The issuance of global Islamic bonds, or sukuk, is likely to double to $100 billion this year, thanks to higher take-up of Sharia-compliant financial products among Middle East investors, said Ernst & Young.
The sum of Islamic assets has been growing at over 20 per cent a year and reached $900 billion in 2007, the firm said, and is set to hit $2 trillion by 2010.
Excess wealth has been created by the oil boom, and a growing proportion of that wealth has been allocated to financial products that comply with sharia, the Islamic legal code that prohibits interest payment, speculation and investments in sectors such as alcohol or gambling.
"We estimate that by 2009, $1.5 trillion of the world's high net worth individual wealth to come from the Middle East. And 70 per cent of this wealth could invest in Islamic financial products," Ernst & Young Managing Partner Noor ur Rahman Abid told Reuters in an interview.
The global sukuk market, which set off in 2002, reached a record market value of $51.5 billion in 2007, up 90 per cent from $27.2 billion in 2006, according to the Islamic Finance Information Service (IFIS).
An estimated $10 billion of Islamic deals has been delayed by the dislocation in credit markets sparked by the U.S. subprime mortgage crisis, including Qatar Steel Company's $1.3 billion refinancing deal, the $2.5 billion fund-raising plan of Dubai Electricity & Water Authority (Dewa) and Emirates Aluminium's $2 billion bond sale.
But $10 billion worth of sukuk, mostly from property firms and financial institutions in the Gulf region, have been announced, said Abid.
UAE-based Rak Properties RPRO.AD and Kuwaiti real estate firm Abyaar (ABYR.KW: Quote, Profile, Research) have said they intend to sell $2 billion and $1 billion of sukuk, respectively, early this year, to finance projects. Kuwait's Gulf Holding Company and Qatar's Barwa Real Estate Co. BRES.QA are also lining up sukuk issues this year.
State-owned utility firm Dewa is expected to relaunch its sukuk program in the first quarter to help fund plant construction.
Doha Bank plans to raise about $1 billion by the third quarter to invest in green technology. While Bahrain Islamic Bank, which is planning a $1 billion buyout next year, is also eyeing a sukuk issue to finance the purchase.
Sukuk issuance in the Gulf region took off two years ago when Nakheel and Dubai Ports Authority each offered $3.5 billion worth of convertible sukuk.
Nomura analyst Rossitza Haritova told the Reuters Islamic Banking and Finance Summit in London she expects convertible sukuk to continue to attract both Islamic and conventional investors, despite the global credit squeeze.
Following the $1 billion convertible sukuk issuance of Dana Gas, the Middle East's largest natural gas firm, in October and Dubai mortgage firm Tamweel's $300 million deal, convertible Islamic bonds already account for 8 per cent of total European convertibles issued last year.
"We're easily seeing that share increase to 10 or 12 per cent by 2010," said Haritova. (Reuters)
Sukuk market to hit $100bn in 2008: E&Y