Sukuk defaults seen rising as global slowdown weighs

  • Share via facebook
  • Tweet this
  • Bookmark and Share

A default on Islamic bonds by Kuwaiti firm Investment Dar is just the tip of the iceberg, with more failures expected as the weak global economy hits issuers, industry experts warned on Wednesday.

Unlike traditional banking, the $1 trillion Islamic finance industry has just begun to feel the chill of the global downturn, with practitioners and analysts trying to assess the extent of the fallout on the sector.

Investment Dar said in May it had defaulted on a $100 million Islamic bond, the first such default for a major, public Islamic instrument in the Gulf.

Troubled Saudi conglomerates Saad Group and Ahmad Hamad Algosaibi & Bros, are restructuring their debt, triggering concerns of a spillover effect on the Islamic finance industry.

Neale Downes, a Bahrain-based lawyer at Trowers & Hamlins, estimated that 5-8 percent of Islamic bonds, or sukuk, in the market are susceptible to default as many were raised for real estate projects which have been hurt by the slowdown.

"A lot of the issuers are ultimately really sovereign or quasi sovereign so they will probably be able to draw on government support either directly or behind the scenes," Downes said on the sidelines of an Islamic banking conference in Kuala Lumpur.

The value of sukuk issued in 2008 dropped by more than 56 percent compared with 2007 to $14.9 billion, due mainly to the global credit crunch, according to Standard & Poor's. It expects the market to recover in the second half of 2009 or early 2010.

"The longer the global recession goes, the higher the likelihood of default," said Mohammad Faiz Azmi, global Islamic finance leader at PricewaterhouseCoopers.

"People are now using reserves or savings to try to keep themselves going. How long can that last? So far what we've seen is the tip of the iceberg." (Reuters)

Related:

Market Performance

The Investment Dar Company
74.0
0.0 0.0 (%)
Join the Discussion

Disclaimer:The view expressed here by our readers are not necessarily shared by Arabian Business, its employees, sponsors or its advertisers.

Please post responsibly. Commenter Rules

  • No comments yet, be the first!

Enter the words above: Enter the numbers you hear:

All comments are subject to approval before appearing

Further reading

Features & Analysis
Is Kuwait back in the game?

Is Kuwait back in the game?

New investor-friendly legislation, a fund for SMEs and the hint...

1
Frustrated Kuwaitis ask, why is Kuwait falling behind?

Frustrated Kuwaitis ask, why is Kuwait falling behind?

Citizens wonder why oil producer Kuwait is not as dynamic a hub...

8
Fear and roaming in the Gulf

Fear and roaming in the Gulf

The Gulf’s telecommunications giants are once more pushing ahead...

Most Discussed