DUBAI — Several recent landmark corporate and infrastructure sukuk by companies in the GCC issuing in Malaysian ringgit may signal the start of a trend that could help develop and globalise the market, according a new report from Standard & Poor’s, or S&P.
In an era when the world’s conventional banks are producing fewer and shorter loans and companies are considering other options for finance, S&P believes that Islamic financial instruments could become a key funding source, especially in GCC and Asian countries, S&P said in a report entitled, “Beyond Borders: The GCC And Asia Could Rev Up Their Economies – And The Islamic Finance Market”.
These regions, with established Islamic financial regulatory bodies, are centres of the growing market estimated at $1 trillion. At the same time, Asia and the GCC are seeking huge amounts of capital to pay for their soaring needs for new infrastructure.
“We consider the market for Islamic infrastructure in both regions to have reached an inflection point in terms of new issuance after a relative lull from 2009 to 2011. What’s more, we’ve seen the emergence of the first project finance sukuk within the infrastructure asset class,” S&P credit analyst Karim Nassif said.
The GCC market reached over $19 billion in issuances as at July 2012, about the same for all of 2011. Of that figure, infrastructure represented 30 per cent, compared with just seven per cent the previous year, Nassif said.
“The reasons for the surge are low yields, relatively high liquidity, large capital expenditure needs, and strong investor appetite,” he added.
“Total sukuk issued out of Asia reached $57.9 billion in July 2012, compared with $64.9 billion for all of last year. Malaysia is now the world leader in sukuk issuance. Political will, recognition of beneficial ownership, tax incentives, and a rising investor base have all supported the country’s continued growth trajectory,” S&P credit analyst Allan Redimerio said.
Tapping the sukuk market could help improve the capital structure and liquidity profiles of GCC and Asian companies, particularly those operating in capital-intensive industries such as infrastructure. It could provide such companies the longer-term funding they need via a different funding source. This source is becoming more liquid as it reaches across border and becomes more global and grows in scale.
Over the past year or so, GCC companies have been crossing the figurative border into Asia for infrastructure finance. The Abu Dhabi National Energy Company and Bahrain-based Gulf Investment Corp are the first to issue sukuk in Malaysian ringgit.
The ringgit is attractive because of Malaysia’s established regulatory framework for Islamic finance and the wide pool of investors active in that market.
(Khaleej Times / 15 Sep 2012)
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com