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The booming sukuk issuance opportunity

Sukuk issuance utilizes a number of different shariah structures all making use of the purchase undertaking. Sukuk issuance is booming: Global sukuk issuance exceeded $85bn last year, more than 90 percent higher than the previous year , and in H1, 2012 $64bn was issued according to the Kuwait Finance House Research Limited (KFHR).

KFHR believes that in the first half of 2012 growth in sukuk issuance can be attributed to:

  • the declining yields for both corporate and sovereign issuances given significant demand, the rarity of high quality high-yielding papers and the flight to fixed income safety amid more concerns emerging from Europe
  • the increase in sukuk issuance during the period was triggered by large sums of money pumped by sovereign authorities and central banks to absorb excess liquidity:
  • Malaysia has continued its dominance in the market issuing $ 18.5 billion in the second quarter to total $ 46.8 billion for the first-half period
  • UAE was the second largest domicile of issuances over the quarter with $2.4 billion worth, closely followed by Saudi Arabia with a pinch lower than $ 2.4 billion
  • South Asia accounts for the majority of sukuk issuances in H1 2012 (79.3 percent), Indonesia maintaining the region's second spot outside of Malaysia
  • the MENA region, and more specifically the GCC region, has been a key market for issuances this year, growing by 6.1 percent despite no Qatari or Kuwaiti issuances thus far.

During the Q2 2012, KFHR noted a number of notable sukuk issuances:

  • the Islamic Development Bank's $ 800 million, issued with a return of 1.357 percent over its five-year tenure, significantly lower than the $ 750 million issued at 2.350 percent during the Q2 2011
  • Dubai issued its dual tranche sovereign sukuk Ijarah during April with a return of 4.9 percent for the five-year tenure ($ 600 million) and 6.45 percent for a 10-year tenure ($ 650 million). Subsequently, Dubai Islamic Bank entered the market in May with a five-year $ 500 million paper, managing to set a return at 4.752 percent, almost 15 basis points lower than its sovereign counterpart.

In the second half of the year KFHR expects corporates will be eager to raise and refinance long-term facilities and improve financing efficiencies using sukuk.

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