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Oct 30 2012

Sukuk Monthly Update: Primary Market Review for September 2012

KFH-Research: Volume of Sukuk issuance in September USD 11.6 billion, 66% are sovereign

Sukuk issuance during first nine months of 2012 exceeded total issuance in 2011
Turkey is second after issuing Sukuk worth USD 1.5 billion


In a report prepared by KFH-Research regarding Sukuk in September, KFH-Rsearch asserted that this product that is considered to be the Islamic equivalent of bonds has continued to grow in 2012 and in September specifically. In addition, rates of issuance have varied among governmental, semi-governmental and the private sector, while exportation currencies varied among Malaysian Ringgit, Chinese Yuan, and US dollar. Kinds of Sukuk also varied from Ijarah to Murabaha.

The report explained that the issuance of Sukuk in September reached USD 11.6 billion with a 135% increase compared to September last year, while total volume of Sukuk issuance during the first nine months if this year reached USD 103 billion, exceeding the volume of Sukuk last year. Sovereign Sukuk formed 66% and Malaysia was first while Turkey came in second in volume of issuance; thus making the Malaysian Ringgit the first currency followed by the US dollar.

The aggregate value of sukuk issued globally amounted to USD11.6bln in September 2012, almost the same as August 2012 issue size and an increase of 135.0% y-o-y. This was the third largest amount of monthly sukuk issued in 2012 thus far (after USD20.3bln in January 2012 and USD13.3bln in July 2012). In the first nine months of 2012, total sukuk issuances reached USD103.0bln, 59.3% higher than the USD64.7bln issued in 9M 2011 and have exceeded 2011 full year issuances of USD85.1bln by 21.1%.

By issuer type, sovereigns made up the vast majority of sukuk issued in September 2012, at USD7.7bln or 66.1% of total issuances. Meanwhile, government-related entities and corporates accounted for 18.3% (USD2.1bln) and 15.6% (USD1.8bln) respectively of total issuances during the month.

By country of domicile, Malaysia topped the primary sukuk market with total issuances of USD10.0bln or 85.3% market share in September 2012. This was followed by Turkey at USD1.5bln or 12.8% market share and Bahrain at USD99.9mln or 0.9% market share. Subsequently, Ringgit-denominated papers accounted for RM9.8bln or 83.9% of total sukuk issued. USD and Yuan-denominated sukuk papers accounted for 12.8% and 1.3% respectively of total sukuk issued in September 2012.

By structure, Murabahah was the flavour of the month, represented USD7.2bln or 61.4% of total sukuk issued. This was followed by Ijarah at USD2.1bln or 18.3% and Musharakah at USD1.7bln or 14.5%.

September 2012 witnessed the debut of an international sovereign sukuk from the Republic of Turkey. The USD1.5bln 5-year sukuk was oversubscribed by five times, priced at a profit rate of 2.803%. By geographical distribution, Middle Eastern investors accounted for 58% of the subscription, followed by European investors with 13%, Asian investors with 12%, Turkish investors with 9% and US investors with 8%. By investor type, the largest share was distributed to banks at 59%, asset managers at 22%, international institutions and central banks at 10%, wealth managers at 5% and hedge funds at 4%.

Malaysia's Axiata Group issued a CNY1bln 2-year sukuk during the month, which is the largest Yuan-denominated sukuk and the second sukuk issued to-date in the dim sum bond market. The Axiata sukuk was upsized to CNY1bln from an original issue size of CNY500mln due to strong demand from global investors, and was oversubscribed by seven times of the original size. The 2-year sukuk paper was priced at a profit rate of 3.75%. The sukuk is listed on Bursa Malaysia Securities Berhad and the Singapore Stock Exchange. This issuance is the inaugural issuance from Axiata's USD1.5bln multi-currency sukuk issuance programme established in August 2012.

One other notable issue in September 2012 was Sabana REIT's SGD80mln 5-year convertible sukuk, priced at a profit rate of 4.5%. This transaction represented a number of firsts, including being the first sukuk convertible into units in a real estate investment trust and the first convertible sukuk issuance in Singapore. This transaction was also the first convertible sukuk issuance globally since 2009.

Global sukuk pipelines (excluding Malaysia) could potentially reach USD17bln for the months of November and December 2012 combined, pushing up 2012 full year global sukuk issuances above USD130bln. As at end-September 2012, global sukuk outstanding stood at USD223.2bln, up from USD178.2bln as at end-2011.

© Press Release 2012


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