Islamic bond sales will pick up next year as governments in Asia and the Middle East spend more on roads and other infrastructure developments, according to Barclays Capital and CIMB Group Holdings Bhd.
Malaysia, the world’s largest sukuk market, last week announced a five-year plan showing annual development spending will rise 23 percent to 142.4 billion ringgit ($44 billion) in 2015, from an estimated 115.5 billion ringgit in 2010. Saudi Arabia, the world’s biggest oil supplier, plans to spend $400 billion in the five years through 2013 on infrastructure projects such as roads, airports and water projects.
“There are huge opportunities,” Harris Irfan, head of Islamic products at Barclays Capital said at the annual World Islamic Banking Conference in Singapore on June 14. “By 2011, I hope to see a lot more pickup” in sukuk sales.
Saudi Arabia has allocated almost $70 billion to development projects this year, 16 percent more than in 2009. Saudi Arabian Oil, the world’s largest state-owned oil company, and French producer Total SA said in March they plan to raise $8 billion in debt financing that may include Islamic bonds for a joint refinery and petrochemical project.
Projects in Malaysia include a mass rapid transit system in Kuala Lumpur that can carry two million passengers per day when completed, the government said in a report last week.
“You only need one or two deals to spur issuance in a big way in the Middle East,” Badlisyah Abdul Ghani, head of Islamic banking at Kuala Lumpur-based CIMB Group Holdings said in a phone interview on June 15. “Once the market sees that others will follow and, when that happens, most definitely growth” will accelerate, he said, declining to quantify his forecast.
Gulf issuers raised $2.3 billion from sukuk sales so far this year, about 19 percent less than the amount they borrowed during the same period of 2009, Bloomberg data show. Local- currency sukuk sales in Malaysia have dropped 47 percent to 8.8 billion ringgit as fewer infrastructure projects were started in the first part of the year.
Islamic finance transactions are based on the exchange of asset flows rather than interest to comply with the religion’s Shariah principles.
The Islamic finance industry’s assets may reach $1.6 trillion by 2012, according to the Kuala Lumpur-based Islamic Financial Services Board, a standards setting body. Global sukuk sales rose 43 percent to $20 billion in 2009, from $14.1 billion the previous year, according to Bloomberg data. Issuance of the notes reached a record $31 billion in 2007.
Middle East Demand
Middle East demand for infrastructure investments in strengthening after the global financial crisis battered property markets in the region, according to Arif Mohammed Al Alawi, who oversees about $100 million of funds as chief executive officer of Bahrain-based Tharawat Investment House.
“Those who were hurt heavily in real estate have started opening doors for investments in low-risk sukuks in infrastructure and in manufacturing,” Alawi, who initiated an Islamic fund to invest in a water project last year, said in a June 14 interview.
The scope for issuance to increase to meet that demand is improving. The Qatari government and state-owned companies plan to spend as much as $100 billion in the next four years on projects including roads, sewage treatment, water treatment, ports and airports, Finance Minister Yousef Hussain Kamal said on June 10.
The United Arab Emirates, among the four biggest oil producers in the Organization of Petroleum Exporting Countries, is investing in nuclear power and railways to revive economic growth in 2010 and 2011, central bank Governor Sultan Bin Nasser al-Suwaidi said June 14.
UAE awarded a 75 billion-dirham ($20.4 billion) contract in December to a group led by Korea Electric Power Corp. to build nuclear power plants.
Source : Bloomberg