The value of Islamic bonds issued in the first 11 months of 2013 has reached USD 103 billion, relatively lower than the USD 131 billion figure recorded in the same period last year, according to the Zawya Islamic Sukuk Monitor. Despite its lackluster sukuk volume, 2013 still emerged as the second best year for the industry. The challenging circumstances surrounding the sukuk market, however, have stifled efforts to expand the sector's assets this year.
Geographically, the drop can be attributed to a reduced issuance from Malaysia, which has sold USD 68 billion to date this year, down from a hefty USD 96 billion last year. Other countries that issued less sukuk in 2013 include Qatar, Indonesia and Pakistan. The sukuk market failed to reach record levels despite increased issuance in Saudi Arabia, UAE and Turkey and the entry of new players such as Nigeria, Oman, Maldives and Luxembourg.
The Irish Stock Exchange accounted for USD 8.5 billion of sukuk listings through 14 deals, positioning itself as the exchange of choice for sukuk in 2013. Nasdaq Dubai came in second, buoyed by the vision of HH Sheikh Mohammed Bin Rashid Al Maktoum to make Dubai the world's capital of the Islamic economy and the global capital of sukuk. London Stock Exchange (LSE) retreated remarkably this year, grabbing only three deals worth USD 2.2 billion, down from USD 11.37 billion as a result of 15 deals last year. Nevertheless, LSE remained the largest sukuk market in terms of number of Islamic bonds listings historically. Meanwhile, Muscat Stock Market joined the fold with listing of the first Omani sukuk from Tilal Development.
RACE TO BECOME HUB
London, Kuala Lumpur and Dubai continue to battle it out to be the world's sukuk capital. As they compete for the title, both Saudi Arabia and Turkey are rapidly emerging as potential hubs without even coveting the crown as they quietly and steadily contribute to the growth and diversity of the global sukuk market, while putting in place the necessary reforms to advance the sector's cause.
Saudi firms sold more than USD 14 billion in sukuk in 2013, a figure that will surpass USD 15 billion with Saudi Electricity closing its deal this month - making it the second largest issuer of sukuk after Malaysia. Saudi issues include both international and domestic issuance, coming from a variety of sectors including government, banks, food, agriculture, oil and gas, petrochemicals and real estate.
Turkey, on the other hand, introduced domestic short-term sukuk bills to add to its portfolio of sovereign sukuk, and is now witnessing an influx of Islamic bond issuance from its banks, followed by corporates.
Towards the end of the year, discussions about North Africa as the next major destination for sukuk had waned as the region continues to suffer from political instability. Sub-Saharan Africa and Europe are now candidates to fill that role next to the GCC and South East Asia. South Africa and the United Kingdom are also in a better position and are more likely to sell sovereign sukuk than Egypt or Libya, for example.
As we wrap up the year, we see a healthy pipeline and bright prospects for the sukuk market. The need to fund infrastructure projects in some growth cities will more than compensate for the loss coming from cities with unstable environment. Indeed, sukuk continues to play a key role in the growth of the niche Islamic finance industry.
Adnan Halawi is product manager at Zawya Islamic. He can be reached at email@example.com
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