Sovereign & Quasi-Sovereign issuers drive the Sukuk market

20/04/2014 06:42 AST

According to a newly released report "Global Sukuk Report 1Q2014" by Kuwait Finance House Research Limited (KFHR), the global sukuk market saw a modest volume of USD31.14bln in new sukuk issuances in 1Q2014. This volume represents a drop of 15.2% as compared to the USD36.73bln in issuances during 4Q13 and 9.82% short of the USD34.53bln worth of issuances in 1Q13. The drop in issuance volume stems from a noteworthy slowdown in the GCC sukuk issuances in 1Q14, particularly in the month of March when the only GCC sukuks issued were the short-term liquidity management sukuks by the Central Bank of Bahrain. The volume of sukuk issuances in the GCC fell by 12.5% in 1Q14 as compared to the volume in 1Q13. Meanwhile, the commencement of tapering by the US Federal Reserve in its quantitative easing (QE) programme since January 2014 is another critical factor behind the decline in 1Q14's issuance volume. The US Fed's tapering has led to higher funding costs for issuers, particularly in emerging markets, and this has potentially kept the issuers on hold to observe the market first.

Consistent with the trend over past several quarters, the primary sukuk market was led by sovereign and quasi-sovereign issuers who collectively accounted for 81% of the global primary sukuk market issuances in 1Q14. Notably, the sovereign issuers accounted for 68.6% or USD21.37bln of the total issuances in 1Q14 and this is the highest absolute volume for the sovereign sector since 3Q12 when sovereign issuers had generated USD25.66bln in raised proceeds. Meanwhile, the quasi-sovereign sector's share of over USD4.05bln was spearheaded by nearly USD2.9bln in sukuk issuances by the multilaterals Islamic Development Bank (IDB) and the International Islamic Liquidity Management Corporation (IILM). In contrast, the corporate sukuk issuances share in 1Q14 declined to USD5.7bln which represents a 29.8% decrease in comparison to USD8.12bln volume during 1Q13 and a 57.1% decrease in comparison to the record USD13.29bln volume during 4Q13. Among the notable jurisdictions issuing sukuk in 1Q14 included Maldives as a debutant issuer in the global sukuk market with an inaugural 10-year corporate sukuk issuance worth USD3.9mln.

In the secondary market, the global sukuk outstanding portfolio reached USD272.96bln as at 1Q14 which represents a very modest 1.3% growth from USD269.4bln as at end-2013. The slow growth in 1Q14 was contributed, in part, by the redemption of a huge USD9.07bln sukuk by the Central Bank of Qatar in January 2014. On the back of this redemption in Qatar, the total GCC sukuk outstanding portfolio in fact declined by 0.4% to value a little under USD85bln in 1Q14, as compared to the USD85.3bln outstanding as at end-2013. Malaysia continues to be the largest and only secondary market with over USD100bln in outstanding sukuks. As at 1Q14, the sukuk outstanding portfolio in Malaysia amounted to approximately USD160.6bln, a 1.5% increase compared to the USD158.3bln outstanding as at end-2013. In terms of outstanding portfolio growth q-o-q, double digit growth rates in 1Q14 were recorded in Brunei (47.2%); Singapore (34.3%); Turkey (12.4%); and Saudi Arabia (10.8%). During the same period, decline in outstanding portfolio were recorded in Qatar (32.1%) and Pakistan (14.3%).

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