Infrastructure projects are expected to drive Saudi Arabia's sukuk issuance in the years ahead as government, corporates and banks tap into the liquidity of what is still an evolving bond market that faces challenges common to other GCC countries.
"That will be a theme for many years to come as more projects come on stream, mainly the large government projects," he said. He cited the example of the
"It is not expected to rise, but I am not sure whether it will decline," said
Beginning 2010, the Sharia bond market has seen more private contractors coming in.
In 2008, the total sukuk issued in Saudi Arabia stood at SR (Saudi Riyal) 7.025 billion, which has since jumped to SR40.011 billion in 2013. The big leap was from 2010 to 2011, when it rose to SR25.190 billion from the previous year's SR7.550.
On the quasi-government side,
"I am sure these quasi-government entities will come into the market and tap into the liquidity that's already there to finance their projects rather than just depend on government funding," said
In fact, since 2012, there has been a mix of issuers and issues of different tenors. Government (GACA, Tasnee), banks (SABB, Bank Saudi Fransi,
Liquidity in the sukuk market has been improving due to the increasing number of issues over the last five years. And especially by repeat issuances by the issuers, both government and corporates, the yield is expected to climb. For example,
With investor sentiment improving, and a wider investor base and broader acceptability of Sharia structures, sukuk issues are expected to grow and thrive, he said. The challenge of different sharia structures prevailing and scholars disagreeing is something common to the region.
"This [on Sharia structures] is something that is not yet developed as it is in
There are other key issues that need to be dealt with, pointed out
"For the government and quasi-government funds to invest in them is very limited. Therefore, issuers have to go beyond Saudi Arabia for the successful closure of the sukuks," he added.
Issuance costs are higher than what they should be. Economies of scale do play a role and so,
Lack of an established yield curve is another issue. With GACA, coming into the market last year with large issues — that should act as a benchmark for within Saudi Arabia, he noted, adding that the lack of an active secondary market as elsewhere in the GCC markets is a challenge too.
The way forward to make it a more robust investment option includes several steps. Increasing awareness is one of them.
"I think one of the key things is education - we need to do our part as advisors, and also, the regulator needs to be more active, in making the investment pool aware of the sukuks," said
Encouraging cross border investment for advising a company is another. "As issuer, we are looking at regional banks to jointly work with us as placement agents in the GCC and international markets," he added.
Finally, he suggests the introduction of a domestic regional rating guideline and criteria that would help more issuances.
HNWIs keen on sukuk exposure
There is a perception that High Net Worth Individuals (HNWIs) are lukewarm towards sukuk investment.
In Saudi Arabia, said
"We have individuals participating between
Also, HNWIs sometimes like to see a higher risk than it is for institutional investors and some issues should be generated for that particular segment, he said.
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