Singapore—Global issuance of Islamic bonds, or sukuk, declined 43% on the year in 2015 due to the sharp fall in commodity prices and a policy change by Malaysia, according to a financial standards organization. The total value of new sukuk issues fell to $60.7 billion from $107 billion a year earlier after Malaysia, the largest issuer, suspended sales of short-term local-currency sukuk, which were used as an investment tool rather than for liquidity management, the International Islamic Financial Market said in a report released Tuesday.
The Bahrain-based IIFM also attributed the drop to global uncertainty stemming from the steep decline in oil prices, and talk of interest rate hikes in the U.S. The industry went through a “consolidation phase” last year, following record-high sukuk issues exceeding $100 billion between 2012 and 2014, the organization said. Around two-thirds of the issues in value terms — $39.8 billion — were denominated in local currencies, reflecting demand in the key markets of Malaysia, Saudi Arabia and Bahrain. However, the value of local-currency sukuk in 2015 was only half that of the previous year after Malaysia, which accounted for 66% of total sales, decided in January to halt sales of sukuk with maturities of less than one year amid a fall in the value of the ringgit. The value of other local-currency sukuk issues grew marginally in 2015, rising to $13.5 billion from $12.5 billion in 2014, sustained by interest from Indonesia, Bahrain and Turkey.
Meanwhile, international sukuk that is, those denominated in major foreign currencies such as the dollar fell 21% to $20.9 billion due to economic uncertainty and the maturing of a few long-term bonds that were not reissued. Out of the total outstanding sukuk as of Dec.31, 2015, Malaysia accounted for 57%, followed by Saudi Arabia with 17%, United Arab Emirates with 10%, Indonesia with 6% and Qatar with 4%.
The corporate sector accounted for 44% of the issues in value terms while sovereign issuers made up 34% and quasi-sovereign issuers 22%.IIFM predicts that although sukuk issuance in 2016 may be hampered by the slowdown in the global economy, the overall direction will remain “positive.” “The appeal of sukuk will sustain the issuance in 2016,” said Ijlal Alvi, CEO of the organization. He added that the number will pick up as issuance from the corporate sector and project financing gains steam. Newcomers such as Indonesia and Turkey may reduce Malaysia’s market share in the coming years, he said.
(Pakistan observer / 07 April 2015)---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com