USD43bn sukuk in 1Q12 could translate into USD120bn in 2012

Redistribution of Islamic assets within MENA
Saudi sukuk eats into Malaysia's share
Egypt and Hong Kong seen rising

04 April 2012

Global Sukuk Review - March 2012

Sukuk issuance in the first quarter of 2012 exceeded all expectations reaching a record USD 43 billion globally, according to data compiled by Zawya's Quarterly Sukuk Bulletin for 1Q 2012. This is almost double the average amount of sukuk issued in any given quarter of the past year, and half the amount issued throughout 2011.

The best-case scenario suggests sukuk issuance could reach USD 126 billion this year and will be at least as good as last year's USD 85 billion, according to Zawya's global sukuk forecast.

Source: Quarterly Sukuk Bulletin - 1Q 2012

While Malaysia remained the biggest issuer of sukuk, accounting for 71% of the total with USD 31 billion, its share of global sukuk issuance retreated in favor of Saudi Arabia, which alone issued USD 6.4 billion worth of sukuk, securing the second ranking for the first time in the history of global sukuk. Indonesia and the UAE followed with USD 3.4 billion and USD 1.9 billion, respectively. These four countries are expected to remain the largest issuers of sukuk for the full year 2012.

Malaysia's issuance itself broke a record as its PLUS USD 10 billion program sold in January was one of the largest ever. Interestingly, overwhelming demand for Khazanah's  USD 358 million exchangeable sukuk sold in Hong Kong allowed the issue to be priced at negative yield to maturity.

Kingdom sukuk

Saudi Arabia was the star of the first quarter. In the absence of any conventional bonds out of the kingdom, a flurry of sukuk made the headlines.

In line with analyst expectation that the issuance of the first sovereign sukuk in the kingdom would set the benchmark and trigger more issuance, GACA's USD 4 billion sukuk was shortly followed by a series of Islamic bonds by Almarai, Saudi Electricity - which sold its first global sukuk - and Saudi British Bank (SABB).

Each of these issues carried features that made it a pioneer, ranging from size, structure, nature of guarantee, competitive yields, massive oversubscription, diversity of currencies, markets, and offer types.

Kingdom Holding Company expressed interest in raising funds through sukuk in the near future and this was followed by rumors that Aramco could sell around USD 2 billion. If anything, Q1's events mean the kingdom is going be a major player in the global sukuk industry.

UAE's position as the top sukuk issuer in the GCC was shaken for the first time. Yet, the UAE had its share of firsts. Tamweel, First Gulf Bank and Emirates Islamic Bank sold sukuk. They were followed by Majid Al Futtaim Group's first foray into bond issuance in the form of sukuk. And Abu Dhabi National Energy Company, or Taqa, sold its first sukuk in Malaysia.

Source: Sukuk Monitor

Elsewhere in the region, Bahrain, Qatar and Kuwait were dormant during the first quarter. Yemen was set to revisit the sukuk market in April, with an issue of YER 50 billion salam sukuk.  Qatar Petroleum whispered for the first time of the possibility of selling sukuk. Qatar's delayed bonds and sukuk are expected to materialize sooner or later.

According to Zawya, GCC issuance of sukuk exceeded conventional bonds for the first time in Q1 2012.

Egypt fierce competitor for GCC

The Middle East and North Africa region could witness a shift or at least redistribution in the map of Islamic finance and sukuk.  Egypt, Tunisia, Morocco, Libya and other states are keen on adopting new tax measures and preparing the proper regulatory framework to move towards Islamic financing, including sukuk.

While the time frame for this to materialize is not yet certain, Egypt seems to be the most serious so far. Should Egypt start selling sukuk, the GCC will face a fierce competitor for the position of Islamic finance hub.

Worldwide, Indonesia did great during the first quarter, selling short-term Islamic treasury bills, including Haj Fund Sukuk, Retail Sukuk 4, and project-based sukuk - and announced its plan to sell the third global sukuk later this year. Benefiting from a large Muslim population, the government is able to easily sell its domestic debt. Due to its investment grade rating, the Indonesian government should be able to sell any international sukuk at competitive prices.

The pipeline for 2012 is still promising, with Goldman Sachs confirming the Shariah compliance of its sukuk program; many African nations reconfirming their plans to sell sukuk; IILM renewing its hopes to sell sukuk in the near future; National Australia Bank making sukuk noises; and Kazakhstan and other sovereigns and companies from around the globe talking about getting on the band wagon. UAE's Jebel Ali Free Zone Authority may sell sukuk to repay existing debt while Kenyan Islamic bank said it plans to launch sukuk in the second quarter.


The Istanbul stock exchange unveiled plans to expand Shariah-compliant securities while Libya's central bank said it is planning a law to allow Islamic bond sales. Tunisia set up an Islamic finance working group. Kenya's CMA was reported to be setting its sights on integration of Islamic capital market products.

Hong Kong said it will launch a platform with Malaysia to spur sukuk sales. Hong Kong's Financial Services and Treasury Bureau launched a consultation on March 29, 2012, on the proposed amendments to the Inland Revenue Ordinance and Stamp Duty Ordinance to promote Islamic bonds.

Reading list

Saudi SABB sells SAR1.5bn subordinated maiden sukuk

Sukuk in Africa inevitable more than anywhere else

Turkish sukuk market looks good for expansion in 2012

The imperative of developing local currency debt markets

Khazanah's USD357.8 million exchangeable sukuk achieves negative yield

Adnan Halawi is team leader, fixed income, at Zawya. He can be contacted on 

© Zawya 2012

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