Report says dollar continues to be the currency of choice for Sukuk issuers, but has been declining in favor over the past five years. Corporates and entities involved in project finance are the main issuers, with banks coming in second.
The global market for Sukuk more than doubled in 2007 to exceed $60 billion and is on track to top the symbolic $100 billion mark in the next few years, said Standard & Poor's Ratings Services in a report, "The Sukuk Market Continues To Soar And Diversify, Held Aloft By Huge Financing Needs."
"We expect Sukuk growth to remain on the same impressive trajectory, fueled by huge investment and financing needs, notably in countries of the Gulf and Asia," said Standard & Poor's credit analyst Mohamed Damak.
That said, Sukuk are becoming a global phenomenon, attracting more issuers from a larger pool of countries than ever before. This type of Shari'ah compliant financing is set to continue providing issuers with non-bank alternatives to longer-term funding.
Sukuk growth nevertheless has been slowed in the past six months by unfavorable credit market conditions. Some Sukuk were postponed when liquidity dried up and credit spreads widened. But once market conditions return to normal, we expect issuance to resume double-digit growth.
Most Sukuk issued last year were "Ijara" (lease financing) or "Musharaka" (venture capital financing) varieties, but in the future we believe other types will become more common. To date, Standard & Poor's rates 22 Sukuk, the bulk of which are Ijara or Musharaka and carry credit enhancements.
The U.S. dollar continues to be the currency of choice for Sukuk issuers, but has been declining in favor over the past five years. Corporates and entities involved in project finance are the main issuers, with banks coming in second.
"Corporates find that Sukuk are an alternative to financing their business or their projects, and financial institutions are increasingly turning to Sukuk to sustain strong lending growth with stable funding sources and to curb maturity mismatches," said Mr. Damak.
Standard & Poor's role is to provide market participants with independent and objective opinions on the creditworthiness of issuers or issues--Shari'ah compliant or conventional. Our ratings represent opinions only about creditworthiness and do not address Shari'ah compliance. Over the past decade, we have refined our methodology to take into account the distinguishing features of Sharia-compliant issuers and issues.
