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Sunday, 18 January 2009

Good Prospects For Global Sukuk Issuance

KUALA LUMPUR, Jan 16 (Bernama) -- Prospects for global sukuk issuance remain good despite a dramatic decline in volume last year, says Standard & Poor's Ratings Services.

In a recently published report, "Sukuk Market Declined Sharply in 2008, But Long Term Prospects Remain Strong", it said the decline in sukuk issuance last year was a result of global market turmoil, drying up of liquidity, widening of credit spreads as well as investors' wait-and-see attitude.

"Although difficult to measure, part of this decline could also have been due to comments about the Syariah compliance of some sukuk by the Accounting and Auditing Organisation for Islamic financial institutions," Standard & Poor's credit analyst Mohamed Damak said in a statement here today.

According to Damak, more than 45 percent of sukuk issued last year were 'ijara' (lease financing), most probably as a direct consequence of the debate about Syariah compliance among some scholars.

The value of sukuk issued last year dropped by more than 56 percent compared with the previous year, to US$14.9 billion.

The market is not expected to see a revival before the second half of this year or early 2010, Damak said.

Although volumes dropped dramatically last year, the sukuk market attracted about the same number of issuers. Conservative estimates of the pipeline of sukuk that have been talked about are in excess of US$45 billion.

The report said several factors support sustainable growth in this market, including increasing popularity of Syariah-compliant products and government openness to Islamic finance, massive investment and financing needs in the Gulf, and issuers' desire to tap investors from the Middle East and Muslim Asia.

At the same time, the US dollar lost its place as the currency of choice for sukuk, with only about 10 percent of issues raised in this currency.

Standard & Poor's expects the sukuk market to continue being skewed toward issuances in local currencies, at least in the foreseeable future. However, once global market return to normal, dollar-denominated sukuk issuance is expected to pick up again.

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