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Sukuk market to see strong performance
Abdul Basit / 12 March 2013
The sukuk market is expected to witness strong performance in the next few years while Gulf countries and Asia will remain the key engines for growth, according to Standard & Poor’s.
“Global issuance expanded for the fourth year in a row in 2012, growing 64 per cent to about $138 billion, and we expect another strong few years,” S&P’s said in a report.
Despite increased growth, the market for sukuk is still one per cent of the total bond issuance and there is strong potential to grow more and join the mainstream, S&P’s managing director and regional head for the Middle East Stuart Anderson told reporters at a news conference on Monday in Dubai.
Total sukuk issuance in the Gulf increased to $24 billion in 2012. S&P’s believe that the region’s economic resilience, strong project pipeline, and regional refinancing needs could boost its issuance to match Malaysia over the long run.
The ratings agency believes that GCC issuers, especially, are likely to come to market with bigger issues that are more commensurate with the potential suggested by their asset size.
Yields in the region have been declining, and even fell under those on conventional debt. We believe that a number of banks, particularly, will come to market, needing to refinance their existing debt and seeking larger amounts to match the credit needs of their corporate clients, especially in project finance. Largely dominating issuance are sovereign and sovereign-related issuers from Malaysia, and, to a lesser extent, from the countries of the Gulf Cooperation Council (GCC).
“Funding needs and large infrastructure investments in Malaysia and the GCC, combined with better global investor sentiment, is behind today’s momentum in the sukuk market,” according to the S&P’s report.
“The project finance sector will increasingly rely on sukuk to fund transactions, taking advantage of the good market conditions,”said Karim Nassif, associate director for Infrastructure Finance .
Infrastructure-related sukuk, especially for transportation projects, increased to $6 billion in 2012 after two years of barely any issuance. Nassif said that transportation has been very popular among investors as it accounts for nearly 70 per cent of all GCC issuance within the infrastructure segment in 2012.
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