The value of sukuk (Islamic bonds) issued in the Middle East in the first half of the year has already exceeded more than double the value issued in the whole of 2011, as issuers try to capitalise on investor interest in the Islamic finance sector.
Sovereigns and corporates issued a wave of sukuk deals in the early part of the year and that trend looks set to continue.
In the first half of the year, there was $13bn raised through sukuk issuance by Middle East companies, compared with just $5.5bn in the whole of 2011, according to New York-based research firm Dealogic. That puts issuance volumes already at the highest level since 2007, when $13.2bn was raised from sukuk sales.
The value of sukuk issuance has been spurred by the increasing number of deals by Saudi companies and sold only to local investors. In January, the Saudi Arabia’s General Authority for Civil Aviation completed a SR15bn ($3.99bn) sukuk. Despite its huge size, the deal was more than three times oversubscribed.
A glut of issuance from banks including Saudi Arabia’s Islamic Development Bank, Qatar Islamic Bank and Abu Dhabi Islamic Bank, has also bumped up the figures. “There is a lot of pent-up demand among Sharia-complaint investors for these assets and issuers are starting to realise that,” says Emad Mansour, chief executive officer of Qatar First Investment Bank.
“There is also a snowball effect as more issuers come to the market, it makes it more attractive and generates liquidity to encourage others to issue sukuk,” he adds.
In the first two quarters of the year, the number of deals has also increased, rising to almost 10 deals each quarter, compared with only two deals a quarter every quarter since early 2008.
“There is a lot of investor interest in the Middle East and the sukuk market because yields are generally higher than similarly rated assets elsewhere in the world,” says one bond trader in London. “That is making it a very attractive time for issuers.”
The Middle East made up around half of total global sukuk issuance, showing that the region is driving the sukuk market.
During the first six months of the year, there were $22bn of bonds and sukuk issued, compared with $27bn issued in the whole of 2011.