The first quarter of 2013 remained very active in terms of the issuance of Islamic bond and equity instruments. The main driving force of the Islamic debt market was Sukuk issuance. Strong investor appetite is continuously pushing Sukuk into the mainstream segment of the Islamic finance industry globally. Based on the performance of the first quarter, good growth is expected for the rest of the year. By 2017, it is forecast that the global demand of Sukuk could grow to around US$900 billion.
Again, the GCC and Asia remain key growth areas for the Sukuk market. Within the GCC, Saudi Arabia witnessed the most significant activities in Sukuk issuance and we estimate that in 2013, Saudi Arabia will see its share of the global Sukuk market increase.
At present, the Islamic capital market is standing on around US$230 billion in outstanding Sukuk papers, which represents a very strong platform for international liquidity and fundraising activities around the world; particularly within Islamic countries. Egypt, the Philippines and Jordan are currently planning to raise money through Sukuk. Other jurisdictions have also shown interest in issuing Sukuk including Senegal, Libya, Tunisia and Nigeria; and are in process of making regulatory inroads for future issuances.
Turkey is working on new regulations to allow the wider use of Islamic bonds for the inflow of liquidity. Islamic finance is rapidly growing in Turkey and the country is ideally positioned to play a vital role in the promotion of this industry within the region. The UK government is also considering the renewal of plans to sell Islamic bonds as part of an initiative to boost its role as a center for Shariah compliant financing. Pakistan and Egypt have also issued draft Sukuk regulations for future issuance.
On the issuance side, Sharjah Islamic Bank (SIB) issued US$500 million in five-year Sukuk under its newly established US$1.5 billion Sukuk program (see Case Study, p.16). As the first senior financial institution Sukuk from the region in 2013, SIB was able to take advantage of the positive market. The order book was over six times subscribed (US$3.24 billion), representing one of the most robust order books from the region.
Allen & Overy, in association with a leading local law firm, advised Saudi Electricity Company, the Gulf”s largest utility company, on its first US$2 billion Sukuk offered to US and other international investors. Gulf banks are likely to continue tapping the bond markets at favorable rates to keep sound capital and liquidity positions as they look to enhance their asset base. Banks in the region have been examining ways to raise funds to support Tier 1 capital through issuance of Sukuk. Recently Abu Dhabi Islamic Bank and Dubai Islamic Bank have also issued Sukuk papers for Tier 1 support.
More sovereign issuers are anticipated to raise liquidity through Sukuk in 2013 as governments will continue to raise funds to support economic growth and fund fiscal deficits. Increasing demand and popularity for Shariah compliant products through innovative structures are creating a viable platform for the Sukuk market.
Muhammad Shoaib Ibrahim is the managing director & CEO of First Habib Modaraba. He can be contacted at