US Dollar No Longer Sukuk Issuers Choice

Bahrain Tribune: With shaky US dollar conditions in global markets, sukuk issuers have also decided to not raise funds in US dollar denomination, a report released by a global-rating agency said. The report also maintained that the global sukuk market projects to cross the $20 billion by year end.

The report made public by Standard and Poor's Ratings Services in a report published yesterday said the US dollar "Is no longer the currency of choice for sukuk issuance." "After a slow start this year, the sukuk market is picking up again. The report titled "Sukuk Market Continues to Grow Despite Gloomy Global Market Conditions" said total issuance stood at about $14 billion in the eight months to August 31, 2008 down from about $23 billion during the same period last year.

"This lower level of issuance, according to S&P, was largely due to deteriorating conditions on global markets resulting in lower investor interest in buying the paper and the related widening of credit spreads. Most sukuk was issued in markets where liquidity is still abundant and/or appetite for Shariah-compliant instruments is high, namely the countries of the Gulf Co-operation Council and Malaysia.

"Despite lower issuance versus last year, we still expect that sukuk issuance will reach $20 billion-$25 billion this year given the good pipeline," said S&P credit analyst Mohamed Damak.

"We continue to see a lot of appetite from issuers in a larger number of countries, Muslim and non-Muslim.

"Entities located in more than 15 countries, predominately non-Muslim, have expressed interest or announced their intention to issue sukuk. We, therefore, expect the sukuk market to continue globalising. Over half of the sukuk issued in the first-half of this year was ijara (lease financing), most probably as a direct consequence of the debate among some Shari'a scholars regarding Shariah-compliance of most sukuk previously issued.
To date, S&P has rated about 30 sukuk (or sukuk programmes), the bulk of which are ijara or musharaka (venture-capital financing).

"The US dollar lost its position as the currency of choice for sukuk issuance this year, not only because of its weakness but also due to speculation about the depegging of some GCC currencies from the dollar".

"Corporates remained the main issuers, with financial institutions and sovereigns far behind. S&P's role is to provide market participants with independent and objective opinions about the creditworthiness of issuers or issues, Shari'a-compliant or conventional. "Our ratings represent opinions about creditworthiness and do not address Shariah compliance."