Saturday, October 9, 2010

How big is the sukuki bond market and what are their advantage

The market for sukuk is estimated at $85bn at year2007. The market is divided into two broad categories; on the one hand, global sukuk(which are listed on global markets and usually denominated in international currency, mainly the US dollar), and on the other hand , local or domestic sukuk(which are issued by Muslim issuers on their respective domestic markets, and are denominated in local currencies).
Listed sukuk represent roughly one-third of total sukuk outstanding, or $30 bn. We, at S&P, do rate sukuk for an outstanding, amount at mid-year 2007 in excess of $12 bn, or 30% of listed sukuk.
For issuers of sukuk , one advantage is to have access to alternative sources of funding, while diversifying funding sources. Given the wider appetite for these assets-based (and sometimes assets-backed) securities, issuers a can broaden their investors more inclined to comply with religious rules. Finally, sukuk have upside value embedded in them , reflecting the very begin economic environments from which sukuk are issued, mainly the Gulf region and south East Asia, both growing very fast and where the outlook is positive.
Capitalization in the sukuk market has been substantially increasing over the last seven years. The sukuk market has increasingly grown exponentially since 2000 with an average growth of approximately 805 per annum. It grew at a slower rate in the beginning, but suddenly accelerated in 2003. Initially, the market was limited to the domain of sovereign issues; however, realizing its vast potential , a number of corporation in the Middle East as well as Asia have started to take opportunity.In 2000, there were only three three corporate sukuk worth almost $5.7bn; and in 2006, the figure substantially grew to exceed $27 bn.
The global sukuk market continued its rapid growth in the first half of 2007, edging up 75.1% YoY while the international sukuk market expanded by 83..3%YoY. The first semester of 2007 also saw sovereign sukuk issues rise to total of $4.4 bn as compared the corporate sukuk had risen to a total of $20 bn. In term of currency, as at the end of june 2007, Malaysia ringgit-denominated sukuk represented 70% or $17.2 bn of the total sukuk being issued globally.

In line with the development of Shari’ah banking, the Islamic capital market in Indonesia is also on the rise. The growth of Shari’ah bond issues. Till now, 17 Indonesian corporations have issued Shari’ah bonds woth almost IDR2,209.4bn ($245.5 mn), with two types of Shari’ah bond so far, namely Ijarah, accounting for 63% (IDR 1,394.4 bn) ($155 mn) and Mudharabah for 37% (IDR 815 bn) ($90.5 mn).

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