Sukuk issuance in Saudi Arabia will pick up in 2012 after being buffeted by global economic worries, with a benchmark deal from a sovereign or large corporate name helping to drive momentum, the chief investment officer of NCB Capital said.
Faysal Badran told the Reuters Middle East Investment Summit that the pipeline of Islamic bonds in the Kingdom was decent but the European debt crisis and geopolitical uncertainty was keeping potential issuers on the sidelines.
What would provide impetus for the market, once favorable conditions returned, was an offering from a major entity to provide a benchmark for other issuers to price off.
"What is lacking is a benchmark deal which I think generally tends to come either from the government or a very large company," Badran said. NCB Capital is a unit of unlisted National Commercial Bank, the Kingdom's largest lender.
"This really hasn't happened yet but I have a pretty good degree of confidence that it is 2012 business."
Equity issuance was also expected to pick up next year after a subdued 2011, Badran said, with many offerings in the pipeline awaiting an opportunity to list.
Only three companies have completed initial public offerings in the kingdom this year: Saudi Integrated Telecommunications Co., United Wire Factories Co. and Hail Cement Co.
Global uncertainty influences Badran's investment picks, although profits at Saudi companies have been holding up well and this would continue into 2012.
"My inclination is a bit more toward retail and to slightly counter-cyclical sectors such as food, which have a natural economic hedge into them so they are not as geared to a strong macro economy," he said.
"We have been impressed with the performance of Saudi companies in the third-quarter, where the market showed net income up 20 percent year on year, and in the global context you can understand this is a source of comfort."
"We are quite optimistic given the trajectory so far and I would say for 2012, it looks like another decent year."