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The global sukuk market is recording new issuance at close to record levels and is attracting more and more debut issuers, but is still overwhelmingly dominated by Malaysia, according to newly released data.
On Wednesday the Malaysian International Islamic Financial Centre said that US$31.1 billion of new global sukuk issues were launched in the first quarter of 2014. While that is slightly lower than the US$34.53 billion in the first quarter of 2013, it is above the US$31 billion average quarterly new issuance volume of the last two years and reflects a market in rude health.
There are several reasons to expect these volumes to be maintained throughout the year. Benchmark sovereign or quasi-sovereign issues continue to appear, notably a US$1.5 billion five-year issue from the Islamic Development Bank in the first quarter; new issuers are arriving, such as the Maldives, which tapped the sukuk market for the first time in the first quarter; and in particular because the International Islamic Liquidity Management Corporation, which seeks to provide a liquidity mechanism for banks in the region, is finally underway after years of delays and can now be expected to be a regular issuer.
On top of that, a number of sovereigns are expected to launch for the first time in 2014. The United Kingdom has confirmed it will be one of them, albeit probably in modest size. Luxembourg, Hong Kong, Tunisia, South Africa, Senegal and Egypt have also spoken of possible issues, as has the Asian Development Bank.
Set against these positive signs, the market still appears tilted in one direction: Malaysia. This one country was responsible for US$19.63 billion of global new sukuk issues in the first quarter – 63.05% of the global total. This has been the case ever since meaningful data on global sukuk has been collected and shows no sign of diminishing despite the widened range of potential issuers around the world. At the same time, the GCC – which represents the most obvious group to compete with Malaysia in market share – experienced a 12.5% year on year drop in new issuance, and in the UAE’s case, a 92.1% drop, from US$3.82 billion a year ago to US$300 million today. March saw just one issue from the Gulf: a short term liquidity management sukuk from the Central Bank of Bahrain.
Moreover, sukuk issuance is not as diversified as it could be, with government accounting for 59.5% of issuance and financial services a further 23.5%. Corporate issuers are not yet a powerful constituency in the markets. That said, banks are making increasing use of sukuk. “This sector has been spearheaded by a growing trend where Islamic financial institutions have begun to tap the sukuk market to raise capitalisation funds in order to comply with the Basel III standards of best practices that are being implemented in most jurisdictions gradually,” the MIFC said.
The total outstanding sukuk issuance stood at US$272.96 billion at the end of the first quarter, and in that respect, growth is very clear: the figure was 15.96% higher than a year earlier. Again, Malaysia nominates, with US$160.6 billoin of sukuk yet to mature.
