More corporate sukuk issuance expected in GCC

26 November 2013

Diversity in issues could help tackle lack of secondary market liquidity

More corporate sukuk issues are likely to come out of the GCC and Turkey in the near future, says Hussain al-Qemzi, global chief executive officer (GCEO) of Noor Investment Group and CEO of Noor Islamic Bank.

“The recent issues by non-government-related companies, such as Almarai Company and [Majid] al-Futtaim Group, will probably set a trend for the coming years. I think we will see more groups or big trading houses of corporations look to alternatives in raising larger amounts for longer periods, [leading to] more predictable payments for corporations,” Al-Qemzi told MEED.

The past year has seen an increase in sukuk issuance from the region, mainly led by government-related entities and the Islamic Development Bank, which uses its investment-grade rating to raise funds for regional companies.

More than $30bn was raised by issuers from the Middle East and North Africa (Mena) region in the first six months of the year, according to UK financial services company Dealogic.

That is mainly the result of investors’ need for diversification, but also due to more competitive pricing for issuers.

The ability to invest in sukuk is limited, however, causing a lack of liquidity in the secondary market.

“We’d like to see much larger and longer sukuk. It will act sort of as an Islamic fixed-income alternative that is credible and, [with a] non-sovereign, you can improve the yield,” says Al-Qemzi.

“Most of the time there is no secondary market, [as] often big organisations keep the sukuk in their books. We need longer maturities, diversified products and more issuance in order to reach the secondary market. The GCC is heading in the right direction, but there is a need to build more depth.

“The other part we’d like to see is maybe an improvement in the application of sukuk, with issues that go specifically to infrastructure for instance.”

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