The sukuk (Islamic bonds) market in the Gulf and other countries is expected to exceed $100 billion this year to smash the record $85 billion achieved in 2011, National Commercial Bank (NCB) said in a new study Sunday. Despite an expected rise in the Gulf Cooperation Council (GCC), Malaysia is projected to remain the world's dominant sukuk market this year, it added. However, the region's bond market, which controls over 40 percent of the world's proven oil wealth, contracted in the first quarter of 2012 after recording a sharp rise in the fourth quarter of 2011. "Sukuk issuance this year appears on track for another all-time record with last year's $85.4 billion set to be comfortably exceeded even under the more cautious projects," the report noted. "In view of current trends it appears likely that aggregate issuance will clearly exceed $100 billion this year. Market innovation looks set to continue." In Saudi Arabia, sukuk issuance is expected to continue to grow markedly this year. Among the recurrent issuers, SABIC in December gained CMA approval for a sukuk issuance of up to $5 billion, it said. In the UAE, Abu Dhabi's Al Hilal Bank, which is fully owned by the Abu Dhabi Investment Council, is issuing a $500 million sukuk this year, NCB said. State-run Qatar Petroleum is understood to be considering a corporate sukuk this year in a pioneering move by a regional national oil company. This could potentially trigger issuance by other government-related entities, eg Industries Qatar, as a way of diversifying funding sources, it added. "As much GCC sukuk issuance has rebounded impressively in recent months, Malaysia remains the undisputed leader in the sector, typically accounting for more than 70 percent of the global total," the report further said. "This state of affairs has persisted in spite of the fact that, more generally, the GCC countries have generally established themselves as the second major global hub for Shariah-compliant financial solutions. Moreover, in purely GDP terms, Malaysia lags far behind the Gulf: just under $200 million as opposed to some $1 trillion for the Gulf countries taken together." According to NCB, Malaysia's population reached 28 million in 2011, whereas the GCC's total is around 40mn. The discrepancy is particularly "striking" in view of the fact that the GCC economies are among the leading global spenders on infrastructure, which should in principle open important new opportunities for Shariah-compliant capital market development. "Nonetheless, GCC sukuk issuance in 2011 totaled $19 billion as opposed to $58.7 billion in Malaysia. The corresponding figures in 1Q12 were around $30.7 billion for Malaysia and nearly $ 8.6 billion for the GCC." Turning to bonds, the report said that after a bumper quarter closed an exceptionally volatile year in 2011, the first quarter of 2012 marked relative normalization for the GCC conventional bond markets with overall primary market activity roughly halving in value from 4Q11. Total issuance in Q1 reached $5.9 billion and involved eight corporate issuers and a total of 14 different issues. This compares to aggregate issuance of $11.9 billion in 4Q11 (issues with tenors in excess of a year) and $9.4 mbillion a year earlier in 1Q11, the report showed. "These figures were broadly consistent with the continued strength of emerging bond markets globally where overall issuance reached $464 billion in the course of 2011 and $10 billion in the first quarter of this year." NCB said it expected growing refinancing requirements would likely to be a key driver of market activity during the year. "In particular, regional banks are likely to remain active in the bond markets during the year," it said, adding that Commercial Bank of Qatar is meeting with investors having established a $5bn issuance program in August. In Saudi Arabia, Kingdom Holding Co. is planning a maiden bond issue. The company currently has bank loans of some SR1.5 billion. Meanwhile, GIB Capital, a leading merchant bank based in Bahrain, has joined hands with Saudi bank Riyad Capital to successfully close a SR500 million ($133.3 million) Islamic bond for Ajil Financial Services Company, it was announced Sunday.
