sukuk market growth and diversification adnan halawi - zawya
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Sukuk Market Growth & Diversification
London Sukuk SummitJune 2012
Exponential Growth…
2007 was the best year on record until 2011 took over
The industry was negatively affected by the global financial crisis in 2008/2009
Source: Zawya Sukuk Monitor
Key Growth Factors
Large pools of Muslim wealth and abundant liquidity Demand still exceeds supply Thriving Islamic funds industry Alternative source of funding Diverge from risky equity Safe haven, asset-backed/based Huge financing and refinancing requirements Drying up of syndicated loans market Adoption of Islamic finance and banking by post Arab Spring
regimes Eurozone debt crisis pushing investors and borrowers to other
regions Islamic banks are less connected to problems in Europe Islamic banks are relatively liquid compared to their conventional
counterparts
Bearish outlook…
Zawya expects 2012 to be at least as good as 2011
Best-case scenario implies USD126 billion worth of sukuk could be sold in 2012
Source: Zawya Sukuk Monitor
Despite obstacles…
Disputes and debates across different Shariah schools (Ex: GCC versus Malaysia)
Lack of standardization & harmonization High issuance/structuring costs Lack of suitable regulatory framework Double taxation in some jurisdictions Underdeveloped secondary market Opposition from political parties in certain
jurisdictions Supply remains limited
Outstanding Sukuk Market
The current outstanding global sukuk market is estimated at USD 214 billion as of May 2012
South-East Asia accounts for 70% of the total with Malaysia alone USD132 billion (62%) followed by Indonesia
Saudi Arabia and UAE top GCC, followed by Qatar and Bahrain
Source: Zawya Sukuk Monitor
International vs. Domestic
19% of the current outstanding sukuk market is international
81% of the market is domestic
In 2006, sukuk were almost equally distributed between domestic and international
International issuance retreated after the global financial crisis
2007 was the best for internationally sold sukuk
Source: Zawya Sukuk Monitor
Breakdown by Exchange Listing
London SE is currently home for the largest amount of listed sukuk globally, followed by Bursa Malaysia, Nasdaq Dubai, Labuan, and Saudi’s Tadawul
We expect other exchanges to join the club such as Qatar Stock Exchange
Bursa Malaysia’s efforts & incentives paid off
Source: Zawya Sukuk Monitor
Geographical Expansion
Number of countries issuing sukuk almost doubled from 10 to 19 between 2006 and 2012
The trend is expected to continue as more countries join the club
Countries from all continents could witness sukuk sales including African, Australian, Russian and European states Source: Zawya Sukuk
Monitor
Currency Diversification
It follows naturally that currencies used to sell sukuk more than doubled between 2006 and 2011 from 7 to 17
As more countries witness sukuk and other witness domestic issuance for the first time
Malaysian Ringgit and US Dollar remain the most frequent
First British Pound in 2010, first Jordanian Dinar and Dim Sum in 2011
Source: Zawya Sukuk Monitor
Significant Developments 2011-2012
Conventional issuers stepping in (South Africa, Goldman Sachs, Taqa, HSBC ME, Majid Al Futtaim)
Innovation continues in terms of structures including first perpetual out of Malaysia by MAS soon, ALIM structure introduced in 2010, more use of Wakala
Increased cross-border issuance (GIB, Taqa, NBAD, GIC, Khazanah)
Rise of project-finance sukuk New countries adjusting their tax and regulation
to facilitate issuance (Egypt, South Africa)
Significant Developments 2011-2012
• Saudi Arabia’s GACA USD 4 billion sukuk acts as catalyst for more issuance out of the Kingdom which sold USD7.8 billion in first 5 months of 2012
• Short term sukuk gains popularity (Indonesia introduces short-term bills, Saudi Bin Laden, Pakistan’s 6-month corporate sukuk, IILM plans similar initiative, among others)
• New sectors, currencies, and markets (Turkey)• Launching Islamic Interbank Benchmark Rate
(IIBR) in November 2011
Conventional retreat in favor of Islamic (MENA) Gap reduced
between conventional bonds and sukuk in the MENA region partly due to increased sale of the latter in the GCC
Trend could persist should North African countries start selling sukuk
Egypt, Tunisia, and Libya showed interest
Jordan and Palestine from the Levant as well
Yemen started in 2011 and resumed in 2012 after unrest
Source: Zawya Sukuk Monitor, Zawya Bonds
Monitor
Prepared by:
Adnan Halawi – Team Leader, Fixed Income
Abir Atamech – Sukuk Analyst
Email: sukuk@zawya.comWebsite: www.zawya.com/sukuk
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