Recent Developments in the Global Sukuk Market

Transcription

1 Recent Developments in the Global Sukuk Market Session 1: Recent Developments in the Global Sukuk Market Ijlal Ahmed Alvi Chief Executive Officer IIFM Total Domestic Sukuk $ bio Total International Sukuk $ bio Global Sukuk market continued its positive upward momentum which started in Period 2013 till July 2014 is not spectacular but is in-line with the projections of a number of research houses and industry experts. In all likelihood, the close of 2014 will again be in excess of 130 billion and this will be third year in a row that Sukuk issuances will cross the mark set in

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4 6 Global Sukuk Issuance Regional Break-up (Jan 2001 July 2014,USD Millions) 7 4

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7 Long Tenor Global Sukuk Issuances 80,000 60,000 40,000 20, $58 bio $57 bio Years 11 Years - 20 Years >20 Years $22 bio Value Number of Issues Total Long term Sukuk $137 bio The Sukuk market across the globe has historically suffered from a lack of longer maturity tenors, which presents a pressing problem for banks, financial institutions, pension funds and insurance companies which are trying to match durations of their liabilities in a Shari ah compliant manner. The last five years, however, have seen a trend towards longer maturity issues from all parts of the world, especially from Malaysia. As of 2013, longer maturity Sukuk issues of tenors ten years and above form almost 20% of the total Sukuk issued as against 9.5% in 2009 with the greatest surge seen in the group with tenors between 10 and 20 years. 12 Selected Perpetual Sukuk Issuer Amount (US$Mio) Year Structure Domestic /International Malaysian Airline Jun Sukuk Al Musharakah Domestic Abu Dhabi Islamic Bank 1, Nov Sukuk Al Mudharabah International Dubai Islamic Bank 1, Mar Sukuk Al Mudharabah International Almarai Company Sep Hybrid Mudarabah and Murabah Domestic GEMS Education Nov Sukuk Al Mudharabah International Malaysian Property Developer Dec Sukuk Al Musharakah Domestic Al Hilal Bank Jun Sukuk Al Mudharabah International Perpetual Sukuk, or Sukuk with no fixed maturity date, are a new addition to the arsenal of Islamic investment structures, made possible - in fact,necessary - in light of the new Basel III regulations which allows the inclusion of additional capital, apart from ordinary shares and reserves, which is perpetual in nature, into the definition of Tier-1 capital - or the going concern or total paid up capital which is capable of absorbing losses while the institution is still solvent. Basel III allows 1.5% of the minimum Tier1 capital ratio to be in the form of such Additional Tier 1 (AT1) capital. In other words, Sukuk which are perpetual in nature are treated as part of equity from an accounting point of view. The GEMS Education Sukuk is also the second corporate from the MENA region, preceded only by Almarai perpetual Sukuk that came in September Two large Islamic financial institutions in the Middle East, namely, Abu Dhabi Islamic Bank, Dubai Islamic Bank & Al Hilal Bank have set the stage for perpetual Sukuk by issuing their first in November 2012 and March 2013 respectively. Abu Dhabi Islamic Bank holds the distinction of issuing the world s first international perpetual tier 1 Sukuk, a USD 1 billion issue with one of the lowest rates of 6.375% ever achieved on a perpetual instrument by any global bank. Among corporates, Saudi premium food group Almarai issued the first-ever Saudi riyal based perpetual Sukuk in September Elsewhere in the world, Malaysia has also seen three perpetual Islamic Sukuk so far, the first coming from Malaysia Airline System (MAS) a RM 1 billion Sukuk carrying a profit rate of 6.9% in June

8 Future Prospects We have only begun to tap the potential that exists in the global Sukuk market Islamic banks are becoming prominent Sukuk issuers to support their balance sheet Project finance Sukuk Asset-backed Sukuk Covered Sukuk & Mortgage-backed Sukuk Convertible/Exchangeable Sukuk Use of Islamic Hedging products 14 Future Prospects: Final Remarks It is clear that the Sukuk supply side is becoming quite robust. The challenge for Islamic financial institutions is to develop the following four strategic areas: Develop Trading Capabilities Sell down to private and retail investors Development of Sukuk & Balanced Fund Liquidity Financing capabilities 15 8

9 Shukaran Wassalamu Alaikum International Islamic Financial Market (IIFM) Office No. 72, 7 th Floor, Zamil Tower (Main Tower), P.O. Box: 11454, Manama, Kingdom of Bahrain Tel: , Fax: , info@iifm.net, Website: Disclaimer: The information herein has been obtained from sources believed to be reliable but cannot be guaranteed. The views or opinions expressed are subjected to change at any time. Neither the information nor any opinion expressed can be construed as a solicitation for the purchase or sale of any securities. International Islamic Financial Market disclaims liability in this respect. 9