for sukuk worth between $10m and $100m, 45 came from Southeast Asia and 27 came from the GCC. Of those 27, some 25 of them came from the government of Bahrain and just two came from corporate borrowers. On the whole, the GCC market is inhospitable to small and medium-sized borrowers. There have only been five corporate sukuk issuances worth less than $100m throughout the life of the GCC market.
There was a big drop in the value of sukuk issued in the third and fourth quarters of 2007, although it is unclear whether this was a result of the US sub-prime crisis and the subsequent credit crunch. Proportionately similar drops in quarterly performance were seen in the second and third quarters of 2006 and the third and fourth quarters of 2005, which were periods of global credit expansion.
A possible indication of tightening market conditions was evident among medium-sized corporate borrowers in Southeast Asia, where the number of sukuk worth between $10m and $100m dropped to 38 from 79 in 2006. Southeast Asia also witnessed a drop in the number of sukuk worth between $100m and $1bn, which fell to 24 from 30 in 2006.
Globally, CIMB Islamic topped the list of bookrunners in 2007, both in terms of number and of value of sukuk traded, as it had in the previous two years.
HSBC regained its position as second, having been displaced in 2006 by Dubai Islamic Bank and Barclays Capital. Regionally, HSBC tops the league in the GCC, followed by Barclays Capital and Deutsche Bank. CIMB Islamic had the largest value of sukuk recorded in Southeast Asia, followed by ABN Amro Bank and Citigroup.
During 2007, the vast majority of top bookrunners were international banks. Of the top 10, only three banks are local – CIMB Islamic, Dubai Islamic bank and Riyad Bank. Analysts believe that this is a testament to international banks’ increasing interest in Islamic finance.
Fewer corporate sukuk
A distinct feature of the 2007 sukuk market has been the decrease in the number of corporate sukuk issued and yet the increase in their value.
In 2007, 156 corporate sukuk were issued, compared with 167 in 2006 and 86 in 2005 but their value has been growing consistently, rising to $37bn in 2007 from $21bn in 2006 and $11bn in 2005.
This decrease in the number of issued sukuk has come mostly from Malaysia, where the number of corporate issuances fell to 112 in 2007 from 148, although as in the GCC, the total value of these issuances rose, increasing to $22.9bn from $13.7bn.
However, the number of corporate sukuk in the GCC grew to 21 in 2007 from 13 in 2006 and 10. Also, the value of these sukuk rose too, rising to $13.5bn in 2007 from $6.8bn in 2006 and $2bn in 2005.
Global sukuk issues rise by 73% in 2007