Sukuk market outlook upbeat

Gulf Daily News: Despite a dramatic decline in volumes last year, the long-term perspectives for global sukuk issuance are still good, a top ratings agency said.

More than 45 per cent of sukuk issued last year were lease financing (ijara), most probably as a direct consequence of the debate about Sharia compliance among some scholars, Standard & Poor's said in a report.

"The decline in sukuk issuance last year was as a result of global market turmoil, drying up of liquidity, widening of credit spreads, and investors' wait-and-see attitude," said Standard & Poor's credit analyst Mohamed Damak.

"Although difficult to measure, part of this decline could also have been due to comments about the Sharia compliance of some sukuk by the Accounting and Auditing Organisation for Islamic Financial Institutions."

The value of sukuk issued last year dropped by more than 56pc to $14.9 billion compared with 2007.

"We do not expect the market to start reviving before the second half of the current year or early next year," added Mr Damak.

However, long-term prospects for the sukuk market remain strong.

Although volumes dropped dramatically last year, the sukuk market attracted about the same number of issuers.

Conservative estimates of the pipeline of sukuk that have been talked about or announced are in excess of $45bn.

Several factors support sustainable growth of this market, including increasing popularity of Sharia-compliant products and government openness to Islamic finance, massive investment and financing needs in the Gulf, and issuers' desire to tap investors from the Middle East and Asia.

"Issuers from more than 20 countries have expressed interest in issuing, or announced their intention to issue, sukuk, and we anticipate that several new sovereigns will enter the market," added Mr Damak.