The GCC is set for a surge in Sukuk launches after a six-month dry spell that's left the Islamic corporate bond market in the doldrums. Investment companies and law firms are reporting a healthy Sukuk pipeline as firms plan to tap Islamic debt markets for liquidity.
"I expect the Sukuk market to come back with a vengeance in the last quarter of 2011," Jawad Ali (below), King & Spalding's Middle East office managing partner and global deputy head of Islamic finance practice, told The Islamic Globe. He said the law firm is advising on three Sukuk worth $1bn in total that will close in September or October. "Corporates simply can't ignore debt capital markets and the fact that they have to solve the problem of lack of liquidity," he said.
Another lawyer based in London and working at one of the UK's leading law firms, requested anonymity, but said she's working on three deals worth between $500m and $2bn mainly with Dubai property companies. "Overall, Q4 is likely to see a 10% to 20% increase in Gulf Sukuk activity compared to 2010," she added.
In the first half of 2011 only five issuers from the GCC sold Shari'ah-compliant securities, compared with 29 borrowers offering $11.4bn globally, according to Bloomberg data. The few issues that have materialized in the region have been heavily oversubscribed, including HSBC Middle East's $500m issue in May, and Sharjah Islamic Bank's $400m Sukuk. Abu Dhabi's First Gulf Bank said recently it too is planning a $3.5bn Sukuk program.
The lack of variety has forced GCC fund managers to shift allocations to money markets for returns.
Jawdat al-Halabi (pictured above), CEO of Saudi-based NCB Capital, said: "Our Sukuk fund that was launched in 2010 has so far been slowed as there have not been that many quality offerings in the market."
He told The Islamic Globe that the fund invested just 25% in the primary Sukuk market. Separately, the bank is working with a Saudi contracting firm that plans to launch a Sukuk to fund a project later this year.
David Testa, a UK-based Islamic finance consultant, said Islamic banks or corporates bringing issues to market would be well received, as cash flow at Gulf-based banks remains high. "There's a lot people sitting on cash and are desperate to use it. In Kuwait, banks have far more cash than they want but don't want to lend locally, just GCC or internationally. They are long cash, short assets. Issuers are not taking advantage of this set up."
© The Islamic Globe 2011
