Saudi Aramco IPO may more than Quadruple Islamic Finance Industry Size.
Current estimates of the size of the global Islamic finance industry range from $1.66 trillion to $2.1 trillion. Recent announcements from Saudi Aramco may be about to give these numbers a supersized boost with a potential valuation and IPO of up to $10 trillion.
Indonesia is the most regular issuer of global sovereign sukuk even as its Islamic banking assets and local-currency sales lag behind Malaysia.
Finance Minister Bambang Brodjonegoro said on Jan. 9 that the government will offer international sukuk in the first half, the fifth straight year it’s issued such debt. The Southeast Asian nation sold $5 billion of global sukuk in the past four years, compared with $3.25 billion for Malaysia and $2 billion for Qatar, data compiled by Bloomberg show.
Luxembourg has issued its first 200 million euro ($254 million) five-year Islamic bond, distributed across 29 accounts with an order book that was more than two times oversubscribed, the finance ministry said.
Luxembourg becomes the first AAA-rated government to issue euro-denominated sukuk, or Islamic bonds, following London, Hong Kong and South Africa in issuing sharia-compliant debt this year.
sold $1 billion of sovereign Islamic bonds in its first-ever issue of the securities, attracting orders for 4.7 times the amount on offer.
The dollar-denominated five-year notes were priced at a 2.005 percent profit rate, according to a on the government’s website today. The U.K., which along with Hong Kong is rated the highest investment grade, sold sukuk for the first time in June at a coupon of 2.036 percent. Those notes yielded 1.75 percent today, data compiled by Bloomberg show.
First-time sellers of bonds that adhere to Islam’s ban on interest are poised to revive an industry suffering its worst quarter in more than four years.
Luxembourg and Hong Kong aim to market debut offerings of sukuk next month, while , , and Tatarstan have announced plans for maiden issues. Islamic bond sales have fallen 82 percent to $2.6 billion this quarter compared with the previous three months, their lowest level since the first three months of 2010, according to data compiled by Bloomberg.
Luxembourg will start meeting investors in the next two months to drum up support for a debut sale of shariah compliant bonds as sukuk sales surge worldwide.
The country, which has an AAA credit rating at Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, is planning to become the second non-Muslim nation to issue a sovereign Islamic bond after the U.K. raised 200 million pounds ($335 million) in June. Ministry of Finance officials will meet investors in , the , and from the end of September to promote the proposed sale, according to an e-mailed statement Aug. 7.
Hong Kong, Indonesia and Pakistan are banking on pent-up investor demand as they look to raise up to a combined US$3.5bn in the fast-growing Islamic bond market.
The three sovereign sukuk issues, including a planned US$1bn debut from Triple A rated Hong Kong, are set to launch before the end of September.
Few Asian issuers have targeted the global sukuk market in the past, and the glut of deals comes as governments across Asia are looking to attract Islamic investors from outside the region.
Luxembourg’s decision to issue its debut sukuk in euros seems to defy common sense, since it will be selling into a Gulf-dominated market where most investors are fixated on dollars. But the grand duchy is right to stick with the currency and sukuk market participants should welcome this unusual choice.
Ever since Luxembourg floated the idea of issuing up to €200m worth of sukuk in euros or dollars, there has been a chorus from the Gulf that one of those currencies is a much better plan than the other. Dollars are what they use, anything else would be illiquid and currency hedging an already very tight note would be, for many, a complication too far.
Luxembourg hopes to adopt a bill before the summer holidays that would allow it to issue its first Islamic bond, with the AAA-rated sovereign opening the door to future sukuk issuance, a filing with the legislature said.
The government requested the legislature’s advisory body, the Council of State, to consider a revised bill on July 1, so it can securitise government assets to back a sukuk worth €200m ($275m). The time frame could see Luxembourg lose out to Britain in issuing the first sukuk from a Western nation, but repeat sukuk issuance could cement a stronger commitment to the Islamic finance industry.
Islamic finance has been one of the fastest-growing sectors in global finance but the industry has yet to shake off perceptions about high costs and complexity that are holding back some issuers.
Sukuk, or Islamic bonds that follow religious principles such as a ban on interest and speculation, are now a major funding tool for companies in the Middle East and southeast Asia, and are becoming increasingly attractive to sovereign issuers.