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Sukuk issuance to exceed US$20bil this year

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Points of Essence:

  • Sukuk market has continued to be on a strong footing where its issuance would reach USD20 billion this year, thanks to a large appetite from big country issuers. However, the figure would have been higher if not because of the dwindling greenback and the uncertainties surrounding the global credit market which suppressed the interest of issuers. The issuance of Sukuk until August this year was recorded at a low USD 14 billion compared to USD 23 billion during the same period in 2007.
  • There were also concerns on the Shariah compliance issues with regard to the previous Sukuk issuance. This resulted in more than 50% of sukuk issued in the first half of 2008 were “ijara” (lease financing) based, being a less contentious Shariah principle.

KUALA LUMPUR: The sukuk market is picking up again and the issuance is expected to exceeed US$20bil this year, Standard & Poor’s Rating Services (S&P) said in a report.

The Sukuk Market Continues To Grow Despite Gloomy Global Market Conditions report said the appetite from issuers in a large number of countries was growing.

In a statement yesterday, S&P said entities in more than 15 countries, predominately non-Muslim, had expressed interest or announced their intention to issue sukuks.

S&P credit analyst Mohamed Damak said more than 50% of sukuk issued in the first half of 2008 were “ijara” (lease financing), most probably as a direct consequence of the debate among some syariah scholars regarding the syariah-compliance of most sukuks previously issued.

Mohamed said the US dollar had 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 Gulf Cooperation Council (GCC) currencies from the dollar.

“Corporates remained the main issuers, with financial institutions and sovereigns far behind,” he said.

According to the report, total issuance stood at about US$14bil in the eight months to Aug 31, down from about US$23bil during the same period in 2007.

“The lower level of issuance was largely due to the deteriorated conditions on the global markets resulting in lower investor interest in buying the paper and the related widening of credit spreads,” it said.

It said most sukuks were issued in markets where liquidity was still abundant and/or appetite for syariah-compliant instruments was high, namely the countries of the GCC and Malaysia. — Bernama

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Written by Suapi Shaffaii

September 11, 2008 at 10:44 am

Posted in General Issue

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