ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
SUKUK IN TAKAFUL INVESTMENT
ITS 2013
MOHAMMED AL SHARAF, MBA
BUSINESS DEVELOPMENT MANAGER – THOMSON REUTERS
CAIRO – EGYPT
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
SUKUK PERCEPTIONS AND FORECAST FOR 2013
AGENDA
WHAT IS SUKUK?
SUKUK INSTRUMENTS IN
TAKAFUL
SUKUK INVESTMENT
OPPORTUNITY FOR 2013
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
FROM CONECPT TO PRACTICE
SUKUK OVERVIEW
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
WHAT IS SUKUK?
•
Sukuk (Islamic investment instruments, comes from the word “Sak”) are always linked to underlying
assets (tangible / intangible), which represents a partial ownership in the assets. Islamic financing
contracts representing ownership can be bought and sold, hence can be monetized in the form of
tradable securities
•
•
A Sukuk Represents:
–
An undivided proportionate beneficial ownership interest in an asset or portfolio.
–
The right to the Islamically acceptable income streams generated by the asset/portfolio
Sukuk Structure:
–
Sukuk can be structured in a number of ways, depending on the underlying assets and the business
purpose
–
While majority of the sukuk issued to date have utilized “Ijara” or “Musharaka” structures based on real
estate as the underlying asset, the sukuk issued by Islamic banks and Finance Companies have used
financial contracts as the underlying asset
•
It works similar to a conventional bond in most characteristics such as trading, listing, rating etc.
however, structured in a Sharia-compliant manner
•
Sukuk provide access to a vast and growing Islamic liquidity pool, in addition to the conventional debt
capital market investor base
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
TYPES OF SUKUK
SALAM
STRUCTURE BASED ON SPOT PAYMENT WITH FUTURE DELIVERY OF ASSET
MURABAHA
SUKUK STRUCTURE BASED ON A COST PLUS FINANCING CONTRACT , ASSET DELIVERED
Short
Term
NOW WITH DEFERRED PAYMENT
SUKUK STRUCTURE INVOLVING THE SALE AND LEASE-BACK OF ASSETS IN EXISTENCE E.G
IJARA
REAL ESTATE, PLANT & MACHINERY, AIRCRAFT, SHIPS, OTHER TANGIBLE ASSETS. CAN ALSO
BE STRUCTURED AS A MASTER LEASE/SUB LEASE STRUCTURE
SUKUK STRUCTURE INVOLVING A PARTNERSHIP BETWEEN THE SPV AND OBLIGOR TO
Long
Term
MUSHARAKA
JOINTLY OWN EITHER READY ASSETS OR TO CONSTRUCT/MANUFACTURE ASSETS (REAL
ESTATE/PROJECT FINANCING)
ISTISNAA
SUKUK STRUCTURE FOR CONSTRUCTION FINANCING (PROGRESS PAYMENT FOR ASSETS /
PROJECTS UNDER CONSTRUCTION)
MUDARABA
A PARTNERSHIP / FUND MANAGEMENT CONTRACT BETWEEN AN INVESTOR (RAB-UL-MAL)
AND A MANAGER (MUDARIB)
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
SUKUK IN TAKAFUL
NEED TO KNOW WHAT IS THE BENEFIT?
SUKUK IN TAKAFUL INVESTMENT
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
SUKUK INVESTMENT IN TAKAFUL
SUKUK
INVESTMENT IN
TAKAFUL
TAKAFUL COMPANIES CAN BENEFIT FROM PLACING
THEIR LIQUIDITY IN SUKUK WHICH CAN PROVIDE THE
FOLLOWING:
- SHARIA COMPLIANT ASSET CLASSES
- EXCEPTIONAL RISK/RETURN ASSET CLASSES
- TRADABLE INSTRUMENT WHICH THEY CAN SELL ANY
TIME
TAKAFULINSURANCE
AGAINST SUKUK
DEFAULT (FUTURE
CONCEPT)
TAKAFUL COMPANIES CAN BENEFIT FROM THE
PREMIUM OF INSURING THE DEFAULT OF SUKUK.
PROJECT FINANCE
TAKAFUL PREMIUM
SUKUK IS THE MAIN SOURCE OF FUNDING FOR MEGA
PROJECTS AND AS A RESULT OF INCREASING THE
SHARIA COMPIANT INVESTMENT TAKAFUL COMPANY
COULD BENEFIT FROM THE PREMIUM OF
INVESTMENT.
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
HOW MUCH DOES THE TAKAFUL COMPANIES INVEST IN THE
SUKUK MARKET? ...
SUKUK INVESTMENT IN THE TAKAFUL COMPANIES
PORTFOLIO
SUKUK AS PERCENTAGE OF TOTAL ASSET
5%
36%
64%
95%
Sukuk
Other investment
Sukuk
Total TakAful Asset
Source: Thomson Reuters EIKON
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
360° ABOUT MOST PROMISING ASSET CLASSES
HISTORICAL TREND – RISK ASSOCIATE – FUTURE OUTLOOK
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
LOOKING BACK, WE FIND...
KEY HISTORICAL TRENDS
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
SUKUK ISSUANCE HAS GROWN BOTH IN TERMS OF VOLUME AND
ISSUER AND INSTRUMENT DIVERSITY...
GLOBAL SUKUK TIMELINE (1990 - Sept 2012)
$ blns
130
Pakistan Proposes
New Sukuk Rules
120
Jordan Passes
Sukuk Law
Qatar 4 billion
Eurobond
Axis 1st REIT
Sukuk
110
100
Bank Al Jazira
Tier 2 Sukuk
General Electric
1st USA Corporate
Sukuk
90
80
Nakheel Sukuk,
Dubai Real Estate
Boom
70
60
50
Dawama 1st Hybrid
Sukuk (Ijara-Murabaha)
Central Bank of
Bahrain 1st
Series of Int'l
20
10
IDB 1st Int'l QuasiSovereign Sukuk
Shell MDS
Sdn Bhd
World's 1st
Ringgit
NBAD 1st
Ringgit Cross
Border Sukuk
Mufti Taqi Usmani
criticises 85% of sukuk
as not sharia-compliant
Khazanah
Nasional
World's 1st
Int'l
Exchangeable
Sukuk
Cagamas
World's
1st
Residentia
l Mortgage
Sukuk
Malaysia 1st Int'l Sovereign
30
Danga Capital
World's 1st
Renminbi Sukuk
Indonesia 1st
Domestic Sovereign
Retail Sukuk
ADIB Tier 1
Sukuk to Govt of
Abu Dhabi
Saad Group
Default
Durrat Al
Bahrain
1st Int'l
Hybrid
Sukuk
(Ijara Istisna)
Caravan 1st AssetBacked Sukuk
Kumpulan
Guthrie Bhd
World's 1st Int'l
World Bank 1st Sukuk
40
DP World
Announces
Default
Qatar QR33
billion Sukuk
0
1990 - 2000
Shell MDS Sdn
Bhd, Malaysia
2001
Govt of Bahrain
2002
Indosat,
Indonesia
2003
2004
2005
2006
2007
Central Bank of
Sudan
Solidarity, KSA
Tabreed,
Financing, UAE
Govt of
Pakistan
Govt of Brunei
Qatar Global
Sukuk
Saxony-Anhalt,
Germany
Al Safeena, UK
East Cameron
Gas Co., USA
The
Commercial
Real Estate
Co., Kuwait
2008
Central Bank of
The Gambia
2009
Monetary
Authority of
Singapore
2010
2011
Nomura
Holding, Japan
Central Bank of
Yemen
Kuveyt Turk,
Turkey
Al Rajhi
CementJordan,
Jordan
Source: Thomson Reuters Zawya
Q3 2012
DBK,
Kazakhstan
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
...MOST SUKUK HAVE BEEN DEBT BASED AS MAJORITY
ORIGINATED IN MALAYSIA.. HOWEVER, INVESTMENT BASED SUKUK
SLOWLY CATCHING UP...
GLOBAL DEBT STRUCTURE SUKUK VS INVESTMENT STRUCTURE SUKUK
HISTORICAL TREND ( Jan 02 - Sep 12)
$ BILLION
120
100
80
60
40
20
0
2002
2003
2004
2005
2006
Debt Based Sukuk Structure
2007
2008
2009
2010
2011
Q3 YTD 2012
Investment Based Sukuk Structure
Source: Thomson Reuters Zawya
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
...INTUITIVELY, REAL ESTATE, FINANCIALS AND OIL AND GAS
COMMAND A DISPROPORTIONATE SHARE OF ISSUANCES IN THE
MENA REGION...
MENA vs MALAYSIAN CORPORATE AGGREGATE SUKUK ISSUED
BREAKDOWN BY INDUSTRY (Jan 96 - Sep 12)
$ bln
Number
of Issues
400
50
360
45
350
40
300
35
237
30
215
250
216
215
25
200
20
150
107
15
83
10
56
100
55
31
5
7
11
8
Transport
Power & Utilities
Construction
50
24
0
0
9
8
4
4
Oil & Gas
Conglomerates
Other
0
0
Financial
Malaysian Sukuk
MENA Sukuk
Telco.
Real Estate
Services
Malaysian Number of Issues
MENA Number of Issues
Source: Thomson Reuters Zawya
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
...WHILE PERFORMANCE AND ISSUANCE DIPPED DURING THE
FINANCIAL CRISIS, SUKUK LARGELY REBOUNDED TO PROVIDE
EXCEPTIONAL PERFORMANCE GOING FORWARD...
DOW JONES GLOBAL SUKUK INDEX PRICE MOVEMENT (Oct 05 - Sep 12)
$ bln
Index Price
110
120
Sukuk enjoys exceptional favorable pricing
compared to conventional bonds (Cheaper
by 50 bps as per HSBC data)
100
100
Dubai Debt Crisis
80
AAOIFI comments that
85% of sukuk are not
sharia compliant
Sukuk rallies and becomes
investors choice over US &
European ow market yields
90
60
Nakheel deafults & Abu
Dhabi Government bails
outDubai
Boom of Sukuk Market
80
40
70
20
0
2005
60
2006
2007
2008
2009
Sukuk Issued
2010
2011
2012
Price Movement
Source: Thomson Reuters EIKON
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
...YET SUKUK UNDERPERFORMED THIS YEAR WHEN
COMPARED TO THEIR EMERGING MARKETS PEER...
EMERGING MARKET INDICES VS SUKUK INDICES PERFORMANCE
Index price
115
110
105
100
95
1-Jan-12
1-Feb-12
1-Mar-12
1-Apr-12
Thomson Reuters Global Sukuk Index
1-May-12
1-Jun-12
1-Jul-12
JPMorgan Emerging Markets Bond Index
1-Aug-12
1-Sep-12
1-Oct-12
.DJSUKUK
Source: Thomson Reuters EIKON
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
...BUT IN MARKED IMPROVEMENT IN QUALITY, MOST OUTSTANDING SUKUK ARE
USUALLY STRUCTURED TO COMPLY WITH AAOIFI STANDARDS / GUIDANCE AND
BACKED BY ASSETS...
OUTSTANDING INTERNATIONAL SUKUK BY
AAOIFI COMPLIANCE AS OF SEPTEMBER 30,
2012
OUTSTANDING INTERNATIONAL SUKUK
BREAKDOWN
BY RISK CLASSIFICATION AS OF SEPTEMBER 30,
2012
Hybrid
10%
AAOIFI non
Compliant
28%
Asset Based
22%
AAOIFI
Compliant
72%
Project
Backed
3%
Asset Backed
65%
Source: Thomson Reuters EIKON
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
LOOKING TO THE FUTURE....
SURVEY FINDINGS
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
I NEED DOLLARS...
CURRENCY AND MARKET OF ISSUE PREFERENCES
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
INTERESTINGLY, ARRANGERS EXPECT A GOOD BALANCE BETWEEN
LOCAL AND INTL. SUKUK WHILE INVESTORS GLOBALLY HAVE AN
OVERWHELMING PREFERENCE FOR INTL SUKUK
46.4%
Domestic – Local currency
SELL SIDE - Expectation
28.3%
53.6%
International – Eurobond
BUY SIDE - Preference
71.7%
20%
Buy Side – Preference
40%
60%
80%
Rest of the
world
South East Asian
GCC
investors more keen to
invest in domestic
markets most likely due
to excess local currency Asia Pacific
liquidity and better rates
International –
Eurobond
Domestic – Local
currency
0%
20%
40%
60%
80%
100%
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
AND THIS IS REFLECTED IN THEIR DEMAND FOR US DOLLAR SUKUK
…INVESTORS PREFER US DOLLAR OVERALL, BUT THERE IS GROWING APPETITE FOR OTHER
CURRENCIES SUCH AS MALAYSIAN RINGGIT AND SAUDI RIYAL …
0.0%
Other
8.1%
3.7%
4.0%
Euro
Malaysian Ringgit
37.0%
4.0%
Saudi Riyal
6.1%
SELL SIDE - Expectation
11.1%
BUY SIDE - Preference
48.1%
US Dollar
Indonesia Rupiah
77.8%
0.0%
0.0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Indonesian Rupiah
Rest of the World
US Dollar
Buy Side – Preference
Perhaps surprisingly,
there is some demand
for Euro sukuk
Saudi Riyal
GCC
Malaysian Ringgit
Euro
Asia Pacific
Other
0%
20%
40%
60%
80%
100%
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
NEW HORIZONS OR COMFORT ZONE?
GEOGRAPHIC AND RISK PREFERENCES
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
GCC AND SOUTH EAST ASIA STILL COMMANDS HIGHEST
PREFERENCE FROM INVESTORS
INVESTORS STILL PREFER TO INVEST IN CORE SUKUK TERRITORY - TRADITIONAL GCC AND
SOUTH EAST ASIA COUNTRIES WHILE ARRANGERS EXPECT A SIMILAR PATTERN
Saudi Arabia
19.2%
UAE
BUY SIDE
INVESTORS
PREFERENC
E
17.3%
Malaysia
17.1%
Bahrain
16.2%
Indonesia
11.1%
Singapore
9.6%
Pakistan
5.5%
Other
4.1%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
OUTLIERS
SELL SIDE
ARRANGER
S
EXPECTATIO
N
UAE
Saudi Arabia
Malaysia
Qatar
UK
Singapore
Bahrain
Kuwait
Other
USA
Indonesia
Oman
Italy
Germany
France
16.4%
15.7%
14.9%
12.7%
8.2%
7.5%
6.0%
5.2%
3.7%
3.7%
3.7%
2.2%
0.0%
0.0%
0.0%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
High correlation
between investors
preference and
arrangers
expectation of
sukuk issuance
countries
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
..WITH HIGH EXPECTATIONS FROM EMERGING ISLAMIC
FINANCE COUNTRIES TO ENTER THE SUKUK MARKET..
ARAB SPRING AND CIS COUNTRIES WOULD BE BEST PLACED TO ISSUE SUKUK GIVEN THE
DISPROPORTIONATE SHARE OF INVESTOR PREFERENCE FOR THEIR PAPER
Egypt
Oman
Kazakhstan
Tunisia
Libya
SELL SIDE - Expectation
BUY SIDE - Preference
Azerbaijan
Morocco
Other
Yemen
Kenya
0%
10%
20%
30%
40%
50%
60%
70%
80%
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
WHILE INVESTORS STILL SHYING AWAY FROM CORPORATES…
GFC JITTERS STILL PREVAILS WITH SOVEREIGN (LINKED) OR FINANCIALS REMAINING THE
FAVOURITES
5.5
Sovereign
6.2
5.7
5.8
Quasi-Sovereign
3.8
State linked
5.0
SELL SIDE Expectation
5.4
Financial Services
4.5
3.1
Oil & Gas
4.0
Telecommunicatio
n
BUY SIDE Preference
4.3
4.0
4.2
Power & Utilities
3.6
4.0
Real Estate
3.0
0
2
4
6
8
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
CHASING RATINGS...
…INVESTORS STILL PREFER TO INVEST IN SUKUK THAT ARE RATED AND INVESTMENT GRADE
AND ABOVE. ..
Buy Side: Rating of sukuk is important for my investment
Mean: 5.18
decision
7.1%
A and above
16.2%
Mode: 7
SD σ: 0.25
2.068
40
Investment Grade (BBB- /
Baa3 and above)
82.1%
35
67.7%
0.2
30
Sub-Investment Grade (BB or
B)
Frequency
3.6%
8.1%
Indifferent
7.1%
8.1%
0%
Despite Asian
investors mostly
preferring investment
grade issues, they are
more open to other
options
0.15
20
0.1
15
10
20%
40%
60%
SELL SIDE - Expectation
Buy Side – Preference
25
80%
100%
0.05
5
0
Strongly Disagree 2
BUY SIDE - Preference
3
4
5
Sub-Investment
Grade (BB or B)
Rest of the World
Investment Grade
(BBB- / Baa3 and
above)
Indifferent
GCC
A and above
Asia Pacific
0%
0
6 Strongly Agree
20%
40%
60%
80%
100%
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
..AND LARGELY FAVOR ASSET BACKED SUKUK..
MOST INVESTORS PREFER ASSET BACKED SUKUK AS THEY ARE MORE SECURE AND GRANT
RECOURSE TO BOTH THE OBLIGOR AND THE UNDERLYING ASSETS
Project-Backed
Sukuk
18.5%
9.2%
33.3%
Asset-Backed Sukuk
69.4%
SELL SIDE
Expectation
48.1%
Asset-Based Sukuk
21.4%
0%
20%
40%
60%
80%
Rest of the
World
Rest of the
World
Project-Backed
Sukuk
Asset-Based
Sukuk
Asset-Backed
Sukuk
Levant
GCC
GCC
Asia Pacific
Asia Pacific
0%
20% 40% 60% 80% 100%
0% 20% 40% 60% 80% 100%
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
AND STILL CONSERVATIVE ON TENOR…
UNLIKE CONVENTIONAL BOND INVESTORS, ISLAMIC INVESTORS STILL PREFER SHORTER TERM
PAPERS., POSSIBLY REFLECTING THE BANK HEAVY INVESTOR BIAS
10 years and above
Buy Side –
Preference
0.0%
1.0%
5-10 years
26.3%
3-5 years
25.9%
7.4%
1-3 years
The market is
still averse to
longer term
papers
66.7%
SELL SIDE - Expectation
52.5%
BUY SIDE - Preference
17.2%
Less than 1 year 0.0%3.0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Transpotation
10 years and above
Securities brokers and traders
Investment Firms and Funds
5-10 years
General Financial Services
3-5 years
Conglomerate
Central Bank and Monetary Authororities
1-3 years
Banking
Asset Management
Less than 1 year
0%
20%
40%
60%
80%
100%
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
WILL SUPPLY MEET DEMAND?
DEMAND AND SUPPLY EQUILIBRIUM ANALYSIS
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
SUPPLY
MOST ARRANGERS EXPECT ISSUANCE VOLUME AROUND THE $75-125 BLN RANGE WITH UP TO 30
EUROBOND ISSUES
What is the expected dollar amount of sukuk issuance in
2013?
$75 billion - $99.9 billion
42.9%
$100 billion - $124.9 billion
2012 figures are around the $132 bln range.
35.7%
Less than $75 billion.
Are arrangers being too conservative when projecting 2013
issuance levels?
14.3%
Above $150 billion
3.6%
$125 billion - $150 billion
3.6%
0%
10%
20%
30%
40%
50%
What is the expected number of Eurobond (International USD) sukuk
issuance in 2013?
25 - 30 issues
Number of Eurobond issuances in 2012 were 25.
Are arrangers being too conservative when projecting 2013
issuance levels, when pipeline itself is around the 18-20
mark (Source: IFR)?
46.4%
Under 25 issues
35.7%
30 - 35 issues
14.3%
35 - 40 issues
Above 40 issues
3.6%
0.0%
0%
10%
20%
30%
40%
50%
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
DEMAND
WHILE MOST ISLAMIC FINANCE INVESTORS WILL INVEST BETWEEN 20-100 PERCENT OF THEIR PORTFOLIO
IN SUKUK AND LESS THAN OR AROUND $200 MLN
SUKUK INVESTMENT
ISLAMIC FINANCE INVESTMENT
In US dollar terms
Frequency
45
40
35
30
25
20
15
10
5
0
In US dollar terms
Frequency
0.0012
35
0.001
30
0.0008
25
0.0006
20
15
0.0004
0.0002
0
200
400
600
0
800 1000 1200 $ (mln)
10
5
0
0
As a percentage of total portfolio
Frequency
30
Frequency
30
0.012
25
0.01
25
20
0.008
20
15
0.006
15
10
0.004
10
5
0.002
5
0
pct (%)
0
0
0
20
40
60
80
100
200
400
600
800
0.0018
0.0016
0.0014
0.0012
0.001
0.0008
0.0006
0.0004
0.0002
0
$ (mln)
As a percentage of total portfolio value
0.014
0.012
0.01
0.008
0.006
0.004
0.002
0
20
40
60
80
100
0
pct (%)
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
DEMAND AND SUPPLY EQUILIBRIUM
WE PROJECT THAT SUKUK DEMAND WILL SURPASS SUPPLY BY ABOUT USD 250 BLN BY 2016 AT CURRENT
SUKUK ISSUANCE GROWTH LEVELS
SUKUK DEMAND AND SUPPLY LEVELS (2012 - 2016)
$ bln
450
Supply & Demand Gap: Sovereign & Quasi
Sovereign sukuk issuance, and replacement of
other investment grade papers will far from
meet expected demand and the required level
of issuance.
400
350
300
250
200
150
100
50
0
2008
2009
2010
Total Global Sukuk Matured
Total Outstanding Global Sukuk
Total Sukuk Demand
2011
2012
2013
2014
2015
2016
Total Global Sukuk Issued
Total Outstanding Sovereign+Quasi Sovereign Sukuk
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
YET COST OF ISSUANCE STILL A HINDRANCE TO ACHIEVING DEMAND
SUPPLY PARITY
MAJORITY OF LEAD ARRANGERS BELIEVE THAT COSTS OF ISSUING SUKUK WILL STILL BE HIGHER
THAN COSTS OF ISSUING CONVENTIONAL BONDS
No
Sell Side – Expectations
The gap between the cost
of issuing sukuk and the
cost of issuing bonds is
narrowing, due to bigger
sukuk investor base
(conventional + Islamic)
59.3%
Yes
40.7%
0%
Above $500K
10%
20%
30%
14.3%
$350K – $499K
7.1%
$200K – $349K
21.4%
$50K – $199K
28.6%
Less than US$ 50K
28.6%
40%
5%
6.7%
4%
6.7%
3%
6.7%
15%
25%
60%
70%
2%
46.7%
1%
33.3%
0%
5%
50%
35%
10%
20%
30%
40%
50%
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
BUT BUYER BEWARE, SYSTEMIC SUKUK RISKS
LOOMING..
STRUCTURE RISKS
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
STRUCTURE RISK REARS ITS UGLY HEAD AGAIN…
SEVERAL PAST EXPERIENCES ON, POTENTIAL THAT THERE MAY BE ANOTHER STRUCTURE SHOCK
TO SUKUK…
INTERNATIONAL SUKUK ISSUED BREAKDOWN BY STRUCTURE
(Jan 02 - Sep 12)
$ bln
18
Structure Risk I emerges: Mufti Taqi
Usmani criticises 85% of sukuk
(specifically Musharaka, Mudaraba and
Wakala), as not sharia-compliant, due
to Purchase undertakings at Face
Value
16
Structure Risk II
Impact:
Goldman Sachs
$2 bln sukuk is
put on hold after
Commodity
Murabaha
structure
questioned
Structure
Risk I
Impact:
Musharaka
and
mudaraba
sukuk
issuances
plunge
14
12
10
Structure
Risk III: Ijara
repurchase
undertaking
questioned
at the OIC
Fiqh
Academy
proceedings,
Sept 2012
Structure Risk II:
Islamic Scholars
Debate over
Commodity
Murabaha
8
6
4
2
0
2002
2003
2004
2005
Ijara
2006
2007
2008
Musharaka, Mudaraba & Wakala
2009
Hybrid
2010
Other
2011
YTD Q32012
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
IJARAH STILL REMAINS FAVOURITE..
DESPITE THE ISSUE WITH THE IJARA REPURCHASE AGREEMENT AT THE ISLAMIC FIQH ACADEMY,
INVESTORS STILL PREFER IT OVER WAKALA …
29.6%
Ijara
Wakala
Mudaraba
Buy Side – Preference
Murabaha
Ijara and Wakala are
most expected by lead
arrangers, but Ijara is
preferred by a majority
of investors
29.6%
11.2%
7.4%
3.1%
7.4%
4.1%
0.0%
10.2%
Musharaka
Hybrid
0%
10%
SELL SIDE Expectation
BUY SIDE Preference
22.2%
7.1%
3.7%
1.0%
Other
63.3%
20%
30%
40%
50%
60%
70%
Rest of the World
Other
Hybrid
Levant
Murabaha
Mudharaba
GCC
Musharaka
Wakala
Asia Pacific
Ijara
0%
20%
40%
60%
80%
100%
ISLAMIC FINANCE GATEWAY
THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
THE RIGHT INFORMATION IN THE RIGHT HANDS LEADS TO AMAZING
THINGS
ISLAMIC FINANCE GATEWAY - DATA - RESEARCH - CONSULTING
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