Sukuk market growth and diversification adnan halawi - zawya


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Sukuk market growth and diversification adnan halawi - zawya

  1. 1. Sukuk Market Growth & Diversification London Sukuk Summit June 2012
  2. 2. Exponential Growth… 2007 was the best year on record until 2011 took over The industry was negatively affected by the global financial crisis in 2008/2009 Source: Zawya Sukuk Monitor
  3. 3. Key Growth Factors Large pools of Muslim wealth and abundant liquidity Demand still exceeds supply Thriving Islamic funds industry Alternative source of funding Diverge from risky equity Safe haven, asset-backed/based Huge financing and refinancing requirements Drying up of syndicated loans market Adoption of Islamic finance and banking by post Arab Spring regimes Eurozone debt crisis pushing investors and borrowers to other regions Islamic banks are less connected to problems in Europe Islamic banks are relatively liquid compared to their conventional counterparts
  4. 4. Bearish outlook… Zawya expects 2012 to be at least as good as 2011 Best-case scenario implies USD126 billion worth of sukuk could be sold in 2012 Source: Zawya Sukuk Monitor
  5. 5. Despite obstacles… Disputes and debates across different Shariah schools (Ex: GCC versus Malaysia) Lack of standardization & harmonization High issuance/structuring costs Lack of suitable regulatory framework Double taxation in some jurisdictions Underdeveloped secondary market Opposition from political parties in certain jurisdictions Supply remains limited
  6. 6. Outstanding Sukuk Market The current outstanding global sukuk market is estimated at USD 214 billion as of May 2012 South-East Asia accounts for 70% of the total with Malaysia alone USD132 billion (62%) followed by Indonesia Saudi Arabia and UAE top GCC, followed by Qatar and Bahrain Source: Zawya Sukuk Monitor
  7. 7. International vs. Domestic 19% of the current outstanding sukuk market is international 81% of the market is domestic In 2006, sukuk were almost equally distributed between domestic and international International issuance retreated after the global financial crisis 2007 was the best for internationally sold sukuk Source: Zawya Sukuk Monitor
  8. 8. Breakdown by Exchange Listing London SE is currently home for the largest amount of listed sukuk globally, followed by Bursa Malaysia, Nasdaq Dubai, Labuan, and Saudi’s Tadawul We expect other exchanges to join the club such as Qatar Stock Exchange Bursa Malaysia’s efforts & incentives paid off Source: Zawya Sukuk Monitor
  9. 9. Geographical Expansion Number of countries issuing sukuk almost doubled from 10 to 19 between 2006 and 2012 The trend is expected to continue as more countries join the club Countries from all continents could witness sukuk sales including African, Australian, Russian and European states Source: Zawya Sukuk Monitor
  10. 10. Currency Diversification It follows naturally that currencies used to sell sukuk more than doubled between 2006 and 2011 from 7 to 17 As more countries witness sukuk and other witness domestic issuance for the first time Malaysian Ringgit and US Dollar remain the most frequent First British Pound in 2010, first Jordanian Dinar and Dim Sum in 2011 Source: Zawya Sukuk Monitor
  11. 11. Significant Developments 2011-2012 Conventional issuers stepping in (South Africa, Goldman Sachs, Taqa, HSBC ME, Majid Al Futtaim) Innovation continues in terms of structures including first perpetual out of Malaysia by MAS soon, ALIM structure introduced in 2010, more use of Wakala Increased cross-border issuance (GIB, Taqa, NBAD, GIC, Khazanah) Rise of project-finance sukuk New countries adjusting their tax and regulation to facilitate issuance (Egypt, South Africa)
  12. 12. Significant Developments 2011-2012• Saudi Arabia’s GACA USD 4 billion sukuk acts as catalyst for more issuance out of the Kingdom which sold USD7.8 billion in first 5 months of 2012• Short term sukuk gains popularity (Indonesia introduces short-term bills, Saudi Bin Laden, Pakistan’s 6-month corporate sukuk, IILM plans similar initiative, among others)• New sectors, currencies, and markets (Turkey)• Launching Islamic Interbank Benchmark Rate (IIBR) in November 2011
  13. 13. Conventional retreat in favor of Islamic (MENA) Gap reduced between conventional bonds and sukuk in the MENA region partly due to increased sale of the latter in the GCC Trend could persist should North African countries start selling sukuk Egypt, Tunisia, and Libya showed interest Jordan and Palestine from the Levant as well Yemen started in 2011 Source: Zawya Sukuk Monitor, and resumed in 2012 Zawya Bonds Monitor after unrest
  14. 14. Prepared by:Adnan Halawi – Team Leader, Fixed Income Abir Atamech – Sukuk Analyst Email: Website: