The regional sukuk market needs to be more diversified, said Abdul Kadir Hussain, chief executive of Mashreq Capital, at the Sukuk Congress Mena.
I dont think weve seen the type of diversification of issuer base that we would have liked to see. After the Asian crisis [in 1997] we saw the broadening of the capital markets issuer base, but [in the GCC region] we tend to rely on government-linked sukuk. That is clearly something we hope to move away from in future, he said.
Sukuk issuance is mainly dominated by sovereigns or government-related entities, though recent issues by Majid Al-Futtaim and Almarai Company are leading the way for more corporate activity in the near future.
On the investor side, lack of diversification is hindering the development of the secondary market, which sometimes struggles with liquidity, Hussain added. Around three quarters of sukuk issues are held by Islamic banks, with another 15 to 20 per cent taken up by private banks.
In addition, regulation for takaful (Islamic insurance) to invest in fixed income is lacking, hindering the possibility of more long term investors entering the market.
Despite that, sukuk are met with increased interest from international investors. The performance of sukuk has not been as volatile as traditional bonds over the past year as they are less sensitive to changes in interest rates. They also allow investors to diversify their portfolios.