Global sukuk issuance could be hampered this year by a slowdown in emerging markets as reduced confidence and low oil prices hit investor demand, the ratings agency Standard & Poor’s warns.
Between US$100 billion and $115bn of sukuk will be issued in 2015, S&P expects, roughly the same amount as over the past two years – confounding analyst estimates of double-digit growth for Islamic finance assets.
The Islamic Development Bank (IDB) is currently the most highly rated institution in the Muslim world and among regional and international multilateral development banks.
This is substantiated by the fact that the three leading international rating agencies, Standard & Poor's, Moody's and Fitch Ratings, have all reaffirmed their credit rating of the bank for 2012 with a stable outlook.
Global sukuk issuance is likely to maintain its positive long-term growth trends, says Moody’s Investors Service in a Special Comment published this week, driven primarily by growing demand for Islamic banking assets and the increasing familiarity of both Islamic and conventional (ie non-Islamic) investors with these instruments. Additional drivers include the promotion of Islamic financial services by governments of Muslim countries and the increasing standardisation of unsecured sukuk structures.
S&P Dow Jones Indices has launched the S&P MENA Bond & Sukuk Index and its two subindices: S&P MENA Bond Index and S&P MENA Sukuk Index. With the exception of the S&P MENA Bond Index, each of the indices launched are screened for Shariah compliance.
The S&P MENA Bond & Sukuk Index is comprised of a universe of US dollar denominated debentures that seeks to measure the performance of bonds and Islamic fixed income securities – also known as sukuk - in the Middle East and North Africa (MENA) markets.
Depressed initial public offering (IPO) activity in the Gulf Cooperation Council (GCC) continued into the second quarter (Q2) of 2013 with three new listings raising a total of only $ 48 million. This compared to two IPOs in Q1, 2013 raising an aggregate of $ 337 million, representing an 86 percent decrease in total value raised.
The average offering value dropped 94 percent this quarter compared to the same quarter last year where four IPOs were witnessed raising a total of $ 1.1 billion. The total value raised in Q2, 2012 was the result of a stronger performance in the Saudi market, where out of the total four IPOs, three were Saudi-based. While the value of offerings significantly dropped this quarter, the number of offerings remained relatively stable at 3 IPOs.
There has been much discussion during the on-going financial crisis, on how to initiate a sustained recovery and the consensus shown by the mainstream commentators has been through returning to sustained economic growth.
Such is the focus in the capitalist order towards growth, that any program or strategy that is not able to demonstrate how compounding levels of growth can be achieved is not given credibility and hence many, such as the Turkish economics professor Timur Kuran, have written extensively showing how the Shariah has rules which limit the ability of economies to grow and hence are an impractical alternative to the current order.
Global Islamic finance will double in the next three years, according to Standard & Poor’s which said the sector is increasingly being viewed as a “real alternative to conventional finance”.
The ratings and financial research company, which has offices around the world, said it expects the $1trn global Islamic finance industry to double in size from 2011 to 2015.
Malaysian and Indonesian pension funds, which have a combined $192 billion of assets, say plans to increase holdings of Islamic bonds are being hampered by a shortage of investment-grade sukuk.
Kuala Lumpur-based Employees Provident Fund and Kumpulan Wang Persaraan (Diperbadankan), Malaysia’s two biggest pension managers, and PT Jaminan Sosial Tenaga Kerja (JAMSOS), Indonesia’s largest retirement fund, say they want more Shariah-compliant debt in order to diversify portfolios that must hold investment- grade securities.
New Jersey-based insurance ratings firm A.M. Best has come out with a set of draft guidelines for rating Takaful firms.
The new guidelines address a number of concerns that Takaful firms have, but none more important than the limitations of the Shari’ah compliance rules on the investments available to Takaful firms and the lack of Shari’ah compliant fixed income products like Sukuk.
Standard & Poor’s (S&P) is currently reviewing credit ratings on 50 banks in the Middle East and North Africa under a revised set of criteria. Such move could result in a higher funding costs for lenders, already hit by the Arab Spring revolts.
The agency which previously drew a weak credit profile for United Arab Emirates lenders, expects more activity in debt capital markets as bank lending struggles.