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S&P sees strong years ahead for sukuk

Dubai, March 12, 2013

With global issuance of sukuk expanding for the fourth year in a row in 2012 by 64 per cent to about $138 billion, the sukuk market can expect another few strong years, said a report released by Standard & Poor’s (S&P).

There is little to hinder another strong performance by the sukuk market in the next few years, Standard & Poor's explained in the new report “Investors Are Snapping Up Sukuk, Despite Questions About Creditworthiness”.

Despite increased growth, the market for sukuk, the Islamic equivalent of bonds, is still a small segment of the global fixed-income world, the report said.

Sukuk comply with Sharia law, meaning they do not technically pay interest; rather, they are structured to provide sukuk holders a profit margin.

“While still considered an alternative investment, we believe the sukuk market has the potential to grow and join the mainstream,” said Standard & Poor's credit analyst Paul-Henri Pruvost.

Largely dominating issuance are sovereign and sovereign-related issuers from Malaysia, and, to a lesser extent, from the countries of the GCC, he noted.

"Funding needs and large infrastructure investments in Malaysia and the GCC, combined with better global investor sentiment, is behind today's momentum in the sukuk market," said Pruvost.

“New sukuk issuance worldwide will exceed $100 billion again this year, according to our base-case scenario,” he added.

For that reason, GCC issuers are likely to come to market with bigger issues that are more commensurate with the potential suggested by their asset size, he noted.

Yields in the region have been declining, and even fell under those on conventional debt, the report said.

“We believe that a number of banks, particularly, will come to market, needing to refinance their existing debt and seeking larger amounts to match the credit needs of their corporate clients, especially in project finance,” S&P said in the report. – TradeArabia News Service

Tags: Dubai | sukuk | Standard & Poor’s | S&P | Sharia |

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