Reuters reported that project Islamic bonds are expected to pick up steam in Saudi Arabia with the launch of the first project sukuk this month as issuers seek to diversify sources of funding following global financial woes that may dry up lending from international banks.
Saudi Arabia, with projects underway worth USD 623 billion, is the largest Gulf markets and is expected to require billions of dollars in financing. Financing has traditionally come from government funds and syndicated loans from local and international banks.
But the launch of the kingdom's first project sukuk instrument earlier this month USD 1 billion Islamic bond to be issued by Saudi Aramco Total Refining and Petrochemical Company is expected to provide a financing alternative and open the doors for more issuance to come.
Mr Jarmo Kotilaine chief economist at National Commercial Bank in Riyadh said that "The sukuk issuance does potentially change the game quite significantly. Most issuers aren't innovators, they are replicators. But there are now advisors out there that are in the position to offer similar solutions. It will generate interest. That interest comes at a good time as international banks struggle with mounting global economic fears as well as their own balance sheet woes making lending less attractive.”
Mr Andrew Davison senior VP and team leader of EMEA project financing at Moodys said that "Although it is very likely that a core group of banks will continue to lend to projects in the region, aggregate debt capacity will be eroded and the price of liquidity will likely become more expensive. That creates opportunity for the sukuk market to become an increasingly important potential source of funds.”