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Thursday, 13 March 2008

Islamic bond market seen topping $100 bn

SINGAPORE: The global market for Islamic bonds, or sukuk, could top 100 billion US dollars in the next few years after exceeding 60 billion dollars last year, Standard and Poor's said Thursday. Massive investment and financing needs of countries from Asia and the Gulf region in the Middle East are driving the growth, the US credit ratings firm said in a statement. While the growth in sukuk issuances has slowed down over the past six months due to a global credit crunch, it is expected to pick back up after market conditions normalise, the firm said. "The global market for sukuk more than doubled in 2007 to exceed 60 billion dollars and is on track to top the symbolic 100 billion-dollar mark in the next few years," Standard and Poor's said. "We expect sukuk growth to remain on the same impressive trajectory, fuelled by huge investment and financing needs -- notably in countries of the Gulf and Asia," said the firm's credit analyst Sani Hamid. Sukuk, the Islamic equivalent of bond, is compliant with Muslim law and investment principles that prohibit the charging or paying of interests. Companies and entities involved in project finance were the main issuers of sukuk, followed by banks. "Corporates find that sukuk are an alternative to financing their business or their projects, and financial institutions are increasingly turning to sukuk to sustain strong lending growth with stable funding sources and to curb maturity mismatches," said Ritesh Maheshwari, also from the ratings firm. Although the US dollar remains the currency of choice for sukuk issuers, that has been declining over the past five years, Standard and Poor's said. Most of the sukuk issued last year were "ijara," or lease financing, and "musharaka," or venture capital financing, it said, adding however that other types were likely to gain popularity over time. --(EconomicTimes)

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