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10 December 2023

GCC sukuk issues plunge 57 per cent in 2008

Saudi Binladin Group was among firms which issued sukuk last year. (AFP)

By Nadim Kawach

The global financial turbulence and the ensuing collapse of crude prices have severely hurt Islamic bonds activity, pushing the value of sukuk issued in the Gulf by nearly 57 per cent in 2008, a key Saudi bank reported yesterday.

But the UAE maintained its position as the largest sukuk base in the Middle East and second in the world after Malaysia.

The sukuk issuance in the six-nation Gulf Cooperation Council (GCC) and worldwide last year was in sharp contrast with 2007, when the activity climbed to one of its highest levels, the National Commercial Bank (NCB) said.

"In contrast to the vibrancy that characterised Islamic financing, mainly sukuk, during 2007, the year 2008 had been a bleak year in terms of the value and number of issuances," NCB said in a study sent to Emirates Business.

Its figures showed the global volume of sukuk plunged by a hefty 66.3 per cent to around15.8 billion in 2008 compared with 46.7 billion in 2007.

"In the GCC, the number of corporate sukuk substantially fell by 26 per cent in 2008 while their value plunged to nearly 5.5 billion from13.04 billion."

Although Saudi Arabia retained its third rank globally in 2008, after Malaysia and UAE, with four corporate issuances worth around $1.87 billion, the overall value of issuances tumbled by 67 per cent, NCB said.

It said most of the sukuk last year were issued by Sabic, Saudi Hollandi Bank, Tajeer, and Binladin Group. The cost and tenor of the sukuk ranged between 48-250bps over libor and 5-20 years, respectively, it noted.

"Interestingly, the four issuances had been domestically issued and denominated in Saudi Riyal in comparison to just one out of four issuances in 2007, which reflects the ailing status of international capital markets, drying up of dollar liquidity and the widening of spreads," the study said.

"Finally, we must realise that the ensuing global financial crisis had impacted all instruments as investors undergo the process of reassessing and repricing risk. Bottom- line, sukuk will regain its position as a vital avenue for raising funds once the global economy settles down."

NCB provided no figures for other GCC members but according to a recent study by the Kuwaiti-based Global Investment House (GIH), the UAE remained the largest issuer, with a total corporate and other sukuk of $5.3 billion.

GIH noted that in contrast with the plunging sukuk, IPO activity climbed to a record high level in the first nine months of last year and the UAE emerged as the second largest issuer of initial public offerings.

"The sukuk market is fast emerging as the most significant form of Islamic financing. However, the credit crunch was felt on the sukuk issues with far fewer issues in 2008," GIH said in the study about the first nine months of 2008.

"The GCC region accounted for 56 per cent of the Global sukuk issuance. Although the number of issues declined slightly in the first nine months of 2008, the total funds raised tumbled by 43 per cent. The UAE continued to remain the most active market for sukuk with a total of 10 issues worth around $5.3bn issued during the first three quarters of this year."

The study showed UAE real estate companies dominated this activity, with a total of eight issues worth $4.85bn raised during the first nine months of 2008 compared to seven worth $3.42bn in the same period of 2007."

In the first nine months of 2008, sukuk issues in Saudi Arabia dived to around $1.6bn from $5.7bn while they tumbled to $190 million from $835m in Kuwait and to $597m from $710m in Bahrain.

Sector-wise, real estate dominated sukuk activity in the 28-year-old Gulf economic, defence and political alliance, accounting for 42 per cent in the first nine months of 2008.

It was followed by the oil and gas, and power and utilities sectors, which accounted for 17 per cent each. The ratio stood at 11 per cent for the government, eight per cent for financial services, three per cent for construction and two per cent for conglomerates.

The decline in 2008 followed a sharp increase in sukuk issues in the GCC over the previous years, with the total value raised in the year ending in June amounting to around $17bn, according to Western bank reports.