Private sector to spur sukuk market in the Gulf
Growing trade in Islamic bonds or sukuk in the Gulf region this year could be driven further by increased private sector interest in sukuk on the back of strong activity by banks. This will be revealed at the 51st ACI Financial Markets World Congress to be held in Dubai this weekend.
More than $6 billion of sukuk have been sold in the GCC so far in 2012, compared to issuance of $7.3bn for all in 2011, with the UAE's Majid Al Futtaim Group paving the way for more private sector involvement in Islamic finance through a recent sukuk sale, according to Emirates NBD head of fixed income research Nick Stadtmiller
With Islamic financial institutions currently holding Sharia-compliant assets worth an estimated $1 trillion, he said the global annual sukuk market was valued at $180bn.
"Regional banks have been especially active in tapping the sukuk market in recent months," said Stadtmiller, who will be among a team of experts analysing the intricacies of sukuk trading at the ACI Financial Markets World Congress. "Another interesting development in the sukuk market was Majid Al Futtaim Group's $400m sukuk sale in February. The groups's sukuk issuance may open the market to other purely privately owned regional companies," he added.
Mr. Stadtmiller said the growth in sukuk sales in the Gulf region in recent months stems from high demand for the current limited supply of Islamic bonds, while many financial institutions with good liquidity are looking to put money into new investment channels.
"Malaysia is the oldest and largest market for sukuk, but the GCC sukuk market has grown considerably in recent years," he said. "By selling sukuk, issuers can reach a wider audience of investors, including Islamic institutions that are required to invest in assets that do not pay interest.
"Many Islamic institutions, particularly in the Middle East and Southeast Asia, have ample liquidity and are looking to deploy money into new investments," he added. "Sukuk is a relatively new product, and currently supply of sukuk is small compared to the potential demand for these assets.
"The supply-demand imbalance in the sukuk market means that issuers can place sukuk among a wide investor base and attract competitive pricing on sales," he added.
- Need some space? UAE's banking sector is getting too crowded
- Bank funding in the Middle East doesn't boil down to liquidity alone
- Why is the Israeli shekel so weak?
- What doesn't kill you, makes your stronger: why the Arab Bank is likely to emerge from the Israeli lawsuit 'unscathed with flying colors'
- Too foreign? An inside look into the struggles of foreign banks in Saudi Arabia