Wednesday, Jul 01, 2009

By Mirna Sleiman

Of ZAWYA DOW JONES

BEIRUT (Zawya Dow Jones)--The global issuance of Islamic bonds, or sukuk, fell 35% to $5.3 billion in the second quarter compared with a year earlier but a rebound may be within sight, data from Zawya Sukuk Monitor shows.

Year-on-year declines in the primary sukuk market were offset by a 164% surge in volume compared with the first quarter for sukuk, indicating renewed demand for Shariah-compliant debt instruments, according to Zawya.com's latest research.

Investors are once again putting faith in the sukuk market despite the ongoing financial crisis, which continues to weigh on banks and finance companies.

"The global market for sukuk issuance should recover by the second half of 2009," said Afaq Khan, Standard Chartered BankStandard Chartered Bank's chief executive officer for Islamic banking. "We expect close to $10 billion in primary sukuk issuance this year," he said.

Malaysia and Indonesia topped Zawya's list of issuers, followed by Bahrain and Saudi Arabia, the largest Middle East economy. A total of 42 bonds went to market in the second quarter, out of which 30 deals where sold by governments, the data shows.

SUKUK PIPELINE

In the Middle East and North Africa close to $1 billion worth of sukuk were sold during the second quarter, excluding 7 billion Saudi riyals ($1.9 billion) this week by Saudi Electricity CompanySaudi Electricity Company, or SECSEC.

SECSEC's sukuk will close on July 6.

The government of Ras Al Khaimah is also seeking to raise $500 million this year through a sukuk that's expected to hit the market soon, Zawya Dow Jones reported last week.

The quarter saw the first U.S. dollar international issuance this year by Islamic finance heavyweight Indonesia, followed by a similar sovereign bond by the government of Bahrain.

Several countries including France, Hong Kong, Kenya and Nigeria have recently, or are in the process of changing their laws to facilitate the introduction of Islamic financial products in a sign of the continued appeal for Shariat-compliant financial instruments.

Standard & Poor's Financial Services expects the $700 billion global Islamic finance industry will weather the financial crisis and resume its growth driven by high demand for Shariah-compliant products, which are considered less risky than convention debt.

"The long-term pipeline for sukuk issuance is healthy, and the market is attracting interest from an increasing number of issuers in both Muslim and non-Muslim countries," said Mohamed Damak, credit analyst at Standard & Poor's Ratings Services in a recent report.

-By Mirna Sleiman, Dow Jones Newswires, +9714 364 4966, mirna.sleiman@dowjones.com

Copyright (c) 2009 Dow Jones & Co.

(END) Dow Jones Newswires

01-07-09 0803GMT