Structural issues curb Gulf sukuk
For the first nine months, issuance plunged 27.5% to $ 79b from $ 109b in the same period last year With most GCC currencies pegged to the dollar, there is a natural hedge against currency volatility, thus these issues could be appealing to investors.”
Despite the high demand for sukuk from the regional and international investors, sukuk issuance from the region is lagging because of a number of structural challenges faced by issuers in the region, said investment bankers, experts and asset managers speaking at the International Islamic Economy Summit 2013.
For the first nine months of this year the sukuk issuance plunged 27.5 per cent to S79 billion from the high of $ 109 billion in the same period last year, according to a report released by Thomson Retuers Zawya.
Investment banks and issuers agree that the news of tapering and the prospect of rising interest rates affected the sukuk pricing which kept a number of potential issuers away form the market. In the whole of third quarter hesitant issuers wait- ed for stability in the market. Bankers say the fourth quarter has seen renewed activity and the issuance could cross $ 100 billion for the year as whole.
“We saw healthy issuance numbers in 2013. Last year was exceptionally good, with a month to go to the end of the year, we could still see a few more issues before the end of the year,” said Mohieddine Kronfol, Chief Investment officer, Global Sukuk and Mena Fixed Income at Franklin Tem- pleton.
Most panelists agreed that divergence of views from Shariah scholars and absence of a unified system of rulings are making the structuring of sukuks a time consuming and expensive process. “The sukuk structuring is a very time consuming process. Proper legal and regulatory structures are key to developing a vibrant sukuk issuance market in the region,” said Iyad Malas, CEO of Majid Al Futtaim Holding LLC.
In the context excessive dependence of private sector and government related entities on the banking sector for long term finance, panelists at the forum said there is an urgent need for developing a local currency sukuk market and a project sukuk market.
“Clearly local currency market has more liquidity. With most GCC currencies pegged to the dollar, there is a natural hedge against currency volatility, thus these issues could be appealing to both regional and international investors,” said Amir Riad, Global Head, Corporate Finance & Investment Bank, Abu Dhabi Islamic Bank.