Is Sukuk the Future of Global Finance?
S&P expects that sukuk issuance to increase in 2014 (File Archive)
Despite some headwinds, long-term prospects for the sukuk industry remain promising as regulators continue to build and strengthen their frameworks to minimize barriers in the market and deepen liquidity, Standard & Poor's Ratings Services (S&P) said in a report published Tuesday, "After a mixed 2013, the global sukuk market looks promising in 2014."
Malaysia already benefits from a broad sukuk investor base and liquid debt market. So the increased interest from issuers, notably in the Middle East and Asia, in tapping the Malaysian ringgit and dollar market should in our view continue over the next few years as Malaysia cements its leading position in the industry.
"After a slowdown in 2013, with sukuk volumes declining by 13 percent, we anticipate that the sukuk industry will expand again in 2014, partly driven by corporate and infrastructure issuers in the Gulf," said Standard & Poor's credit analyst Samira Mensah.
"What's more, total issuance will exceed $100 billion for the third year in a row if yields remain attractive for issuers. And, after weakening in 2013, we believe issuance could pick up again in Malaysia in 2014 as its investment program resumes," Mensah added.
Now that Malaysia is adopting private sector investment, we believe non-sovereign issuance could accelerate in 2014-2015, continuing the trend witnessed in 2013 at a global level.
The overview to the report also notes: We anticipate double-digit growth in issuance by Gulf corporate and infrastructure entities, due in part to large infrastructure financing needs.
Increasing private issuance could signal a change in the sukuk market characteristics.
Sovereign sukuk could be slowly emerging as an alternative to fund growth in African countries.
We believe a regulatory push is necessary to strengthen frameworks, lower barriers to entry, and deepen liquidity in the sukuk markets.
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