Sukuk & Capital Market - Islamic Finance News

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A Bright Path Ahead
The outlook is favorable for Sukuk issuance in Malaysia this year and
in the future, as issuance is expected to continue to grow exponentially.
External economic shocks such as the Eurozone crisis are not likely to
affect the domestic Sukuk market due to ample liquidity, but will have
an impact on the international capital markets.
Malaysia maintained its pole position with 71% of Sukuk issued,
followed by Saudi Arabia with 15% .
In addition, global Sukuk issuance in the first quarter of 2012
reached US$43.5 billion, up by an impressive 55% from the
corresponding period last year.
According to Zulkifli Ishak, CEO of Eastspring Al-Wara’
Investments (formerly known as Prudential Al-Wara’ Asset
Management), Malaysia will continue to lead the market
as the world’s largest Sukuk center. The latest issue of
Malaysia’s sovereign Sukuk earned a strong response and was
oversubscribed by almost five times.
At the same time, there has been a marginal downside to Sukuk
in that there are default cases in Malaysia and other countries.
But these isolated cases are not likely to dampen sentiment for
Sukuk in future.
Elaborating on this, Zulkifli says: “Standing true to Islamic
principles, Sukuk are perceived to be ethically protected from
turning bad. However, when Sukuk defaults were scrutinized by
the practitioners and academicians, concerns were raised on
the reliability of their structures and Shariah supervision. This
has created the perception that Sukuk may not be any safer
than conventional bonds in terms of investor protection and the
treatment of defaults.”
On a brighter note, unlike the high profile default and neardefault
cases in the Middle East, Malaysia’s Sukuk defaults
have received less criticism and scrutiny from global industry
players.
Some reasons for this are Malaysia’s robust supervisory
structure, established governance and disclosure standards;
and the highly developed legal framework and court system
which provide the necessary protection and comfort to investors.
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