Sukuk market to hit US$16b in 2009

Written by Reuters
Thursday, 17 September 2009 22:16

LONDON: The global sukuk or Islamic bond market is recovering as investor confidence returns, and issuance this year will reach US$16 billion (RM55.5 billion), with Malaysia taking the lion's share, the head of CIMB Islamic — the world's leading sukuk arranger in the year to August — said.

Badlisyah Abdul Ghani told Reuters the Sukuk market will grow slightly in 2009, after being hit by the liquidity drought and market crash of 2008.

Badlisyah said CIMB Islamic, part of CIMB Group Holdings Bhd, was on course to issue 19 sukuk by the end of the year and it had a "very healthy" pipeline for 2010.

Sukuk issuance fell 56% in 2008 to US$14.9 billion, ratings agency Standard & Poor's says. Sukuk are underpinned by tangible assets and do not pay interest. Instead investors receive periodic returns from the assets that underpin the bond.

Badlisyah said sukuk was recovering in line with a global market rally but said buyers were "more cautious" about sukuk issued by companies in the Gulf, where confidence has been rocked by a scandal involving Saad, one of Saudi Arabia's biggest private firms.

CIMB invested in Saad's US$650 million Golden Belt Sukuk. Saad is restructuring its debt, and in August the sukuk's trustee, Citi, asked investors to vote on its dissolution.

Badlisyah said CIMB's investment was "a couple of million dollars" and it would be "very aggressive" in recovering it.

In the Middle East, corporate conventional bonds have outpaced Islamic bonds in the year to June for the first time in three years, according to law firm Trowers and Hamlins.

Badlisyah said Malaysia, the world's most developed sukuk market, will account for more than half of issuance in 2009.

Badlisyah said CIMB Islamic was in talks with European banks to deal Islamic-compliant money market transactions, which Islamic financiers hope will be a major growth area.

On Tuesday, UK Islamic bank Gatehouse, a unit of Kuwait's The Securities House KSCC, transacted the first cross-border deal using Bursa Malaysia's commodity trading platform Suq Al-Sila.

These deals aim to make short-term returns similar to money-market transactions while avoiding interest payments.

Gatehouse bought commodities using CIMB as its agent and then sold them on to CIMB for a series of deferred payments — allowing Gatehouse to get short-term returns that comply with Islamic prohibitions on interest.

Badlisyah said other UK and continental European banks have shown interest, but declined to name them. — Reuters