The strong sukuk issuance trend in 2011 has continued robustly into 2012, with $6.6 billion (Dh24.24 billion) of issuances globally to date, with large issues coming from Saudi Arabia and Malaysia, HSBC Amanah said on Tuesday.
Global sukuk issuance totalled $26.5 billion in 2011. HSBC Amanah has forecast $44 billion issuance for the current year with Malaysia accounting for 60 per cent followed by the Middle East with 32 per cent and issuers from other parts of the world accounting for 8 per cent.
Malaysia closed 2011 with a jumbo multi-tranche local currency issue of 30.6 billion ringgit ($9.6 billion). This trend continued into 2012 with the General Authority of Civil Aviation of Saudi Arabia issuing a 15 billion riyal ($4 billion) Ministry of Finance guaranteed sukuk in January.
This represented the largest single tranche sukuk ever and largest government guaranteed issue in the emerging markets for the last decade. The year began with $500 million issuances by both Emirates Islamic Bank and First Gulf Bank. Both institutions were able to take advantage of the tight spreads at that time, pricing at 4.718 per cent and 4.046 per cent, respectively.
This year Majid Al Futtaim Holding became the first corporate to issue sukuk with a $400 million bond priced at the tight range of guidance of 5.85 per cent representing a spread of 482 basis points (bps) over midswaps.
"We expect a significant increase in sukuk issuance this year because it performed well against the financial crisis and liquidity crunch in 2011. The sukuk market is already off to a strong start in 2012. This January is the busiest we've seen in this market. Demand still outstrips supply," said Mohammad Dawood, managing director of Islamic global markets, EMEA (Europe, Middle East and Africa), HSBC Amanah.
Sukuk are favoured by investors because they have been less volatile than conventional issuances. Issuers on the other hand like sukuk because it gives them access to a new investor base. A number of sovereign and financial institutions take advantage of the positive sukuk issuance environment.
"Infrastructure projects in Asia and the Middle East are likely to be the other driver of sukuk issuances in 2012. Malaysia's biggest toll expressway company has already announced a $10 billion sukuk. Sukuk is a viable tool but we need longer tenor ones that extend to 10 years and beyond for these long-term projects," said Rafe Haneef, managing director of Islamic global markets, Asia, HSBC Amanah.
During the financial crisis, and particularly after the asset bubble burst in the GCC, sukuk spreads widened considerably, especially relative to conventional counterparts. In the last year, however, sukuk spreads have continually tightened with spreads now tighter than conventional bond indices. This is as a result of the high demand for sukuk and the lack of supply to satisfy the liquidity available with Islamic banks in the region.