Sukuk market is set to cross $100bn mark

MANAMA: The global market for sukuk more than doubled last year to exceed $60 billion and is on track to top the symbolic $100bn mark in the next few years.

That is the conclusion of Standard & Poor's Ratings Services in a report published yesterday entitled The Sukuk Market Continues To Soar And Diversify, Held Aloft By Huge Financing Needs.

"We expect sukuk growth to remain on the same impressive trajectory, fueled by huge investment and financing needs, notably in countries of the Gulf and Asia," said Standard & Poor's credit analyst Mohamed Damak.

Sukuk are becoming a global phenomenon, attracting more issuers from a larger pool of countries than ever before.

This type of Sharia-compliant financing is set to continue providing issuers with non-bank alternatives to longer term funding, he added.

Sukuk growth has been slowed in the past six months by unfavourable credit market conditions, he said.

Some sukuk were postponed when liquidity dried up and credit spreads widened. But once market conditions return to normal, we expect issuance to resume double-digit growth.

Most sukuk issued last year were ijara, lease financing, or musharaka, venture capital financing. In the future we believe other types will become more common, he said.

"To date, Standard & Poor's rates 22 sukuk, the bulk of which are ijara or musharaka and carry credit enhancements.

"The US dollar continues to be the currency of choice for sukuk issuers, but has been declining in favour over the past five years," he added.

"Corporates and entities involved in project finance are the main issuers, with banks coming in second.

"Corporates find that sukuk are an alternative to financing their business or their projects, and financial institutions are increasingly turning to sukuk to sustain strong lending growth with stable funding sources and to curb maturity mismatches," he added.