KFH Research: Financial market to see 25% rise in global sukuk issuance

THE global financial market is expected to see strong growth of sukuk issuance for 2012 - about 25% to 30% - based on the momentum registered last year, said the research arm of Kuwait Finance House (KFH).

In the latest publication of its "Global Sukuk Report 2012", KFH Research Ltd said the strong growth will be driven by global economic activities; accommodative monetary policies; continued sovereign fund-raising to support economic growth as well as the revival of private sector projects.

"The International Monetary Fund projects world gross domestic product growth to remain at 4% for 2012, supported by strong growth in Asia, the Middle East and other emerging markets," said KFH Research, highlighting that this will ensure the revival of infrastructure projects on both the conventional and Islamic capital markets.

"More sovereign issuers are anticipated to tap the sukuk market in 2012 as governments will continue to raise funds to support economic growth and fund fiscal deficits," the research house reported, adding that new emerging market players and non-Islamic issuers will likely jump onto the bandwagon as well.

Other traits that will characterised this year's rising sukuk issuance will include, among others, increasing demand and popularity for Shariah-compliant products and structures post-global financial crisis and initiatives taken by various jurisdictions in developing legislative and regulatory frameworks, as part of efforts to attract foreign investments, would allow these new players to explore the sukuk industry for the first time.

KFH Research said a number of new jurisdictions have also shown interest in issuing sukuk, such as Egypt, Senegal and Nigeria; while France, Japan and Hong Kong are expected to continue to make regulatory inroads for future issuances.

"The demand for sukuk was previously limited outside Asia and the GCC (Gulf Cooperation Council) until a few years ago.
"Potential new sukuk markets that will emerge in 2012 include Oman, Thailand and the CIS (Commonwealth of Independent States - former Soviet republics.

"Elsewhere, non-Muslim western financial institutions and corporates in the US, the UK, European Union and Central Europe are also becoming more actively involved in this industry, and are interested to issue sukuk to refinance existing corporate debt or to finance working capital and expansion activities, including acquisitions.

"As in the year 2011, we expect new issuances in 2012 to be dominated by government institutions, and construction and financial services industry," KFH Research concluded.

[By Mohd Rashdan Jamaluddin, The Malaysian Reserve; Jan 9, 2012]