Islamic bond deals in 2010 could top last year's roughly $24 billion as global regulatory and legislative initiatives and a possible Dubai World restructuring settlement boost sukuk activity, ratings agency Moody's said on Tuesday.
Most issuance in 2010 will take place in the second half of the year when Moody's believes clearer signs of a global economic recovery, investor risk appetite and corporate performance will be available.
The majority of sukuk issuance in the first half of 2010 will come from supranational, sovereign and government-related issuers with leasing-based structures, such as ijara and murabaha, continuing to dominate the landscape, Moody's said.
A possible settlement between state-owned Dubai World and its creditors over $26 billion in debt could calm investor fears and propel issuers to tap the regional market.
Sukuk issuance will also benefit as new jurisdictions such as Luxembourg, the UK and Indonesia work to introduce a sukuk-friendly market, with France and Australia likely to follow suit, Moody's said.
In established markets like the GCC, the anticipated mortgage law in Saudi Arabia is likely to drive growth in the mortgage market, which would spur sukuk issuance in order to facilitate future lending.
And the creation of Saudi's Tadawul Sukuk platform, which will allow for the trading and pricing of Islamic bonds, should also create an active and regulated secondary market in the kingdom, by attracting a larger segment of investors, including institutional investors, into the market.
Moody's anticipates that markets such as Saudi Arabia, Qatar, Kuwait and the UAE, to a lesser extent, which have underperformed their potential, are in a good position to issue more sukuk over the next few years.
The report comes one week after Moody's estimated that the nascent Islamic finance industry could hit $5 trillion over time. The ratings agency didn't provide a time frame for that target. (Reuters)