Sukuk growth and prospects according to TheCityUK

From the ‘Leading Western Centre for Islamic Finance’ the following are excerpts regarding sukuk specifically, not considered in yesterday’s blog entry:

  • Sukuk issues reached around US$120 b pa 2012-2014
  • Outstanding value of sukuk a record $310 b at the end of 2014
  • As demand typically exceeds supply, yields are lower
  • The sukuk market is the fastest growing sector in Islamic finance and banking, having expanded at over 20% annually since 2008
  •  Malaysia, Saudi Arabia and the UAE, and emerging players like Turkey and Indonesia, have led these developments.
  • ‘Sukuk listings have pointed to more cross-border activity as issuers increased listings on key stock exchanges such as those in Europe, namely the London Stock Exchange, Irish Stock Exchange and Luxembourg Stock Exchange.’
  • ‘In 2014 countries which have entered the global primary sukuk market include the UK, Senegal, Hong Kong, South Africa and Luxembourg: an indicator that sukuk will be more widely accepted by mainstream finance. Hong Kong has returned to the market in 2015 with a successful sale of its second Islamic sukuk bond to raise $1bn.’
  • In late 2014
    • UK Export Finance (UKEF) announced its plan to provide Sharia compliant financing for UK exporters
    • UK Government-backed export credit guarantee agency underwrote its debut sukuk
      • $916 million, issued by Emirates Airlines

Predictions ventured in this publication

Impact of current and forecasted oil prices

‘The fall in oil prices since mid-2014 may encourage sukuk issues in the GCC; in 2015 Saudi Arabia issued their first sovereign sukuk since 2007 to finance the budget deficit. The overall impact of the lower oil price on sukuk issues remains to be seen. In the medium term issuance by sovereign entities may be driven by liquidity needs due to declining oil reserves.’

Drivers and some prescriptions

‘Over the next decade, sukuk are likely to remain a growing segment of the Islamic finance industry. Some of the factors that are likely to contribute to this include sustained global economic growth, sovereign liquidity needs, further infrastructure spending and attractiveness of cross-border destinations for fund raising. Sukuk can help close the global funding gap for infrastructure, and an increasing share of issuance has been in this area. The GCC region and especially Dubai is expected to offer huge investments opportunities in substantial projects, where the sukuk market is presumed to play an important role in securing these funds. However, more instruments will be needed in the coming years and the existing products will need to be refined as some sukuk structures are still in development.’

 

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