Growth in new sukuk, or Islamic bond, issues is expected to remain in double-digits in the next two years despite current constrained liquidity, according to a latest research report.
US-based firm Morgan Stanley said in its industry report on Islamic banks that it expects sukuk, one of the fastest growing financial instruments globally, to be the largest contributor to sustained double-digit growth in Islamic finance.
Although it does not expect the cost of debt to retract significantly from the current levels this year, the global financial services firm said GCC firms cannot afford to postpone their expansion plans for much longer.
The firm expects Gulf banks – particularly the Islamic banks – to emerge as sukuk issuers since growth in customer deposits has been lagging growth in assets.
"Competition for deposits has also intensified in a negative real interest rate environment," the report said.
Morgan Stanley also forecast a "high 'teens CAGR [Compound Annual Growth Rate] in assets in the next few years", which it said should push banks to raise more sizeable medium to long-term funding.
Outstanding issued sukuk are at more than $90 billion (Dh330bn) today – almost 40 per cent of which are international issues – up from less than $1bn in 2002, the report said.
Sukuk worth $40bn were issued in 2007.
The report said that the figures would have crossed $50bn had international liquidity crunch not taken its toll on the industry in the second half of last year.
"A dozen or so deals were postponed to the first half of 2008 as issuers did not accept the wider spreads in the second half of 2007."
Although sukuk has been dominated by Malaysia and the UAE, which issued 55 per cent and 20 per cent of sukuk to date, the trend is increasingly going global to non-Muslim countries.
China, Japan and Thailand plan to issue sovereign sukuk this year, and the United Kingdom's Treasury said on Sunday it will probably support plans to issue sterling Shariah law-compliant bonds, amid continuing debate about the application of Islamic laws in the UK.
According to the Morgan Stanley report, international banks dominate the top rankings of sukuk lead managers, while Gulf banks are more subscribers to sukuk than issuers.
This is because complex sukuk structures involve challenging regulatory and legal procedures, and require extensive and costly advisory services.
"The distribution and transaction costs involved in pioneering such instruments are very high relative to conventional issues," the bank said in the report.
However, it added that Dubai Islamic Bank is ranked in the top 10 lead managers on cumulative sukuk issues since 2002 due to Dubai-based property developer Nakheel's $3.52bn convertible Ijara sukuk – the largest to date – issued in late 2006.
No comments:
Post a Comment