Islam, Islamic, Islamic News, Fatwa's and Islamic Business/Finance with Islam Online

Islamic Finance to remain active year ahead: Standard & Poor’s

Published: 31/03/2013 07:10:00 PM GMT
Related Stories

Dubai: A report by Standard & Poor’s has hinted that the year ahead is likely to see again that banks would continue tapping Islamic debt facilities so that the Sukuk markets can be kept active. The report has emerged amid growing suspicion that the asset class is falling out of favor with investors.


Dubai: A report by Standard & Poor’s has hinted that the year ahead is likely to see again that banks would continue tapping Islamic debt facilities so that the Sukuk markets can be kept active. The report has emerged amid growing suspicion that the asset class is falling out of favor with investors.

However, the credit ratings agency warned that the pipeline of new Sukuk sales could become jammed if investors’ demands for higher yields on sukuk and longer-dated debts head too high.

“In view of supportive debt capital market conditions, we forecast banks’ issuance levels to remain elevated in 2013,” the report said.

“We expect most of the impetus to come from banks in the United Arab Emirates, the largest issuers in 2012, and Qatar, where issuance has been steadily increasing,” it added.

There are some signs that 2013 will not scale the highs reached last year, when total Islamic bond sales reached $21.2 billion (AED77.8bn).

Arabian Gulf sukuk issuances have mounted to $2.1 billion this year. During the first quarter of last year, sukuk sales reached $8.3 billion.

Meanwhile, Bank of America Merrill Lynch, Coutts and Société Générale have said that the sukuk rally has run out of steam.

Total returns on the HSBC Nasdaq Dubai GCC US dollar sukuk index increased by 10.3 percent. The banks believe that sukuk and other emerging market debts will lag stocks this year.

So far this year, the index has returned just 0.6 percent while global equities have rallied, with the MSCI World index up 4.7 percent during the same period.

Others disagree, including HSBC, the biggest underwriter of sukuk debt.

Sales could total between $30bn and $35bn, Mohammed Dawood, the Managing Director of debt capital markets at HSBC Amanah, said last month.

Standard & Poor’s said that it also expects more hybrid issuances by banks during the year as lenders seek out riskier structures to entice yield-hungry investors.

It said, “We anticipate that the expected issuance will show dependence on pricing levels.”

“If we were to see a change in the region’s fixed-income investors’ expectations, such as demands for higher yields on sukuk and longer-term bonds, this could curb issuance activity because regional banks are highly price sensitive,” it added.



Standard & Poor's

Advertisement







Advertisment