Sukuk issuance fell in pre-Ramadan June and growth momentum is expected to ease in the coming months after yields surged to a 25-month high, says the Malaysia Islamic Financial Centre (MIFC).
The primary sukuk market this year has outpaced the previous year every month since January 2013, except June, which saw a noticeable slow down, says MIFC’s second-quarter report. Momentum is expected ease as investors weigh US monetary policies in the coming months.
The HSBC/Nasdaq SKBI Yield Index showed overall sukuk yields have risen sharply in the second quarter, up 43%, to the highest level in over 25 months. The sharp rise in sukuk yields followed an increase in overall emerging market debt, which saw yields climbed to 5.02% after reaching a low of 4.04% on 24 January 2013, according to the Bank of America Merrill Lynch US Emerging Markets External Debt Sovereign and Corporate Plus Index.
In the second quarter, sukuk issuance reached $26.6bn, with about 70% of the issues domiciled in Malaysia. Saudi Arabia had $4.5bn and the UAE $1.4bn. However, that number is lower than the first-quarter issuance of $34.5bn. Sukuk issued by companies slumped 53.5% in the first half of this year. Sovereign issuance was also lower.
Global outstanding sukuk reached $245.3 billion as at end-June, up 16.4% year-on-year. The secondary sukuk market in Malaysia remained the world’s largest totalling $148.2 billion, accounting for 60.4% of the total market as at end of June.
In the regulatory environment, the Financial Services Act 2013 And Islamic Financial Services Act 2013 came into force on 16 July, says the MIFC. The legislation aims to improve transparency, accountability and Shariah compliance and also provides Bank Negara Malaysia with the regulatory and supervisory oversight powers to fulfil its mandate “within a more complex and interconnected environment,” says the report.
Separately, Bank Negara announced plans to auction RM4bn ($1.26bn) worth of Government Investment Issues (GII) under the concept of Murabahah in July. A Murabahah contract is a certificate of indebtedness arising from a deferred mark-up sale transaction of an asset, similar to the sale and repurchase agreement in conventional markets.
source: Investment & Pensions Asia