A report on the market "Sukuk"

Résumé du document

Global capital markets have long been functioning without Islamic components. Only recently have they been subject to the emergence of a new dimension: the sukuk (Islamic Bond) market. The sukuk market has experienced a spectacular growth since 2001 in the Middle East, supported by ultra-high petro-derived liquidity levels, which have fuelled by a growing demand for Islamic financial services and propelled the number of Islamic issuers within the region. However, the sukuk market has not been immune to the recent financial crisis, and the activity has notably slowed amidst difficult global market conditions. This has allowed the market some time for reflection on a number of specific issues, which have gradually emerged and will need to be solved. Although the long term outlook for the industry remains bullish, with the potential demand for sukuk likely to far outstrip available supplies, the future for sukuk remains full of challenges and constraints.

Extraits

[...] A deeper and more diversified sukuk market is therefore required. This call for the creation of a Shari'ah compliant inter-bank money market and other short term Shari'ah compliant liquidity instruments, which would not only create a secondary/ liquid market for sukuk but also boost Islamic banks' profitability. The 200% oversubscription of the short term sukuk issued by the Central Bank of Bahrein demonstrates investors' appetite for this type of instruments. A more detailed yield curve with a complete structure of issues needs to be built by sovereigns and governments related issuers. [...]

[...] This has allowed the market some time for reflection on a number of specific issues, which have gradually emerged and will need to be solved. Although the long term outlook for the industry remains bullish, with the potential demand for sukuk likely to far outstrip available supply going forward, the future for sukuk remains full of challenges and constraints. I. Sukuk: The fastest growing (but still immature) segment of the global bond market A. Sukuk experienced a fantastic growth but has not been immune to the financial crisis Why have sukuk witnessed such spectacular growth? [...]

[...] Privately owned corporate are also expected to more and more come into the market to fund their acquisition programmes. The transition from asset-based to asset-backed structures for sukuk should increase. Structures backed by assets, especially real estate or receivables will gain traction given the significant volume of assets in place and the continued high cost of raising funds on an unsecured level. The increasing amount of Shari'ah-compliant ABS issued will attract new investors (Muslims and non Muslims). The introduction of an active secondary sukuk market could further supplement the gradual increase in sukuk issuances by various types of issuers. [...]

[...] As a result, they have consumed a large portion of sukuk issuances (especially in the Gulf region) and hold them to maturity. IFIs therefore contribute to the momentum of this market, being the only economic entity able to position itself as buyer and seller of sukuk. Despite spectacular sukuk growth in recent years, the overwhelming demand for sukuk face scarce supply, making the market very illiquid and creating price distortions. Sukuk have not been immune to the global financial crisis The Islamic financial industry, particularly the sukuk market, faced unprecedented challenges in 2008, mainly due to the global credit crisis. [...]

[...] Sovereigns have now become the most common sukuk issuers, as they need to launch a variety of funding programs. This is a long-awaited step that should help creating a stronger and more efficient sukuk market in the longer term and developing a more detailed yield curve, hence a risk benchmark across several tenors and credit profiles. Sukuk structures have been tested for the first time with notably East Cameron Partners (originator of a $166m asset-backed sukuk) filing for Chapter 11 in Oct.08 and Nakheel (originator of a $4bn asset-based sukuk) seeking to restructure its debt in Nov.09. [...]