2016 was a Record year for Corporate Sukuk Issuance
Global sukuk market resumed positive strides in 2016 after three years of consecutive decline following its peak in 2012. Along with its rebound, the sukuk market also witnessed an important shift where corporate issuers dominated the market in 2016 with USD47.3 billion volume of issuance, representing a share of 63.2%. This is in contrast to historical trends where issuance was driven largely by sovereigns.
In 2016, global sukuk market witnessed a rebound after three consecutive years of decline following its peak in 2012. Global sukuk issuance posted a solid growth of 13.2% from previous year to reach USD74.8 billion. Overall, sukuk issuer profile remained broadly similar to historical trends, with Malaysia continued to be the main driver for sukuk issuance for the year, commanding a market share of 46.4% of total issuances, followed by Indonesia and the United Arab Emirates (UAE), accounting for 9.9% and 9.0% share, respectively.
Total issuances of GCC countries stood at USD19.6 billion, compared to USD18 billion in the previous year, driven by higher issuances from sovereigns. Higher issuances from this region suggested sukuk remain an important source of funding in financing their budget deficits amidst low oil prices and export earnings. Elsewhere, Turkey recorded a notable rise in sukuk issuance at USD4.1 billion for the year, supported by a number sovereign issuances with maturity ranging from one to five years. The year 2016 also witnessed issuances from Senegal, Jordan, Ivory Coast and Kuwait.
Global Sukuk Issuance USDbln
Global Sukuk Outstanding
Global sukuk outstanding increased to a record of USD349.1 billion as of December 2016, an 8.7% increase from USD321.2 billion as at end-2015. By domicile, Malaysia’s secondary sukuk market stood at USD183.8 billion, representing a share of 52.6% of total sukuk outstanding. This was followed by Saudi Arabia and the UAE with market share of 16.3% and 8.9%, respectively.
Climate Bond Standards are developing in order to adapt to the demands of the fast growing green bond market, a new version of the Climate Bonds Standard has been published.
The additions now include Sukuk amongst a range of debt instruments that can now be certified under the Standard.
Green Bond Market Growth
Growth of Green Bond Market
2016 issuance was almost double that of 2015 2016 was a record-breaking year by all metrics – the largest year of issuance to date, the largest single month, the largest number of new issuers.
The above figures do not include bonds that do not meet international definitions of green (e.g. reduced-emissions coal, large hydro and grid connection projects not linked to renewable energy or also referred to as “excluded bonds”2). Including these bonds brings total 2016 issuance to USD92bn.
A Doha-based banker has been charged of making financial transactions to his account in the name of bogus companies.
The accused allegedly signed contracts in the name of bogus companies to transfer money to his account against consultancy charges of Sukuk (Shariah-compliant bonds) and commission.
According to a report in Qatar based The Peninsula, as a result of the allegations the accused employer incurred losses amounting to $1,905,135, as per the charges.
The accused allegedly ordered to transfer $636,683 to his account in the name of a bogus company in Denmark, $212,483 to the account of another fake company in Austria, and $434,766 to the account of a real estate company in the UAE, said the daily.
It was disclosed during the investigation that the money was transferred to the accounts of these companies illegally. The banker has also been accused of using forged documents to cover the crime.
Pakistan’s third international sukuk for $1 billion dollars used the M2 Motorway connecting Lahore to Rawalpindi as the underlying asset in a Ijara structure.
Pakistan Third Sukuk Structure
The assets purchased by the Trustee on the Issue Date were certain parts of land comprising the M-2 Motorway, together with all constructions, superstructures, flyovers and interchanges.
Full Details of Pakistan Sukuk in Sukuk.com Database
Full details of the sukuk including prospectus, structure and final offering summary can be found in the Sukuk.com Sukuk database.
Qatar Central Bank issues on behalf of Government of Qatar
For the third month in a row, the Central bank of Qatar on behalf of the Government of Qatar has issued a series of sukuk with maturities ranging from 3 years to 10 years.
The sukuk issuance totalling QAR 1.5bn were auctioned alongside of QAR 1.5bn of conventional Government bonds.
The domestic issuance’s are private placements targeted for the domestic Qatari market.
On the 17th of October 2016 the Hashemite Kingdom of Jordan (“Kingdom”), closed its inaugural local currency Sukuk. The debut sovereign issuance was more than three-times oversubscribed. The amortized Ijarah-based Sukuk has a tenor of five years and expected profit rate of 3.01%. The landmark sovereign issuance marks a major step to develop the Islamic Jordanian capital market as well as provides Shariah-compliant banks with an investment avenue. The Kingdom raised Jordanian Dinar JOD 34 million (USD 47.9 million) maturing in 2021.
“The sovereign issuance is of great significance for the Kingdom’s full-fledged four Islamic banks, because it will give them a badly needed tool to manage their excess liquidity (estimated to be 1.4 billion dinars)”, said H.E. Omar Malhas, Minister of Finance. “As part of the fiscal reform programme implemented by the Ministry of Finance, we aim to widen the use of Sukuk in the short-term. The Sukuk will play a critical role in increasing the effectiveness of the financing mechanisms of government needs to cover the budget deficits.” he added.
The Islamic Corporation for the Development of the Private Sector (“ICD”), the private sector arm of the Jeddah-based Islamic Development Bank, acted as Transaction Technical Support and Advisor.The sovereign issuance is part of comprehensive joint-Technical Assistance (TA) Package provided by Japan International Cooperation Agency (JICA) and ICD. The TA also provided external practical capacity-building trainings for government employees behind the sukuk transaction.
Roadshow began last week with Kingdom looking to raise between $10bn -$20bn – Not known if Sukuk or conventional debt will be used.
The Financial Times reported representatives from the Kingdom flew to the UK and US to lay groundwork for a number of deals including and IPO of Aramco. On the debt front the Kingdom is looking to issue in multiple maturities of five, 10 and 30 years. According to a banker familiar with the deal, there will be a rush to get some of the deals done before the US Presidential elections.
Sukuk or Not?
The structure of the debt deal remains unknown, but likely will be a conventional issuance given neighbouring Qatar and Abu Dhabi both issued using conventional bonds earlier this year, and if so the deal would be viewed very much as a missed opportunity for the Sukuk market.
The article reported the deal is seeing strong demand from Asian Insurers and demand may come in at the $50bn mark for an expected issuance of between $10bn and $20bn.
Saudi Arabia relies on oil for three-quarters of its income and prices have fallen to a 2003 low of about $28 a barrel in January. As a result, the kingdom slashed capital expenditure by more than 70 percent this year and has issued domestic debt to fund the largest budget shortfall among the world’s 20 biggest economies.
Domestic Issuances in Malaysia, Qatar, Brunei and Turkey
Sovereign issuances aimed at domestic markets have dominated the Sukuk market over the last two weeks as a large GII Murabahah issuance from Bank Negara of Malaysia, as well domestic issuances in Brunei and Turkey demonstrated localised efforts by governments to develop and support domestic Islamic Finance markets. The Central Bank of Qatar on behalf of the Government of Qatar also issued four domestic Sukuk totalling QAR 2,625 billion.
Recent notable domestic issuances included Malaysia selling RM2 billion of GII Murabahah Sukuk. The issuance to mature in 2025 generated an order book of RM5,779 billion from 234 bids. Brunei issued as part of its short-term Sukuk Ijara facility for BN$100 million. Small issuances were also made in Bangladesh and Bahrain, whilst Qatar made a second batch of Sukuk issuance’s for this year, raising a total of QAR2.625 billion from four sukuk issued with separate tenors.
The Qatar Central Bank entered its domestic market for the second time in as many months to issue four long sukuk ranging from three years up to ten years.
International Sukuk Market
Pakistan is holding investor road shows for its third US dollar Sukuk issuance which is expected to conclude next week. The South Asian nation is seeking to raise up to US$1 billion.
Corporate Malaysian Sukuk Market
In the corporate space Malaysia’s Cagamas issued a short-term Sukuk Murabahah for RM500 million, whilst Public Sector Home Financing Board issued Sukuk of up to RM4 billion (US$965.92 million). Finally Malaysia Marine and Heavy Engineering Holdings issued a Sukuk Murabahah for RM20 million (US$4.83 million).
Sukuk are referred to as lease certificates in Turkey and for the period from January to July 2016 represented 5% of domestic borrowing for the Republic of Turkey.
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