(The following statement was released by the rating agency)
Sept 12 - Several recent landmark corporate and infrastructure sukuk by companies in the
Gulf Cooperation Council (GCC) issuing in Malaysian ringgit may signal the start of a trend that
could help develop and globalize the market, Standard & Poor's Ratings Services said in a
report published today, "Beyond Borders: The GCC And Asia Could Rev Up Their
Economies--And The Islamic Finance Market."
In an era when the world's conventional banks are producing fewer and shorter
loans and companies are considering other options for finance, Standard &
Poor's believes that Islamic financial instruments could become a key funding
source, especially in the GCC countries (Bahrain, Kuwait, Oman, Qatar, Saudi
Arabia, and United Arab Emirates) and Asia.
These regions, with established Islamic financial regulatory bodies, are
centers of the growing estimated $1 trillion market. At the same time, Asia
and the GCC are seeking huge amounts of capital to pay for their soaring needs
for new infrastructure.
We consider the market for Islamic infrastructure in both regions to have
reached an inflection point in terms of new issuance after a relative lull
from 2009 to 2011. What's more, we've seen the emergence of the first project
finance sukuk within the infrastructure asset class.
"The GCC market reached over $19 billion of issuance as at July 2012, about
the same as for all of 2011. Of that, infrastructure represented 30%, compared
with just 7% the previous year, said Standard & Poor's credit analyst Karim
Nassif. "The reasons for the surge are low yields, relatively high liquidity,
large capital expenditure needs, and strong investor appetite."
"Total sukuk issued out of Asia reached $57.9 billion in July 2012, compared
with $64.9 billion for all of last year," said Standard & Poor's credit
analyst Allan Redimerio.
"Malaysia is now the world leader in sukuk issuance. Political will,
recognition of beneficial ownership, tax incentives, and a rising investor
base have all supported the country's continued growth trajectory," said Mr.
Tapping the sukuk market could help improve the capital structure and
liquidity profiles of GCC and Asian companies, particularly those operating in
capital-intensive industries such as infrastructure. It could provide such
companies the longer-term funding they need via a different funding source.
This source is becoming more liquid as it reaches across border and becomes
more global and grows in scale.
Over the past year or so, GCC companies have been crossing the figurative
border into Asia for infrastructure finance. Abu Dhabi National Energy Co.
PJSC (TAQA; A/Stable/--) and Bahrain-based Gulf Investment Corp. GSC; not
rated) are the first to issue sukuk in Malaysian ringgit. The ringgit is
attractive because of Malaysia's established regulatory framework for Islamic
finance and the wide pool of investors active in that market.
These types of cross-border deals are more than a smart funding solution, in
our view. They could also develop the trade relationship between the countries
of the GCC and Asia to their mutual benefit. But what is also compelling is
that such transactions could be a bellwether for the further standardization
and globalization of the Islamic finance market.
RELATED CRITERIA AND RESEARCH
-- High Oil Prices Are Widening The Gap Between Gulf Oil Exporters And
The Region's Other Economies, May 3, 2012
-- Global Crisis Boosts Growth In A Lively But Fragmented Sukuk Market,
Feb. 10, 2012
-- Islamic Finance Could Plug The Gap In Indonesia's Infrastructure
Funding, Aug. 27, 2012
-- Will Islamic Finance Play A Key Role In Funding Asia's Huge
Infrastructure Task, Oct. 13, 2011
-- Islamic Sukuk Come Of Age In Infrastructure And Project Finance, April
-- Glossary Of Islamic Finance Terms, Jan. 7, 2008
-- Credit FAQ: Project Finance Sukuk, Nov. 16, 2007
-- Standard & Poor's Approach To Rating Sukuk, Sept. 17, 2007