Transcript Slide 1
OVERVIEW OF THE SUKUK MARKET, FORECAST STUDY IN 2015 Redha Al Ansari Senior Islamic Capital Markets Specialist Thomson Reuters
The Supply & Demand of Sukuk Sukuk Market Characteristics
THE SUPPLY AND DEMAND FOR SUKUK
Demand for sukuk continues to outpace supply as Islamic banks have very few other instruments available for investment.
Primary:
There is a
distinct void of instruments
Islamic balance sheet to create an efficient portfolio and to diversify an Scarcity of Islamic fixed income securities has resulted in significant demand with investors
holding on to these investments
and preventing market depth Lack of supply affects
liquidity
and
tradability
of sukuk in the secondary increases demand as more investors would be unable to replace their sukuk
Secondary:
Sukuk provide an avenue to invest in Sharia compliant investments and meet the pressing need for a medium term investment with deposits
regular income
and
higher returns
than fixed Part of mainstream asset allocation and
diversification
for Islamic banks in particular using these instruments as a tool to manage their assets and liabilities and recycle liquidity Increase in regional liquidity combined with mounting
religious consciousness
1000 800 600
SUPPLY AND DEMAND GAP
Supply & Demand Gap has increased to reach $236 in 2014 due to lower expected issuance driven by global economic recovery, expectations of interest rates and the fed’s bonds repurchase program SUKUK DEMAND & SUPPLY LEVELS (2014 - 2020) $ Billion
1200
Supply & Demand Gap: Demand measured by 25% of Islamic banking assets only (excluding Iran), while Supply is measured by outstanding global sukuk.
400 200 0 2008 2009 2010 Total Global Sukuk Matured Total Outstanding Global Sukuk 2011 2012 2013 2014 Total Global Sukuk Issued Total Sukuk Demand 2015 2016 2017 2018 2019 Total Outstanding Global Sukuk (Previous Year) 2020
NEW SOVEREIGN SUKUK ISSUERS AND THEIR GOALS..
A number of non-Muslim countries making their debut in 2014 to get access to the highly demanded asset class
• The strong demand for sukuk encouraged
19 jurisdictions to tap the sukuk market in 2014
,
with huge oversubscription amounts for the UK, South Africa and Hong Kong sukuk
.
• The interesting feature is that sukuk still get Luxembourg both issued in Euro.
demand being issued in Euro
. The IDB and • Governments making their debut generally also create a efficient pricing methodology is in place for the instrument.
benchmark yield curve
to ensure an • The intention of the sovereign issuers is also to
encourage other local companies
sukuk market to benefit from the huge investor base and pool of risk averse liquidity.
to tap into the •
Massive infrastructure spending across the GCC
and
deficit budget financing
emerging Asian and African markets will continue to drive issuance.
across several • International sukuk is also an indirect way to attract country.
foreign direct investment (FDI)
to any
SUKUK SUPPORTING ECONOMIC DEVELOPMENT
Issuers utilize sukuk to pursue various economic / social development plans
Sukuk was also seen in medical sector following World bank (iffi) issuing1st immunization sukuk to fight Ebola and other diseases.
Bahrain used sukuk to finance a number of sectors including the billion dollar residential project, Durrat Al Bahrain. It has also issued the first retail sukuk in the country earlier in 2015.
UAE banks used sukuk to boost capital to comply with BASEL III requirements (ADIB / DIB).
Malaysia’s raising RM90bil for the third consecutive year, indicating the capital market’s deepened capacity Malaysia’s to meet real economy needs.
capital exceeded financing Saudi Arabia utilizing sukuk to finance large projects with relatively longer maturities such as General Authority of Civil Aviation (GACA) in 2012 and Saudi Aramco (SATORP) in 2011.
The Supply and Demand of Sukuk
Sukuk Market Characteristics
SUKUK KEY MILESTONES
Sukuk Issuance has grown both in terms of volume and issuer and instrument diversity
SUKUK KEY MILESTONES 2014
2014 witnessed a significant milestone in terms of 8 debut sovereign issuances putting sukuk in the mainstream
SUKUK MARKET GROWTH 1996 - 2014
Despite the slowdown in sukuk issuance, 2014 witnessed a number of non-Muslim countries making their sukuk debut Number of Sukuk 900 Global Aggregate Sukuk Historical Trend (1996 - 2014) $ Billion 160,00 800
$137,14
140,00 700
$116,93 $113,70
120,00 600 100,00 500
$84,40
80,00 400
$51,24
300
$37,63 $34,30
200 100 0
$20,43 $0,72
1996
$1,02 $0,21
1997 1999
$0,97 $2,57
2000 2001
$3,33 $5,36 $4,98 $11,27
2002 2003 2004 2005 2006 2007
$20,99
2008 2009 2010 2011 2012 2013 2014 60,00 40,00 20,00 0,00 Amount Sukuk Issued Number of Sukuk
COUNTRIES PREFERRED BY SUKUK INVESTORS
Hong Kong, Luxembourg, Senegal, South Africa, and the United Kingdom were the new sovereign entrants
19 jurisdictions
issued sukuk in
2014
compared to
16
in
2013
and
18
in
2012
.
Hong Kong, Luxembourg, Senegal, South Africa, and the United Kingdom
were the new sovereign entrants in 2014. We also saw a corporate sukuk in the
Maldives
, and also welcomed the
first Japanese and conventional U.S. bank
to the sukuk market.
Asia ex Malaysia 7% Global Sukuk Breakdown by Regions 2014 Others 6% GCC 20% Malaysia 67% Survey Findings - Country Preference 70% 60% 50% 40% 30% 20% 10% 0%
15% 13% 21% 22%
UAE
21% 19%
Saudi Arabia
8% 8% 11%
Qatar
22% 14% 10%
Malaysia
8% 6% 8%
USA BUY SIDE
7% 4% 8%
Bahrain SELL SIDE
7% 7% 6%
Turkey
4% 4% 5%
Singapore Other Key Market Players
3% 4% 3%
Kuwait
2% 5% 3%
Oman
6% 4% 3%
Indonesia
4% 2%
Pakistan
SUKUK STRUCTURES PREFERRED BY MARKET
Murabahah , Malaysia’s favourite structure, was the most-used structure in 2014; the total value of 342 murabahah sukuk amounted to $53.9 billion
Of the 342 issuances, only 5 murabahah sukuk were issued outside Malaysia.
Trading of murabahah sukuk in the Middle East, or the regions that follow AAOIFI standards, is prohibited. In Malaysia, however, investors can trade murabahah sukuk in the secondary markets. GCC countries prefer the ijarah structure and the consistent use of ijarah sukuk has been the trend for the past 5 years. It is expected that the ijarah structure will be used more extensively given its attractiveness and tradability.
Global Sukuk Issued in 2014 Breakdown by Structure Sukuk Structure Murabahah Ijarah Wakalah Bai Bithaman Ajil Musharakah Al-Wakala Bel-Istithmar Mudarabah Mudarabah-Murabahah Al-Istithmar Ijarah-Wakalah Al Salaam BAIEINAH Wakalah-Murabahah Murabahah-Musharakah
Amount Issued ($ Million) $53,875.53
$20,594.50
$11,388.60
$9,100.79
$4,749.58
$4,407.37
$1,999.89
$1,889.38
$1,519.92
$1,500.00
$1,176.36
$570.50
$350.00
$9.83
Number of Sukuk 342 119 47 12 89 7 5 7 2 1 154 20 1 2
Survey Findings - Sukuk Structure Preference
90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 23% 31% 28%
Ijara
17% 21% 18%
Murabaha
20% 17% 16% 11% 13% 13% 14% 11% 13%
Mudharaba BUY SIDE SELL SIDE Wakala Musharaka Other Key Market Players
7% 2% 7%
Salam
8% 5% 5%
Bai Bithamin Ajil
No
SUKUK COSTS
Despite their higher issuing costs relative to bonds, sukuk have benefited from specialist investors who solely deal with sharia-compliant products.
Survey Findings: Is the cost of issuing sukuk less than the cost of issuing conventional bonds?
Survey Findings: The average additional cost of issuing sukuk, for an issuer, compared to a conventional bond, in US dollar terms
Above US$ 500K 11,8% 72% US$ 350K - $ 499K 5,9% US$ 200K - $ 349K 29,4% US$ 50K - $ 199K 35,3% Yes 28% 0% 10% 20% 30% 40% 50% 60% 70% 80% Less than US$ 50K 17,6% 0% 5% 10% 15% 20% 25% 30% 35% 40%
SUKUK PRICING
Sukuk pricing is heavily driven by the fixed income market based on treasuries, mid swap rates and country CDS. The market still treats sukuk as a regular bond when it comes to pricing. Survey Finding – Factors below based on their significance to sukuk pricing 70% 60% 50% 18% 40% 30% 20% 10% 19% 21% 0% Sukuk rating 10% 17% 12% 13% 10% 11% 15% 12% 9% 9% 15% 14% 16% 13% 12% 11% 10% 9% Type of issuer Global economic growth/slowdown Type of currency Tapering & rising interest rates Type of market (international or domestic) Type of sukuk asset-backed – asset-based or BUY SIDE SELL SIDE Other Key Market Players 9% 7% 8% Inflation
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