Abu Dhabi: Regulators of financial markets in the Gulf Cooperation Council (GCC) are urged to develop the infrastructure and regulatory framework in order to boost the sukuk market in the region, according to a World Bank expert.
The total value of sukuk issued during the quarter tumbled to $767 million — down from a quarterly average of $2.65 billion in 2015, the Arab Monetary Fund (AMF) said. The market did not see much issuance activity in the first quarter of 2016.
The sukuk market in the GCC presents ample opportunities, especially as governments are likely to resort to it for capital given the plunge in their revenues from lower oil prices, Zamir Iqbal, lead financial sector specialist at the World Bank, said.
“There’s an opportunity in [the GCC’s sukuk markets] because of the huge infrastructure financing, but I think they need to develop the infrastructure and to have a proper legal and tax environment for the structuring of the sukuk and the SPV (Special Purpose Vehicle) laws. Once you have these done, there’s already excess liquidity in the market, and banks, especially after Basel III, are looking for high-quality, highly-rated sukuk, so I think the opportunities are many,” he told Gulf News on the sidelines of an industry event.
Iqbal added that the overall debt and capital market in the region needs to be strengthened with laws governing elements such as investor protection, and how to handle disputes and insolvency, among others.
Capital markets are also urged to attract more institutional investors rather than individual investors.
“I think the big question is whether governments in the GCC and Mena (Middle East and North Africa) region will continue with their development projects or not. There’s a big need for infrastructure financing, so if [the governments] continue, they’re going to need money and they can use sukuk for that,” Iqbal said.
He pointed that there was much investor appetite for sovereign sukuk with good investment ratings of above BBB.
