The issuance of Islamic bond, or sukuk, in the Middle East could reach over $14bn this year, according to HSBC, as investor demand and the relatively lower volatility of the asset class drive sales.
HSBC forecasts global sukuk volumes of $44bn in 2012, of which the Middle East region could comprise just over 30%, the bank’s Islamic arm Amanah, said yesterday.
Malaysia will continue to dominate sukuk issuance, with about 60% of total volumes forecast globally.
“One of the key drivers of this will be the continued level of liquidity within the overall Islamic investor base, whether in Middle East or Asia, the market is still very much characterised by a high degree of liquidity and relatively limited levels of supply,” said Mohamed Dawood, managing director of Islamic global markets for EMEA.
“From a volume, country, and issuer perspective, 2012 is going to be a year when this market will continue to make its mark.”
Asked whether a possible sukuk default by UAE’s Dana Gas would affect forecast sukuk issuance this year, Dawood said it wouldn’t be “helpful”.
Dana Gas has a $920mn sukuk maturity due in October. It has hired Deutsche Bank to advise on the Islamic bond and address investor concern on a repayment plan.
The UAE and Saudi Arabia are likely to dominate the regional sukuk issuance landscape. So far this year, Emirates Islamic Bank and First Gulf Bank, as well as private corporate and a first-time issuer, Majid Al Futtaim Holding, have issued sukuk.
In Saudi Arabia, the General Authority for Civil Aviation (GACA) issued a $4bn equivalent riyal-denominated bond in January. “We increasingly expect that businesses consider sukuk as a reliable and permanent source of capital (in Saudi Arabia) ... and the number of investors and the appetite for sukuk is growing,” said Muhammad Farhan, head of Islamic Finance at HSBC Saudi Arabia.
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Islamic Investment Malaysia: