Asia to Lead Sukuk Growth As Firms Tap Islamic Bonds
Ratings agency Standard & Poor’s stated that Islamic bond offerings may accelerate in the next 18 months, led by first-time issuers in Asia, after the region accounted for the most sukuk sold this year. While issuance of sukuk, or Islamic bonds, are down 17 percent globally this year, Asianborrowers issued $5.3 billion, about 68 percent of the total $7.8 billion worldwide. Sales from companies in the Persian Gulf dropped 24 percent to $2.5 billion so far in 2010 — the lowest level since 2005 — after Dubai World, one of the three main state-owned business groups in the United Arab Emirates, announced plans to restructure debt in November.
One credit analyst and joint chair of the Islamic finance working group at S& P in Paris stated that Sovereigns, particularly from Asia, are pushing for the revival of the sukuk market. Additional countries, or issuers domiciled in countries new to Islamic finance, to tap the sukuk market in the near future was expected. Likely, it will be within the next 18 months.
The Philippines’ state-owned Al-Amanah Islamic Bank is exploring a sale, according to bank president Armando Samia. Economic growth in developing Asia, including Malaysia and Indonesia, will accelerate to 9.2 percent this year from 6.9 percent in 2009. Middle Eastern economies may expand 4.5 percent compared with 2.4 percent, according to estimates by the International Monetary Fund.
Governments are tappinglocal and international sukuk markets to help set benchmark rates for corporate bond sales. The debt is typically backed by assets or cash flow because Islamic law bars interest payment. Instead, investors earn profits from the assets.
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