Credit crisis affects issuance of sukuk in Gulf

Business 24-7:A festering credit crunch caused by the global financial crisis has sharply depressed the issuance of sukuk in the Gulf but the UAE remained the largest scene for Islamic bonds, a key investment firm said.

In contrast, IPO activity climbed to a record in the first nine months of this year and the UAE emerged as the second largest issuer of initial public offerings, the Global Investment House (GIH) said in a 90-page study about the financial and economic situation in the Middle East and North Africa.

From around $14.15 billion (Dh52bn) in the first nine months of 2007, the value of sukuk issued in the six-nation Gulf Co-operation Council (GCC) dived to nearly $8bn although their number slightly fell from 36 to 34, the Kuwait-based GIH said in the study, sent to Emirates Business."The sukuk market is fast emerging as the most significant form of Islamic financing. However, the credit crunch was felt on the sukuk issues with far fewer issues in 2008," the study said.

"The GCC accounted for 56 per cent of the global sukuk issuance. Although the number of issues declined slightly in the first nine months of 2008, the total funds raised tumbled by 43 per cent. The UAE continued to remain the most active market for sukuk with a total of 10 issues worth around $5.3bn issued during the first three quarters of this year."

The report showed UAE real estate companies dominated this activity, with a total of eight issues worth $4.85bn raised during the first nine months of 2008 compared to seven worth $3.42bn in the same period of 2007."A breakdown showed sukuk issues in Saudi Arabia plummeted from $5.7bn to $1.6bn, while they dived from $835m to $190m in Kuwait and from $710m to $597m in Bahrain. In Qatar, the value slightly increased from $300 to $301 in the same period, while there were no figures for Oman.

Sector-wise, real estate dominated sukuk activity in the 27-year-old Gulf economic, defence and political alliance, accounting for 42 per cent in the first nine months of 2008. It was followed by the oil and gas and power and utilities sectors, which accounted for 17 per cent each. The ratio stood at 11 per cent for the government, eight per cent for financial services, three per cent for construction and two per cent for conglomerates.

The decline followed a sharp increase in sukuk issues in the oil-rich region over the previous years, with the total value raised in the year ending in June amounting to around $17bn, according to Western bank reports.Over the five-year period ending June, such issues have jumped by nearly 20-fold, due to strong appetites for such tools.