Dubai: International sukuk issuance by entities domiciled outside traditional markets now represents only a small share of sukuk issued worldwide, but there is evidence of growing interest from non-traditional issuers in regions such as North Africa, sub-Saharan Africa, Europe, and countries such as Russia.
While issuance in these countries may support market development, S&P analysts expect progress to be slow.
Most international sukuk originate in the Gulf Cooperation Council (GCC). Around 75 per cent of those issued in the past decade were originated by issuers from Middle Eastern countries, mainly issuers from the UAE, followed by Saudi Arabia and Qatar.
Over the past few years, new players have entered the international issuance market, especially from Indonesia and Turkey, eager to attract a new investor class. Over the past three years, Indonesia has issued three sovereign sukuk of $1 billion to $1.5 billion each. Meanwhile, Turkish issuers,including the government,have tapped the international issuance market for a total of about $4 billion.
“We expect this trend to continue as issuers in certain other countries have announced their willingness to tap this market to diversify their investor base and attract funding in a foreign currency. However, this does not imply a shift in the composition of the international sukuk market,” said Mohammad Damak, an analyst with S&P.
S&P anticipates that the premium for sukuk issuance over conventional bonds rates would decline if sukuk documentation were more highly standardised and default resolution mechanisms clearer.
