DUBAI, July 28, 2010--Citing worldwide sukuk issuance of $13.7 billion in the first half of this year, just shy of a two-fold jump on the $7.1 billion registered in the initial six months of 2009, Standard & Poor's Ratings Services examines current and future sukuk market growth trends in a new report published today, "Sukuk Issuance Is Up And Running, But Will The Climb Continue Apace?"
"On the heels of the sukuk market's sharp upturn as of midyear 2010, we foresee sustained growth for the second half, given issuers' interest in tapping the market, both in historical locations like Asia, especially Malaysia, and in other regions newer to sukuk," said Standard & Poor's credit analyst Mohamed Damak.
In our view, slightly improved international market conditions are supplying some of the impetus. In first-half 2010, sovereigns accounted for the lion's share of issuance, representing about 75% of total volumes as governments strived to revive the market. At the same time, we saw some private sector issuers return to the market. Financial institutions and companies from both the Gulf Cooperation Council (GCC) countries and Asia gradually crept back to the market. We think their return will likely continue.
July 2010 saw Japan's first sukuk issue, sending in our view a signal that the sukuk market is continuing its march toward globalization. We believe that many issuers around the world may be willing to enter the market as more favorable conditions materialize.
Despite the current advance, major questions for the market still remain unanswered, in our view.
"Dealing with sukuk defaults, standardizing Sharia interpretation, and increasing sukuk liquidity, we believe, are at the root of issues that could curb future growth," said Mr. Damak. "It is the solutions to these issues--likely in our view to be neither easy nor quick--that we believe will shape the direction the market takes."
To date, Standard & Poor's has rated sukuk worth more than $25 billion, based on its specific rating methodology for sukuk. Our role does not include structuring sukuk transactions, advising issuers or investors, or stating our opinion on the Sharia compliance of Islamic financial instruments.
Among the other highlights of the report:
Sukuk issues numbered 98 during the first six months of this year versus 32 in first-half 2009, with an average issue of $140.8 million compared with $222.7 million one year earlier.
Asia continued to dominate in the first half of 2010 with 70% of total issuance. Malaysia cemented its position as the world's top sukuk market, contributing 52.7% of total issuance.
Some Gulf countries are slowly re-entering the market, taking their share of total issuance to about 30% during the first half of 2010. The market has also re-opened for well established issuers based in the United Arab Emirates.
We estimate that about 150 sukuk are either already in the pipeline or warming up on the sidelines. We expect that these will likely come to the market as and when conditions allow.
Dollar-denominated sukuk accounted for a modest 12.4% of total issuance in the first half of 2010, and in our view, dollar issuance over the next six months will likely remain limited.
Most sukuk to date have been issued in the form of over the counter (OTC) instruments that investment bankers developed to fit specific needs of issuers and then privately placed to meet specific needs of investors. The market is now moving toward listed instruments, be it on international markets or on local markets such as Dubai, Malaysia, or Saudi Arabia.
Listing sukuk on organized markets, we believe, is important for the liquidity of the instrument itself but also makes it easier to use for financial institutions seeking to broaden asset classes they use to manage their liquidity.
The report is available to RatingsDirect on the Global Credit Portal subscribers at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to research_request@standardandpoors.com. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4011.
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For more information please contact:
Analyst contacts:
Mohamed Damak, Paris
Emmanuel Volland, Paris
Ritesh Maheshwari, Singapore
Media contact:
Matthew McAdam
S&P Communications, London
Tel: +44 (0) 207 176 3605
Email: matthew_mcadam@standardandpoors.com
© Press Release 2010
