Sukuk issuance to hit $30bn this year

Global sukuk issuance is expected to reach $30 billion this year in light of the recovery in global economic activity and the increase of sovereign wealth funds, companies, and the revival of private sector projects, a new research report said.

The value of the sukuk market has increased to reach about $100 billion in 2009 and the total value of issues for this market has seen a marked increase during the first half of 2010 to reach $16.5 billion, a growth of 16.3 per cent, Kuwait Finance House said in its report KFH Research.

“Hence, sovereign and similar funds played a prominent role in the rehabilitation of the sukuk market after hitting 79.7 per cent of the funding period, as Malaysia is still controlling the largest share of global sukuk market,” said the report.

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

Sukuk market in 2010 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.

More sovereign and corporate issuers are anticipated in 2010, which include potential debuts from Japan, Thailand, Turkey, United Kingdom and Russia

KFH Research expects sukuk market to maintain its vitality during 2010. The most important factors are stimulus programmes, huge government expenditures and government initiatives that will enforce and develop sukuk as well as the increasing popularity of Shariah-compliant products.

Demand for sukuk is expected to rise on account of a large allocation of funds on development projects by the Gulf governments during 2010 and the coming years.

By country, Malaysia continued to dominate the global sukuk market, contributing to 60.5 per cent of total value of sukuk issued in the first half of 2010. Saudi Arabia and Indonesia each trailed at 14.1 per cent. By currency type, Ringgit-denominated sukuk deals topped at 53.4 per cent, followed by USD deals of 10.3 per cent and Qatar Riyal issues of 8.3 per cent.

In the GCC region, Saudi Arabia has allocated almost $70bn to development projects for 2010, an increase of 16 per cent year-on-year. In Qatar, the government and state-owned companies plan to spend as much as $100bn in the next four years on projects including roads, sewage treatment, water treatment, ports and airports.

The UAE is investing in nuclear power and railways to revive economic growth in 2010 and 2011. Bahrain is investing heavily in infrastructure as a means of providing economic stimulus in the short term and to lay the foundations for economic growth in the future. In Kuwait, the government has allocated a KD5bn stimulus package for infrastructure development in the next few years.

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