Growing trade in Islamic bonds or sukuk in the Gulf region this year could be driven further by increased private sector interest in sukuk on the back of strong activity by banks, said an expert ahead of a world financial congress in Dubai.
More than $6 billion of sukuk have been sold in the GCC so far in 2012, compared to issuance of $7.3 billion for all in 2011, with the UAE's Majid Al Futtaim Group paving the way for more private sector involvement in Islamic finance through a recent sukuk sale, according to Emirates NBD head of fixed income research Nick Stadtmiller.
With Islamic financial institutions currently holding Sharia-compliant assets worth an estimated $1 trillion, he said the global annual sukuk market was valued at $180bn.
"Regional banks have been especially active in tapping the sukuk market in recent months," said Stadtmiller, who will be among a team of experts analysing the intricacies of sukuk trading at the ACI Financial Markets World Congress.
"Another interesting development in the sukuk market was Majid Al Futtaim Group's $400 million sukuk sale in February. The groups's sukuk issuance may open the market to other purely privately owned regional companies," he added.
Stadtmiller said the growth in sukuk sales in the Gulf region in recent months stems from high demand for the current limited supply of Islamic bonds, while many financial institutions with good liquidity are looking to put money into new investment channels.
"Malaysia is the oldest and largest market for sukuk, but the GCC sukuk market has grown considerably in recent years," he said.
"By selling sukuk, issuers can reach a wider audience of investors, including Islamic institutions that are required to invest in assets that do not pay interest. Many Islamic institutions, particularly in the Middle East and Southeast Asia, have ample liquidity and are looking to deploy money into new investments," he added.
"Sukuk is a relatively new product, and currently supply of sukuk is small compared to the potential demand for these assets.
"The supply-demand imbalance in the sukuk market means that issuers can place sukuk among a wide investor base and attract competitive pricing on sales," he concluded.
(TradeArabia News Service / 22 March 2012)
Alfalah Consulting - Kuala Lumpur:
Islamic Investment Malaysia: