Mar 17 2013
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Strong sukuk issuance and performance is anticipated this year
Sunday, Mar 17, 2013
Dubai: Strong investor demand supported by improving liquidity is expected to boost both issuance and performance of sukuk this year, according to rating agency Standard & Poor’s.
“Global issuance expanded for the fourth year in a row in 2012, growing 64 per cent to about $138 billion, and we expect another strong few years,” said Standard & Poor’s credit analyst Paul-Henri Pruvost.
While sukuk is still considered an alternative investment, Standard & Poor’s Ratings Services believes it has the potential to grow and join the mainstream fixed income universe.
Yield compression that is happening in the GCC region is expected to give a big boost to the issuance market in the region.
Large infrastructure projects, particularly in Malaysia and the GCC, are likely to stoke issuance. S&P analysts expect the new issuance of sukuk worldwide could top above $100 billion again this year. Sustained investment spending and ample domestic liquidity are likely to support sukuk issuance, especially in Malaysia, Saudi Arabia, Qatar, and the UAE. Investment spending could see high single-digit growth for 2013.
Overall sovereign issuers are expected to dominate the sukuk market. “We believe that sovereign and sovereign-related issuance will continue to dominate, shape, and underpin the sukuk market, as it has in the past several years. Sovereign sukuk are generally the first inroad into Sharia-compliant funding in any given country, enabling the gradual creation of reference prices over time, to which private-sector entities can benchmark themselves,” said Pruvost.
S&P analysts anticipate a rebound in sukuk issuance from the GCC since 2011 is set to intensify; following muted years after the global financial crisis yields on GCC sukuk appear to be consolidating at historic lows. Low interest rates worldwide and investors’ preference for the bond markets--over still-depressed equity markets--largely explain the trend.
“Future global growth of the sukuk market, in our opinion, depends directly on greater liquidity and better price formation. Liquidity is tight because the market is still small and viewed as an alternative asset class. This situation is improving as larger and more frequent issues come to market, and as sukuk gain greater acceptance as a mainstream debt instrument,” said Engin.
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