GCC countries used to be main market, Kuwait and Qatar are absent
Sukuk market will continue to bloom during H2
KFH-Research prepared a report about global Sukuk market during First Half of this year, where it mentioned that the volume of Sukuk issuance during that period reached USD 66.4 billion. It added that the increase in Sukuk during that period was triggered by large sums of money pumped by sovereign authorities and central banks to absorb excess liquidity. The report mentioned that GCC countries used to be a main market for Sukuk during H1, despite the absence of Kuwait and Qatar.
Global Sukuk 2Q2012
Global sukuk currently represents a dynamic part of the Islamic financial system that continues to grow at a remarkable pace. After the largest quarterly issuance witnessed to date in the 1Q12, the global sukuk market has continued its growth trend throughout the 2Q12 on both primary and secondary market fronts. The first half of 2012 witnessed a diverse range of new issuances which round up at USD66.4bln for the period, while the secondary market grew to USD210.8bln, representing a y-o-y growth of 40.1% and 30.5%, respectively.
The growth of sukuk issuances this year can be attributed to a number of factors, including the declining yields for both corporate and sovereign issuances given significant demand, the rarity of high quality high yielding papers and the flight to fixed income safety amid more concerns emerging from Europe. The primary sukuk market has been driven by the increasing number of funds raised by sovereigns and central banks to soak up excess liquidity and provide short-term investments, while new jurisdictions continue to enter the fray.
Malaysia has continued its dominance in the market issuing USD18.5bln in the second quarter to total USD46.8bln for the first half period. The market share of Malaysian issuances has consistently been around 70.0% over the past five years and shows no signs of slowing down. The UAE was the second largest domicile of issuances over the quarter with USD2.4bln worth, closely followed by Saudi Arabia with a pinch lower than USD2.4bln.
Note: Others includes Pakistan (1.5%, USD1.0bln), Bahrain (0.9%, USD597.2mln), Yemen (0.4%, USD233.3mln), Brunei Darussalam (0.2%, USD156.3mln) and Gambia (0.03%, USD21.0mln)
By region, South Asia accounts for the majority of sukuk issuances in 1H12 (79.3%), Indonesia maintaining the regions second spot outside of Malaysia. Indonesian issuances have grown significantly of late with the nation launching its "project sukuk" programme as well as issue an encouraging number of sovereign certificates, mostly via auction or private placement, for fiscal financing. Year-on-year Indonesia's primary sukuk market has grown by 221.1% until end-1H12.
The MENA region, and more specifically the GCC region, has been a key market for issuances this year, growing by 6.1% despite no Qatari or Kuwaiti issuances thus far. On a quarterly basis, GCC sukuk issuances have grown by 112.3% y-o-y in the 2Q12, although 39.5% lower than the 1Q12.
During the 2Q12 there have been a number of notable sukuk. Amongst them are the Islamic Development Bank's USD800mln, issued with a return of 1.357% over its five-year tenure, significantly lower than the USD750mln issued at 2.350% during the 2Q11. The Emirate of Dubai issued its dual tranche sovereign sukuk Ijarah during April with a return of 4.900% for the five-year tenure (USD600mln) and 6.450% for a 10-year tenure (USD650mln). Subsequently Dubai Islamic Bank entered the market in May with a five-year USD500mln paper, managing to set a return at 4.752%, almost 15 basis points lower than its sovereign counterpart.
The second quarter has bolstered projections for the sukuk market moving forward given the higher uptake in sukuk issuances as well as the continued lower funding costs. Significant demand for high quality papers means that issuers continue to benefit from better credit terms. The second half of the year is expected to have a further USD30bln worth of sukuk papers mature as at end-2Q12 and corporates will be eager to raise and refinance long-term facilities and improve financing efficiencies.
Moving forward, sovereigns are expected to continue the market lead as the likes of Bank Negara Malaysia, the Indonesian government and the Central Bank of Gambia upscale market issuances. The introduction of inaugural sovereign issuances from South Africa, Nigeria, Turkey and Kazakhstan is set to further strengthen the sovereign market in 2H12. Meanwhile countries such as Libya, Egypt and Tunisia are hard at work in creating a regulatory environment for future sukuk issuances for 2013 and beyond.
© Press Release 2012
