IFN - Do you envisage the volume of Sukuk globally to rise sufficiently during 2005 to support a true secondary Islamic Capital market? And who will be the issuers?

Do you envisage the volume of Sukuk globally to rise sufficiently during 2005 to support a true secondary Islamic Capital market? And who will be the issuers?

The successful debut of the Government of Pakistan`s Sukuk for US$600 million has kick-started the Sukuk market for the year 2005. In a generic sense, we see Sovereigns in IDB member countries, multi-nationals and public sector entities issuing international Sukuk. We also see some positive developments in the local currency issuance in domestic market of selected IDB member countries. Towards the end of the year we will see increased secondary market activity as people re-evaluate their portfolios and position themselves for opportunities in 2006 and beyond.

IQBAL KHAN

Chief Executive Officer, HSBC Amanah Finance, Dubai

The last 3 years have witnessed a remarkable growth in both the volume of issuance and maturing of the Sukuk market segment that now represents a viable alternative to conventional fixed income instruments.

Recent sovereign Sukuk issuances have spurred investor demand and directly channelled investments in productive infrastructure developments and multibillion-dollar real estate projects within the GCC region and the emerging markets. The Sukuk issuer base has diversified and includes a few from OECD countries as well.

Product innovation in structuring Sukuk has favourably impacted demand from global market investors. Interestingly, both corporate and retail investors are poised to shape the demand for Sukuk in 2005. However, to achieve greater convergence with international capital markets in 2005, Sukuk need to overcome important cross border legal and tax challenges and encourage more issuance from corporate issuers as well as global Financial Institutions. Increased new Sukuk activity in 2005 should culminate in the development of a true secondary market for trading and liquidity.

SOHAIL JAFFER

Partner, FWU Group, Luxembourg

The global stock of Sukuk is currently trending at US$5.92 billion. I envisage the volume of Sukuk in 2005 to increase by an average of 30 – 35% against the backdrop of continued interest in Islamic instruments, the myriad of Islamic structures available, and the preference for corporates to raise funds using Shariah compliant instruments given the attractive yield/return track record. Sukuk also enhance competitiveness of companies via lower financing costs as well as promote an ethical investment climate. In 2005 we`ll see the advent of more structured Islamic products to the market, specifically as a catalyst in the infrastructure and services sector. As to whether the increase in funds raised generates liquidity momentum – well that`s something that remains to be seen. A lack of market makers in Islamic bonds, as well as the presence of buy and hold investors for asset/liability management, disenables the liquidity framework in that most bonds are held to maturity given their attractive returns. This remains an impediment to Shariah compliant instruments but in time with the increase in the number of Sukuk issuers across a range of tenors will likely see this challenge subside.

BALJEET KAUR GREWAL

Chief Economist, Head of Fixed Income Research, Aseambankers Malaysia

Unfortunately, while I am aware of a significant number of current financing opportunities across a spectrum of assets from aircraft to renewable energy financing, there remains a degree of inertia and unwillingness to act promptly by a number of those institutions that should be in the forefront of the growing Sukuk market. Resulting material delays are reflected in missed opportunities. One effect is to reduce volumes of transactions coming to market so that there is an insufficient range of credits, currencies and maturities to form the basis of a liquid market and the growth of a truly Islamic yield curve.

Further impediments include a lack of well capitalised specialist market makers and a level of demand that far outstrips the available supply, resulting in those issues that do make it to market being held to maturity by the original purchaser. This situation is unlikely to change during 2005.

Issues coming to market will continue to focus on sovereign risk from Islamic countries, but there will be increasing levels of corporate Sukuk – with conventional banks increasing their involvement in structuring, underwriting and placement – plus some more from the ‘Saxony’ template.

JAMES HUME

Chief Executive Officer, Omega Group Services Ltd. Dubai

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