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GCC sukuk issue triples despite global turmoil

IPO and bond activity stifled by EU debt crisis in 2011
The issuance of sukuk (Islamic bonds) in Gulf hydrocarbon producers nearly tripled in 2011 despite the global downturn but other investment tools, including IPOs and conventional bonds were stifled.

From around $6.9 billion in 2010, the value of sukuk issued in the six-nation Gulf Cooperation Council (GCC) shot up to nearly $19.4 billion in 2011, Saudi Arabia's largest bank, National Commercial Bank ( NCB ) said.

In a study sent to Emirates 24/7, it said sukuk issues also recorded a sharp increase worldwide at a time when bonds remained under pressure.

Its figures showed global sukuk issues surged from around $43.7 billion in 2010 to nearly $65.8 billion in 2011.

The number of issuances in the GCC (including short-term paper with maturities of less than a year) rose from 33 to 44. T

Qatar's government was the leading issuer with a total of $9.0 billion worth of issuances and hence accounts for much of the increment year-to-year.

"In spite of a clear positive momentum in recent months, corporate sukuk issuance has remained dominated by a small number of large deals."

The report showed the GCC saw a total of 12 corporate sukuk with a combined value of around $5.6 billion.

This was up from a total of seven corporate issuances in 2010. Their total value reached $4.3 billion, according to NCB .

"In spite of the positive momentum, it is clear that the GCC market - as indeed its Malaysian counterpart - remains critically linked to sovereign and quasi-sovereign issuances. Most of these remain short-term paper sold for liquidity management purposes, above all by the Central Bank of Bahrain."

In contrast, the regional equity markets have been a relative weak link for the GCC capital markets throughout the year, NCB said.

"The backdrop of global uncertainty, most notably the mounting Euro-zone crisis, meant that 2011 fell far short of the performance experienced in 2010."

Whereas a 2010 saw a total of 12 IPO's with an aggregate value of $2.2 billion, the number of new listings fell to 9 in 2011.

The report showed their aggregate value dived by 60.8 per cent from $2.0 billion to less than $0.8 billion.

Saudi Arabia remained the leading regional market with a total of five IPOs with an aggregate value just short of SR1.7 billion ($0.5 billion).

There were a total of three UAE listings with an aggregate value of $271.3 million while Oman had one listing worth $63.9 million.

The largest 2011 IPO was the listing of Eshraq Properties in the UAE - a total value of about $229.1 million, according to the report.

Bond activity was also stifled by global turbulence, although the overall issuance activity remained remarkably constant.

The report showed 2011 saw a total of $28.4 billion worth of issues with tenors in excess of one year. The number of issuances fell from 59 to 36.

It said corporate issuance had remained dominant in recent years, adding that 2010 saw a total of 45 corporate issuances with maturities in excess of a year while there were eight sovereign issues.

The aggregate value of the corporate bonds reached $25.5 billion while the sovereign paper totalled $5.9 billion.

The number of corporate issuances fell to 31, worth a total of $16.1 billion. There were five sovereign issuances with a value of $12.33 billion.

"With the global economic situation remaining unusually risky, the outlook for bonds is uneven, potentially promising more of the kind of volatility that has characterized much of the past year," NCB said.

"Overall, the GCC countries have major redemptions pending in the coming year. The total volume bonds and sukuk maturing in 2012 is estimated at $25 billion while the corresponding figure for 2013 is nearly $35 billion."

© Emirates 24|7 2012