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Global sukuk issuance to top $100bn in 2014 on Gulf lead

February 5, 2014

By Santhosh V Perumal/Business Reporter Aided by double-digit growth in issuance by the Gulf corporate and infrastructure entities, global sukuk issuance is expected to exceed $100bn this year, according to global credit rating agency Standard & Poor's (S&P). After a slowdown in 2013, with sukuk volumes declining by 13%, the agency anticipate that the Islamic debt segment will expand again in 2014, partly driven by corporate and infrastructure issuers in the Gulf. "Total issuance will exceed $100bn for the third year in a row if yields remain attractive for issuers," S&P said in a report. It said global growth in sukuk issuance is supported by high demand for infrastructure spending across the GCC ( Gulf Co-operation Council ) region, where S&P expects issuance to continue climbing at a double-digit pace in the next two years. "We expect to see a healthy issuance volume in the GCC in 2014 as a result of the supportive economy and regulatory developments. However, we believe the (US) Fed's move to taper its quantitative easing programme could influence issuance through a shift toward local currencies from dollar-denominated issuances," it said. In Qatar , despite a slowdown in credit growth largely due to administrative delays in certain projects in 2013, the rating agency expects credit growth to accelerate in 2014. Qatar's Islamic banks continue to maintain strong credit growth and "we anticipate that they will become more active issuers of sukuk over the next few years", it said. The demand for sukuk from GCC corporate and infrastructure issuers is likely to continue to grow 17% to $28.2bn in 2013, the report said, adding prospects for 2014 largely depend on the direction of interest rates, and to a lesser extent on the relative attractiveness and pricing of other forms of conventional financing compared with sukuk. The gradual implementation of the Basel III framework for the GCC banks - already in place in Saudi Arabia since January last year - could help sustain sukuk activity over the next 2-3 years, it observed. Higher capital charges for bank financing toward long-term projects is likely to push the GCC banks to tap the international debt capital markets more frequently, including in the form of sukuk. Forecasting that oil prices will remain close to $100 per barrel; it said "we see good economic prospects in major Gulf countries, which should translate into lending and balance-sheet growth opportunities for the banks." Issuance from Saudi Arabia as well as key hydrocarbon exporters with large infrastructure needs such as the UAE and Qatar should benefit from a robust economy in 2014. Local currency sukuk issuance across the GCC countries may continue to be used as a means of developing the local capital markets, it said.

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Source: Gulf Times (Qatar)

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