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Chart 1: Global Sukuk market trend (US$m)
280,000
240,000
200,000
160,000
120,000
80,000
40,000
23,097
23,419
38,346
55,348
20,283
69,387
34,104
95,720
53,083
122,981
85,577
177,453
139,269
242,524
700
600
500
400
300
200
100
Chart 2: 2012 Z-spread/Discount Margin trend
(sample of international Sukuk)
Min Max Current
1,550
1,250
950
650
350
2006 2007 2008 2009 2010 2011 2012
New issues (US$ million)
Year End Outstanding amount (US$ million)
# News Issues (RHS)
Source: Zawya.com and Alkhair Capital calculation
50
CBB14
CBB18
ADIBUH16
FGBUH17
TDIC14
EIBUH17
EIBUH18
HSBC16
TAMWEE17
DPWDU17
JAFZA19
EMAAR16
EMAAR19
NAKHL16
MAFUAE17
DUGB17
DUGB22
RAKS16
SIB16
QATAR18
QATAR23
QIB15
QIB17
QIIB17
DARAK15
ISBD17
BFSR17
SECO17
INDOIS14
INDOIS18
PETMK14
MALAYS16
MALAYS21
TURKEY18
KFINKW16
GE14
Source: Bloomberg and Alkhair Capital calculation
Despite Malaysia still representing 56% of the total Sukuk issued
during the year, Saudi Arabia witnessed the most significant
activity with issuances amounting to US$10.4 billion vs US$2.5
billion in 2011. Domestic Sukuk represented 76% of the total
Sukuk issuances vs 82% in 2011. UAE issuers continued to
prefer international Sukuk to local currency issuances. Few
GCC issuers accessed the Malaysian domestic market to issue
ringgit-denominated Sukuk (Taqa US$212.9 million, Mumtalakat
US$98.3 million, National Bank of Abu Dhabi US$163.8 million).
Sukuk issued in the MENA countries during 2012 amounted to
36% of the total bond and Sukuk issued by MENA issuers. The
preference for Sukuk over conventional bonds increased during
the year and the number of GCC Sukuk reached 34 issuances
from 19 in 2011 (10 issuances in 2010).
Despite the European credit
crisis and social unrest in
the MENA region, Sukuk have
been perceived as a safe haven
asset class, reporting another year
of positive performance
Secondary market: Steady performance continued
Despite the European credit crisis and social unrest in the MENA
region, Sukuk have been perceived as a safe haven asset class,
reporting another year of positive performance.
The HSBC/Nasdaq Dubai Sukuk Index returned 9.7% in 2012
(+7.2% in 2011) vs the 4.77% of the Barclays Global Aggregate
Bond Index and 18% of the Barclays Emerging Markets Bond
Index (conventional bond indices). The average spread tightened
from 273.4 basis points (bps) to 182.14 bps. The 30-days average
volatility remained contained at 1.36%.
The return of the Sukuk index has been mainly driven by the
strong performance of Dubai names that continued their rerating
in 2011, thanks to favorable macroeconomic conditions,
smooth refinancing of the maturing debt and the recovery of the
real estate market. The repayment of the US$1 billion Sukuk
maturing in July 2012 by Dar Al Arkan (Saudi Arabia) witnessed
the re-pricing of the issuer credit risk. The overall performance
has also been supported by the existing imbalance between
supply and demand of Sukuk (estimated in 1:3) moving almost
all traded Sukuk to YTD highs, as shown in Chart 2.
2012 also witnessed the first UAE company to miss a maturing
Sukuk repayment. Dana Gas, the Sharjah-based natural gas
producer, defaulted on its US$920 million convertible Sukuk
maturing at the end of October. The company announced in
November that it had reached a restructuring agreement with its
main Sukukholders comprising a partial cash payment and the
issuance of a new Sukuk.
2013 market outlook: Strong pipeline expected
The outlook for the Sukuk market remains bright. The global
demand for Sukuk is forecast to grow to US$900 billion by
2017 (from the current estimated US$300 billion), according to
projections by Ernst & Young’s Global Islamic Banking Center of
Excellence.
An additional US$27 billion have already been announced
or rumored for the coming year. Saudi Arabia is expected
to represent 25% of the overall offering in 2013, followed by
Malaysia and UAE, with important issuances including GACA II,
Aramco, Sabic, Maaden, NCB, Almarai and Savola.
The governments of Egypt, the Philippines and Jordan are
expecting to raise money through Sukuk for the first time. Tilal
Development Company, the Omani real estate developer, is
expected to issue the first Sukuk in the country. Focus remains
on the Dubai refinancing risk but there are no major concerns
before 2014 when US$30 billion will mature.
The theme for 2013 is searching for value after years of strong
performance, balancing between risk and returns (in real terms).
consulting www.IslamicFinanceConsulting.com
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The challenge has only just begun.
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Marco Mauri, CAIA is the senior director of asset management at
Alkhair Capital Saudi Arabia. He can be contacted at mmauri@
alkhaircapital.com.sa.
February 2013 5