Kuala Lumpur: The New Year 2013 will challenge the sales of Islamic bonds or Sukuk last year in 2012 all over the world which have been a record sales of sukuk i.e. $46 billion and the record is likely to be broken in 2013 as new countries like Oman, Tunisia and Egypt are tapping the market for the first time, this was claimed by CIMB Group Holdings Bhd. and OCBC Al-Amin Bank Bhd.
Borrowing costs on Shariah-compliant debt have fallen 11.4 percentage points to 2.82 percent since the end of 2008 as central banks in Europe, the US and Japan pumped funds into their economies to spur growth. Demand will be driven by the rise in Islamic banking assets, which may reach $1.8 trillion in 2013, compared with $1.3 trillion in 2011, led by Saudi Arabia and Malaysia, Ernst & Young said in a December 10 report.
Sales of bonds that comply with Muslim tenets jumped 25 percent in 2012 as companies sold debt as part of government programs in Asia and the Middle East to build railways, ports and roads. Thailand and South Africa have also announced plans to issue sukuk once legislation has been passed that will open up new markets for investors.
“Sukuk is an attractive channel to explore for those countries looking to expand funding sources,” Kuala Lumpur-based Alhami Mohd Abdan, Head of international finance and capital markets at OCBC Al-Amin, a unit of Singapore’s Oversea- Chinese Banking Corp., said in an interview. “Liquidity in the Islamic space is growing quite significantly,” he added.
The biggest sales came out of Saudi Arabia and Qatar amid development programs of $373 billion and $130 billion, respectively. Malaysia has embarked on a $444 billion spending spree over 10 years that helped spur Islamic bond offerings to an all-time high of 95 billion ringgit ($31 billion) in 2012.
Saudi Electricity Co. sold $1.75 billion of notes due in 2017 and 2022 in March. The yield on the five-year 2.665 percent securities has since dropped 55 basis points, or 0.55 percentage point, to 1.95 percent, according to the compiled data. Borrowing costs on global Shariah-compliant bonds fell 117 basis points this year and reached a record low of 2.76 percent on November 30.
Qatar completed a $4 billion offering in July. The yield on the 2.09 percent notes due in 2018 declined 13 basis points since the sale date to 1.97 percent.
“There’s an increasing number of governments from the Middle East and North Africa region looking to tap the sukuk market as part of efforts to widen their funding sources following the European debt crisis,” Zakariya Othman, Head of Islamic ratings at RAM Ratings Services Bhd., said.
He said, “They’re also probably doing so to meet demand from their Muslim populations as there’s now greater awareness of Islamic finance globally.”
Government Islamic securities accounted for 18 percent of the total global issuance this year, with Qatar, Indonesia, Turkey and the United Arab Emirates completing offerings.
“We expect to see issuance from new jurisdictions in Asia and Europe in 2013,” Mohamad Safri Shahul Hamid, the Kuala Lumpur-based Deputy CEO at CIMB Islamic Bank Bhd., a unit of CIMB Group, said.
“The benign interest-rate environment would also help spur the sukuk market in the near to medium term,” he added.