Oct 04 2012
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Sukuk: Financing the Infrastructure Sector
Sukuk have played a crucial role in the infrastructure sector over the past decade, with proceeds raised from issuances being utilised for both low and high profile projects. The very nature of sukuk combined with their flexibility allows them to be structured in various different ways which has attracted corporate and sovereign entities to choose Islamic bonds as a viable alternative financing instrument. The infrastructure sector has seen a large portion of the raised sukuk funds directed to development projects around the globe.
The cumulative infrastructure projects and funding needs in both the GCC and Asian regions are expected to support the sukuk market in 2012 and 2013 given that infrastructure spending has been one of the key drivers or economic growth in the GCC over the past decade. An important dimension of the infrastructure investments has centred on efforts to turn the region into an internationally significant transportation hub. Large investments in airports and sea ports have gone hand in hand with new rail and road projects which are transforming the leading urban centres of the region but also creating in increasingly GCC-wide network of modern surface transportation. The most ambitious expression of this is provided by the on-going efforts to establish a regional railway system within the GCC member states.
Meanwhile in Asia, domestic growth catalysts include the faster implementation of public sector projects (such as the mass transit and other socio-economic projects) which are expected to boost economic growth in the region. According to the Asian Development Bank, the cost of building power plants, transportation hubs, telecom facilities, water systems and other infrastructure across Asia will exceed USD8.0tln over the next 10 years.
Other factors supporting the sukuk market growth include:
· More sovereign issuers are anticipated to tap the sukuk market in 2012 and 2013 as governments will continue to raise funds to support economic growth and fund fiscal finances.
· More Islamic financial institutions as well as other types of issuers are expected to tap the sukuk market
· Increasing demand and popularity for Shariah-compliant products and structures post global financial crisis will form a strong demand base for sukuk moving forward.
· Initiatives taken by various jurisdictions in developing legislative and regulatory frameworks, as part of efforts to attract foreign investments, would allow these new players to explore the sukuk industry for the first time.
Moving into 2013, we expect governments or sovereigns to continue to drive the sukuk issuances, encouraging corporate issuers as market conditions continue to improve. We believe, that the growth will continue to be supported by increasing popularity of Shariah-compliant products, governments' support for Islamic finance, huge investment and financing requirement in the GCC and Asia regions, as well as issuers' desire to tap investors from the Middle East and Muslim Asia.
© Press Release 2012
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