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BRIDGING THE GAP BETWEEN SUPPLY AND
DEMAND
Redha Al Ansari
Senior Islamic Capital Markets Analyst
Thomson Reuters
Global Sukuk
Outlook
Infrastructure
projects around the
World
The Opportunities
and Challenges
The Gap Between
Supply and
Demand
WHAT IS COMING UP IN 2016?
A strong pipeline of $32 billion keeps the investors thrilled for new
investment opportunities. Majority of issuances are expected to come from
financial services sector followed by power & utilities, in the range of $500mln.
Outlook
Given a strong pipeline, the outlook remains positive, All market
players expect a slight boost in sukuk issuance in 2016 to reach around US$
100 billion
WHAT VOLUME OF GLOBAL SUKUK ISSUANCE DO YOU EXPECT IN 2016? THE TOTAL
GLOBAL SUKUK ISSUANCE IN 2013 WAS US$ 107.2 BILLION AND 2014 US$ 112.7 BILLION
12%
17%
28%
23%
20%
6% 6%
39%
22%
28%
16%
23%
29%
16% 16%
Less than US$ 75 billion US$ 75 billion - $ 100 billion US$ 100 billion - $ 124.9
billion
US$ 125 – US$ 149.9 billion More than US$ 150 billion
BUY SIDE SELL SIDE OTHERS
Outlook
Global Sukuk Outlook
Infrastructure
projects around
the World
The Opportunities
and Challenges
The Gap Between
Supply and
Demand
Out of the total global infrastructure investments, Asia Pacific comes second
slightly behind North America
The breakdown indicates that more Infrastructure projects are coming up in Asia
Pacific countries, which could some country could potentially Issue sukuk for funding
Asia Pacific
29%
North America
32%
Western
Europe
27%
Middle East
and Africa
4%
Rest of
Europe
4%
South America
4%  The total global value
of infrastructure
investments by 2013 was
estimated by the World
Bank at US$ 17 trillion
 North America share
was almost one third of
the total infrastructure
projects followed by Asia
Pacific at 29%
For the last 3 years (2012 – 2015) Malaysia comes at the top of the list at 61%
of total sukuk issued for financing infrastructure followed by Saudi Arabia 30%
 Approximately US$ 75 billion worth of
sukuk has been issued in the last 3 years
mainly in the matured markets
 In the GCC, real estate developments
and infrastructure projects could witness
growth especially in Qatar as it prepares
for the World Cup 2022
Given the maturity and depth of the
Malaysian sukuk market, some reliance
has been put on sukuk as opposed to
other governments where reliance are on
taxes & reserves
Malaysia
61%
Saudi Arabia
30%
UAE
7%
Indonesia
1%
Pakistan
1%
Others
0%
320
235
170
110 105 100
16 15.7
0
50
100
150
200
250
300
350
Maynmar Indonesia Vietnam Philippines Thailand Malaysia Cambodia Singapore
The ASEAN Countries alone need over 1 US$ trillion between now and 2020US Bil
Global Sukuk Outlook
Infrastructure projects
around the World
The
Opportunities
and Challenges
The Gap between
Supply and
Demand
The Opportunities…
Conceptually sukuk is the ideal method of financing for the infrastructure projects as
sukuk is closely tied to the ‘real assets’ in their structure
Embed the risk sharing features which is a key essence of Islamic finance
The availability of straightforward structures such as Ijarah and/or Istisna can well
accommodate the issuance of infrastructure sukuk
Supportive institutions such as the Islamic Development Bank (IDB) and the World
Bank which would assist other governments to consider sukuk for infrastructure
projects
Infrastructure sukuk can well benefit investors who are looking for longer term
investments such Islamic banks, pension funds, and the broader Islamic economy
THE MATCHING CHARACTERISTICS OF SUKUK AND INFRASTRUCTURE PROJECTS
PAVE THE WAY FOR MORE SUKUK ISSUANCES
The demand for infrastructure sukuk increases as Investors prefer longer
maturity and higher quality investments
And The Limitations…
Biggest limitation is that some of the projects being financed do not exist today,
whether it’s a football stadium in Brazil or new ports and railways in Indonesia
This comes into effect when a new asset is between the flexibility for investors to
trade and the originator to determine the degree to which they bear the ultimate risk
to the projects. In the past years, the infrastructure projects were partially or fully
undertaken by sovereigns, so this issue was irrelevant.
Unlike conventional heavily leveraged projects, Islamic finance is conceptually
supposed to avoid leveraged projects
The project risk is also inequitably shared within the project transaction as there is a
priority given to the sukuk holders and Islamic syndicated loan which is not
proportionate with any outcome of the project.
Nonexistence of the projects, highly leveraged and risk sharing are the top limitations for
funding infrastructure projects with Sukuk
Governments do have alternatives
Despite growing pressures on public budgets, general and local taxes will continue to
provide the single most important source of financing in many cases
The reliance on government and the public sector to undertake such project funding,
supported by high reserves and to a lesser extent banks as the traditional providers
of easy debt finance for infrastructure projects
The reliance on banks although to a lesser extent as they have been the traditional
providers of easy debt finance for infrastructure projects
Some countries have also considered Sukuk and bonds to fund some of the projects,
but the former comes with some technical challenges that could hinder the
applicability of the instrument in the infrastructure space
SO WHY HAVEN’T BEEN THERE A LOT OF INFRASTRUCTURE SUKUK?
1
2
3
4
Global Sukuk
Outlook
Infrastructure
projects around
the World
The Opportunities and
Challenges
The Gap Between
Supply and Demand
Despite the tremendous drop in sukuk issuance, outstanding sukuk
still expected to reach $400 billion levels by 2020 which could be
SUKUK SUPPLY AND DEMAND LEVELS (2014 - 2020)
The GAP
Thank You
To download Thomson Reuters Sukuk 2016 report, please visit
https://www.zawya.com/ifg-publications/

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Bridging the gap between sukuk supply and demand through capitalizing on infrastructure projects

  • 1. BRIDGING THE GAP BETWEEN SUPPLY AND DEMAND Redha Al Ansari Senior Islamic Capital Markets Analyst Thomson Reuters
  • 2. Global Sukuk Outlook Infrastructure projects around the World The Opportunities and Challenges The Gap Between Supply and Demand
  • 3. WHAT IS COMING UP IN 2016? A strong pipeline of $32 billion keeps the investors thrilled for new investment opportunities. Majority of issuances are expected to come from financial services sector followed by power & utilities, in the range of $500mln. Outlook
  • 4. Given a strong pipeline, the outlook remains positive, All market players expect a slight boost in sukuk issuance in 2016 to reach around US$ 100 billion WHAT VOLUME OF GLOBAL SUKUK ISSUANCE DO YOU EXPECT IN 2016? THE TOTAL GLOBAL SUKUK ISSUANCE IN 2013 WAS US$ 107.2 BILLION AND 2014 US$ 112.7 BILLION 12% 17% 28% 23% 20% 6% 6% 39% 22% 28% 16% 23% 29% 16% 16% Less than US$ 75 billion US$ 75 billion - $ 100 billion US$ 100 billion - $ 124.9 billion US$ 125 – US$ 149.9 billion More than US$ 150 billion BUY SIDE SELL SIDE OTHERS Outlook
  • 5. Global Sukuk Outlook Infrastructure projects around the World The Opportunities and Challenges The Gap Between Supply and Demand
  • 6. Out of the total global infrastructure investments, Asia Pacific comes second slightly behind North America The breakdown indicates that more Infrastructure projects are coming up in Asia Pacific countries, which could some country could potentially Issue sukuk for funding Asia Pacific 29% North America 32% Western Europe 27% Middle East and Africa 4% Rest of Europe 4% South America 4%  The total global value of infrastructure investments by 2013 was estimated by the World Bank at US$ 17 trillion  North America share was almost one third of the total infrastructure projects followed by Asia Pacific at 29%
  • 7. For the last 3 years (2012 – 2015) Malaysia comes at the top of the list at 61% of total sukuk issued for financing infrastructure followed by Saudi Arabia 30%  Approximately US$ 75 billion worth of sukuk has been issued in the last 3 years mainly in the matured markets  In the GCC, real estate developments and infrastructure projects could witness growth especially in Qatar as it prepares for the World Cup 2022 Given the maturity and depth of the Malaysian sukuk market, some reliance has been put on sukuk as opposed to other governments where reliance are on taxes & reserves Malaysia 61% Saudi Arabia 30% UAE 7% Indonesia 1% Pakistan 1% Others 0% 320 235 170 110 105 100 16 15.7 0 50 100 150 200 250 300 350 Maynmar Indonesia Vietnam Philippines Thailand Malaysia Cambodia Singapore The ASEAN Countries alone need over 1 US$ trillion between now and 2020US Bil
  • 8. Global Sukuk Outlook Infrastructure projects around the World The Opportunities and Challenges The Gap between Supply and Demand
  • 9. The Opportunities… Conceptually sukuk is the ideal method of financing for the infrastructure projects as sukuk is closely tied to the ‘real assets’ in their structure Embed the risk sharing features which is a key essence of Islamic finance The availability of straightforward structures such as Ijarah and/or Istisna can well accommodate the issuance of infrastructure sukuk Supportive institutions such as the Islamic Development Bank (IDB) and the World Bank which would assist other governments to consider sukuk for infrastructure projects Infrastructure sukuk can well benefit investors who are looking for longer term investments such Islamic banks, pension funds, and the broader Islamic economy THE MATCHING CHARACTERISTICS OF SUKUK AND INFRASTRUCTURE PROJECTS PAVE THE WAY FOR MORE SUKUK ISSUANCES
  • 10. The demand for infrastructure sukuk increases as Investors prefer longer maturity and higher quality investments
  • 11. And The Limitations… Biggest limitation is that some of the projects being financed do not exist today, whether it’s a football stadium in Brazil or new ports and railways in Indonesia This comes into effect when a new asset is between the flexibility for investors to trade and the originator to determine the degree to which they bear the ultimate risk to the projects. In the past years, the infrastructure projects were partially or fully undertaken by sovereigns, so this issue was irrelevant. Unlike conventional heavily leveraged projects, Islamic finance is conceptually supposed to avoid leveraged projects The project risk is also inequitably shared within the project transaction as there is a priority given to the sukuk holders and Islamic syndicated loan which is not proportionate with any outcome of the project. Nonexistence of the projects, highly leveraged and risk sharing are the top limitations for funding infrastructure projects with Sukuk
  • 12. Governments do have alternatives Despite growing pressures on public budgets, general and local taxes will continue to provide the single most important source of financing in many cases The reliance on government and the public sector to undertake such project funding, supported by high reserves and to a lesser extent banks as the traditional providers of easy debt finance for infrastructure projects The reliance on banks although to a lesser extent as they have been the traditional providers of easy debt finance for infrastructure projects Some countries have also considered Sukuk and bonds to fund some of the projects, but the former comes with some technical challenges that could hinder the applicability of the instrument in the infrastructure space SO WHY HAVEN’T BEEN THERE A LOT OF INFRASTRUCTURE SUKUK? 1 2 3 4
  • 13. Global Sukuk Outlook Infrastructure projects around the World The Opportunities and Challenges The Gap Between Supply and Demand
  • 14. Despite the tremendous drop in sukuk issuance, outstanding sukuk still expected to reach $400 billion levels by 2020 which could be SUKUK SUPPLY AND DEMAND LEVELS (2014 - 2020) The GAP
  • 15. Thank You To download Thomson Reuters Sukuk 2016 report, please visit https://www.zawya.com/ifg-publications/