Global sukuk market to grow

Business 24-7:Despite the growing list of delays in sukuk issuance, the global sukuk market will grow to $40bn-$45bn (Dh147bn to Dh165bn) this year up at least 10 per cent from $32.65bn in 2007, a top official from Kuwait Finance House (KFH) said.

According to Baljeet Kaur Grewal, Managing Director and group chief economist at KFH, the announced sukuk pipeline to date is already put at $34.5bn, a 5.6 per cent increase from last year's.

And with Islamic bond market becoming more global (thereby attracting non-Muslim issuers), the market can further grow to $45bn-$50bn in 2009, Grewal said.

"The overall market for Islamic banking and finance stood at $700bn in 2007, and growing at 23.5 per cent annually over the past five years," Grewal told an investment conference in Dubai.

"Global sukuk outstanding is expected to reach $200bn by 2010 from current $97.3bn, an annual growth rate of 35 per cent," she said.

She said real estate, financial services and infrastructure (power, oil and gas and roads) sectors are expected to dominate the primary sukuk market in 2008.

The UAE is anticipated to lead at 35.1 per cent, followed by Malaysia at 21.3 per cent and Kuwait at 12.2 per cent. "This year will see sukuk debuts from new markets such as Thailand, Indonesia, Hong Kong and Kazakhstan," she said.

Grewal, however, said new sukuk issues will have to be delayed or priced slightly higher due to rising debt market volatility as well as the slight drop in investors' demand for the sukuk.

The effects of sub-prime has begun to bite the region since last year, Grewal said. Dana Gas was the first victim of the sub-prime turmoil as witnessed from the postponement of its 1 billion issue from July 2007 to October 7. The delays, since then, continue to mount including the pricing of Ithmaar Bank's $300m sukuk and National Bank of Abu Dhabi's $1.7bn bond programme until conditions improve in global debt markets.

Amlak, which is now underway to merging with Tamweel, had also delayed its plan to issue $260m mortgage-backed sukuk scheduled for end-2007. In August 2007, Malaysia's MISC deferred the sale of its planned $750m 10-year dollar-denominated bond issue.

Saudi Basic Industries Corp was forced to lower the senior unsecured bond portion of its financing to buy GE Plastics from around $2.76bn to $1.5bn and raise the bank loan portion from $5.4bn to around $6.6bn.

In May this year, Doha Bank group CEO Raghavan Seetharaman said they are holding the fundraising ($1bn sukuk) for the Middle East's first carbon trading scheme until they get back consumers' confidence.