By Ed Attwood
Ratings agency claims potential lower risk appetite from Gulf investors.
While the medium-term prospects for the global sukuk market remain strong, the prospects are weaker for Dubai-based issuers and potentially other countries in the Gulf.That’s the assessment of ratings agency Standard & Poor’s (S&P), which also said that Malaysia and South East Asia were likely to lead the global sukuk market in issuance of the next couple of years.
S&P said Malaysia would benefit from its well-established Islamic banking system, which was backed by strong regulation and government support.
The agency said that the lower prospects for Dubai and other Gulf nations was due to a decreased risk appetite, meaning that issuers were likely to ask for a higher return to reflect the perceived elevated risk.
Worldwide, cumulative issuance outstanding topped $100 billion, with local currencies remaining the denomination of choice. New players such as General Electric Capital Corp and International Finance Corp also saw fit to tap the sukuk market last year.
Two sukuk – issued by The Investment Dar and Saad Group – defaulted, while the Nakheel sukuk only avoided default as a result of a last-minute rescue package.
"The 2010 pipeline remains healthy, in our view, with about $20 billion of sukuk publicly announced in the past that is likely to come to market if conditions permit," said S&P credit analyst Mohamed Damak.
“In addition, we understand from unofficial market sources that about $10 billion more could potentially enter the pipeline. If that comes to market, total sukuk issuance in 2010 could approach the current 2007 record of $34.3 billion.”