The opportunity to buy shariah-compliant debt from investmentgrade sovereigns that have not yet tapped the market would be likely to generate strong investor appetite.
Issuers from outside the Islamic world could contribute more eventually to the increase in supply as they diversify theirinvestor base. Sovereigns would be well placed to tap demand, as they are unlikely to have to struggle to find assets that qualify to back shariah-compliant bond issuance. Savings in the oil-exporting countries of the Middle East will continue to grow at current oil prices, supporting greater demand from investors.
South Africa invited banks to pitch for a government sukuk advisory and structuring mandate in December.
Bloomberg reported in mid-January that Ireland, which is due to return to the bond market in 2013 under the terms of its EU/IMF assistance package, is considering sukuk issuance.
Sukuk supply from sovereigns outside the Middle East and South-East Asia would be a much-anticipated development. In 2004, the German state of Saxony-Anhalt issued EUR 100 million sukuk, and in 2009, France amended its civil code to develop Islamic finance. Anticipated issuance from France, the UK and Luxembourg has not materialized.
The sukuk market is growing rapidly. 2011 issuance was USD 84.4 billion, a 62% increase on 2010, according to Zawya Sukuk Monitor. But supply is still overwhelmingly from Muslim countries or countries with a Muslim majority population. Malaysian issuers accounted for more than half of 2011â€™s supply by volume. Between them, issuers in Malaysia, Qatar, the UAE, Indonesia and Saudi Arabia provided more than 90%.
Despite the strong year-on-year increase in supply, the sukuk market remains a fraction of the size of the global bondmarket. The lack of a standardized deal structure has constrained growth, which has not kept pace with demand from Islamic institutional investors and banks.