Global sukuk sales will challenge this year's record of $46 billion in 2013 as countries such as Oman, Tunisia and Egypt tap the market for the first time, CIMB Group Holdings and OCBC Al-Amin Bank say.
Borrowing costs on Sharia-compliant debt have fallen 11.4 percentage points to 2.82 per cent since the end of 2008 as central banks in Europe, the US and Japan pumped funds into their economies to spur growth. Demand will be driven by the rise in Islamic banking assets, which may reach $1.8 trillion next year, compared with $1.3tn in 2011, led by Saudi Arabia and Malaysia, Ernst & Young forecast in a December 10 report.
Sales of bonds that comply with Muslim tenets jumped 25 per cent in 2012 as companies sold debt as part of government programmes in Asia and the Middle East to build railways, ports and roads. Thailand and South Africa have also announced plans to issue sukuk once legislation has been passed that will open up new markets for investors.
"Sukuk is an attractive channel to explore for those countries looking to expand funding sources," Alhami Mohd Abdan, the head of international finance and capital markets at OCBC Al-Amin in Kuala Lumpur, said. "Liquidity in the Islamic space is growing quite significantly."
The biggest sales came out of Saudi Arabia and Qatar amid development programmes of $373bn and $130bn, respectively. Malaysia has embarked on a $444bn spending spree over 10 years that helped spur Islamic bond offerings to an all-time high of 95 billion ringgit in 2012, data compiled by Bloomberg show.
Saudi Electricity Company sold $1.75bn of notes due in 2017 and 2022 in March. The yield on the five-year 2.665 per cent securities has since dropped 55 basis points, or 0.55 percentage point, to 1.95 per cent, according to data compiled by Bloomberg. Borrowing costs on global Shariah-compliant bonds fell 117 basis points this year and reached a record low of 2.76 per cent on November 30, the HSBC/Nasdaq Dubai US Dollar Sukuk Index shows.
Qatar completed a $4bn offering in July. The yield on the 2.09 per cent notes due in 2018 declined 13 basis points since the sale date to 1.97 per cent.
"There's an increasing number of governments from the Middle East and North Africa region looking to tap the sukuk market as part of efforts to widen their funding sources following the European debt crisis," Zakariya Othman, head of Islamic ratings at RAM Ratings Services, said in Kuala Lumpur. "They're also probably doing so to meet demand from their Muslim populations as there's now greater awareness of Islamic finance globally."
* Bloomberg News