The global Sukuk issuance is forecast to reach $30 billion in 2010 in light of the recovery in global economic activity and the increase of sovereign wealth funds, companies, and the revival of private sector projects, KFH Research Limited said in its report released on Monday. The global Sukuk market showed remarkable recovery from the effects of the global financial crisis, it added. KFH Research said the drive for Sukuk demand are due, among others, to the growing preference for Shariah-compliant products from both conventional and Islamic investors particularly after the subprime crisis, massive liquidity from emerging markets (Asia's surplus savings and huge reserves and GCC's oil revenues) searching for Shariah-compliant investment products, GCC economic diversification away from oil and gas investments, greater understanding of Sukuk instruments, and governments' initiatives to further develop and promote Sukuk instruments and investments. With a healthy array of Sukuk in the pipeline, the market is attracting interest from an increasing number of issuers in Muslim and non-Muslim countries alike, the report pointed out. “There seemed to be a recovery in the growth of the total value of Sukuk issuance in 2009 and during the first half of this year,” it noted. In the GCC region, Saudi Arabia has allocated almost $70 billion to development projects for 2010, an increase of 16 percent y-o-y. In Qatar, the government and state-owned companies plan to spend as much as $100 billion in the next four years on projects including roads, sewage treatment, water treatment, ports and airports. The UAE is investing in nuclear power and railways to revive economic growth in 2010 and 2011. Bahrain is investing heavily in infrastructure as a means of providing economic stimulus in the short term and to lay the foundations for economic growth in the future. The 2010 state budget allocated the Ministry of Works with a record $570 million for infrastructure development, with the ministry also being tasked with carrying out projects worth a further $343 million on behalf of other state agencies. In Kuwait, the government has allocated a KD5 billion stimulus package for infrastructure development in the next few years. KFH Research expected that Sukuk market would maintain its vitality during 2010, and foreseeable future amid stimulus programs, huge government expenditures and government initiatives that will enforce and develop Sukuk as well as the increasing popularity of Shariah-compliant products. The report said the value of the Sukuk market has increased to reach about $100 billion in 2009, pointing out that the total value of issues for this market has seen a marked increase during the first half of 2010 to reach $16.5 billion, a growth of 16.3 percent. It noted that sovereign and similar funds played a prominent role in the rehabilitation of the Sukuk market after hitting 79.7 percent of the funding period, as Malaysia is still controlling the largest share of global Sukuk market. In the GCC region, the report highlighted government allocation to spend large amounts on development projects during 2010 and the coming years, which enforce the demand for Islamic Sukuk. Over the years, the Sukuk market has grown to reach approximately $100 billion and contributed to 12 percent of the total global Islamic finance assets in 2009. The Sukuk market has come out of the worst of the financial crisis and its prospects remain high. In 2009, global Sukuk issuances rebounded by 58.8 percent y-o-y to $24.65 billion compared to the $15.46 billion raised in 2008. In 1H10, total Sukuk issued globally was at $16.5 billion, 116.3 percent higher than the $7.6 billion raised in 1H09. On a quarterly basis, global Sukuk issuance in the first quarter of 2010 was up by 114 percent y-o-y to $4.7 billion, while 2Q10 issuance increased by 112.0 percent y-o-y to $11.8 billion, underpinned by an emerging markets-led global economic recovery and huge government stimulus packages and infrastructure spending. Approximately 79.7 percent of 1H10's fund-raisers were sovereign and quasi-sovereign entities, the report further said. Power and utilities sector trailed behind at 11.5 percent of total Sukuk issues while financial services sector stood at 3.4 percent, driven by continued infrastructure spending and fund raising activities by financial institutions worldwide. By country, Malaysia continued to dominate the global Sukuk market, contributed to 60.5 percent of total value of Sukuk issued in 1H10. Saudi Arabia and Indonesia each trailed at 14.1 percent. By currency type, ringgit-denominated Sukuk deals topped at 53.4 percent, followed by US dollar deals of 10.3 percent and Qatar riyal issues of 8.3 percent. For 2010, global Sukuk issuance is expected to potentially come in around $30 billion. The report said 2010 Sukuk market will be driven by the recovery in global economic activities, record low interest rates, continued sovereign fund raising to support economic growth as well as revival of private sector projects Moreover, it said more sovereign and corporate issuers are anticipated in 2010, which include potential debuts from Japan, Thailand, Turkey, United Kingdom and Russia Besides, sovereign Sukuk issuances in 1H10 are expected to help to revive the global Sukuk market as they provide the necessary benchmark pricing for the private sector to gauge investor appetite in 2010.
