(MENAFN- Khaleej Times) Corporate and infrastructure issuers in the Gulf are expected to give a new fillip to the sukuk industry's continued double-digit expansion in 2014, industry analysts said.
The consensus view of analysts at Standard & Poor's Ratings Services, Fitch Ratings and Thomson Reuters is prospects are brighter for the Islamic bond market given the massive infrastructure spending plans in the Gulf countries
Credit analyst Samira Mensah of S&P said after a slowdown in 2013, with sukuk volumes declining by 13 per cent, the industry is anticipated to expand again in 2014, partly driven by corporate and infrastructure issuers in the Gulf
"What's more, total issuance will exceed $100 billion for the third year in a row if yields remain attractive for issuers. And, after weakening in 2013, we believe issuance could pick up again in Malaysia in 2014 as its investment programme resumes," Mensah pointed out. S&P is of the view that despite some headwinds, long-term prospects for the sukuk industry remain promising as regulators continue to build and strengthen their frameworks to minimise barriers in the market and deepen liquidity
In a report 'After a Mixed 2013, the Global Sukuk Market Looks Promising in 2014', published on Tuesday, the ratings agency anticipated double-digit growth in issuance by Gulf corporate and infrastructure entities, due in part to large infrastructure financing needs
Increasing private issuance could signal a change in the sukuk market characteristics, it said
"We believe a regulatory push is necessary to strengthen frameworks, lower barriers to entry, and deepen liquidity in the sukuk markets," S&P analyst said
Fitch Ratings said that regional growth and robust government spending are likely to be partially funded through sukuk programmes in established GCC sukuk markets
Saudi Arabia and Abu Dhabi's spending plans, Dubai's preparations for the 2020 World Expo and Qatar's plans for the 2022 Fifa World Cup are all likely to boost sukuk issuance either directly by the sovereign or by related entities
The push by sovereigns in the region to be become an Islamic finance hub is also likely to spur sukuk issuance, Fitch added
Fitch estimated that issuance dropped around 12 per cent to $120 billion in 2013 due in part to market jitters over US bond purchase tapering. But it forecast that 2014 issuance would likely be at least in line with 2012's record of $137 billion
Thomson Reuters has forecast the supply-demand gap would rise to $229 billion in 2014, from $211 billion in 2013, but then edge down to $187 billion by 2018. Thomson Reuters' report assumes among other things that Islamic institutions aim to allocate around 30 percent of their funds to sukuk
According to S&P, worldwide, Shariah-compliant assets are estimated at upward of $1.4 trillion are likely to sustain double-digit growth in the coming two to three years
"Malaysia already benefits from a broad sukuk investor base and liquid debt market. So the increased interest from issuers, notably in the Middle East and Asia, in tapping the Malaysian ringgit and US dollar market should in our view continue over the next few years as Malaysia cements its leading position in the industry," the ratings agency said
"Now that Malaysia is adopting private sector investment, we believe non-sovereign issuance could accelerate in 2014-2015, continuing the trend witnessed in 2013 at a global level," S&P said
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