News Column

Sukuk to play a key role in financing major Dubai projects

September 1, 2014

Staff Report

Dubai: Funding through sukuk (Islamic bonds) issuance is expected to play a key role over the next decade in securing funds for the substantial line-up of new projects in Dubai, according to Dubai Chamber of Commerce and Industry.

According to a Dubai Chamber research report, the global sukuk industry is expected to be one of the fastest growing segments of the Islamic finance industry with huge growth potential in the Gulf Cooperation Council (GCC) region.

"The Dubai Chamber research note highlights the Sukuk market as one of the most attractive areas of Islamic finance that has attracted considerable interest from the business community worldwide. In addition, the sukuk market has remarkable growth avenues that can be effectively tapped to support the growing investment requirements in various sectors," said Abdul Rahman Saif Al Ghurair, Chairman of Dubai Chamber.

While the Gulf Cooperation Council and Malaysia have emerged as the main hubs for sukuk issuance, the main issuers of the sukuk in the global market are sovereigns, followed by corporates and government related enterprises (GREs). Countries such as Tunisia, Mauritania, Senegal and Oman are set to be key markets for sukuks, Dubai Chamber observes in the research note.

Sukuk issuance is not limited to Islamic countries. In 2014, a number of high profile debut sovereign issuances are expected to take place in countries such as the UK, Ireland and South Africa. Sovereign issuances by the UK are likely to spur interest in Europe for sovereign sukuks as they provide access to the growing Islamic liquidity pool.

According to PricewaterhouseCoopers (PwC), more than $16 billion (Dh 58.75 billion) of sukuks are expected to be issued in 2014 with Dubai already emerging as a centre for this asset class. The 10th World Islamic Economy Forum in Dubai will put the spotlight on the massive opportunities available in various segments of this growing sector.

Currently, compared to the conventional bond market, the sukuk market is still relatively small. However, the sukuk bond issuance has significantly grown over the last decade. The Dubai Chamber report, citing data from Rasameel Structural Finance, shows that the issue of sukuk bonds has registered cumulative annual growth rate of about 47 per cent over the period 2001-13.

In 2012 global sukuk issuance crossed the $100 billion mark with issues valued at about $137 billion, and in 2013, it surpassed $100 billion for the second consecutive year, despite slowing down 12 per cent compared to 2012 with issues worth $119.7 billion, according to Dubai Chamber.

The slowdown, which was evident during the first three quarters of 2013, has been mainly attributed to the Federal Reserve (Fed) announcement in May 2013 to cut-back on the US monthly stimulus programme. With the Fed's aggressive bond-buying programme tapering since January 2014, sukuk issuance may again be impacted in 2014, the report states.

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Source: Gulf News (United Arab Emirates)

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