Growth Begets Growth
Development in the
The Islamic finance sector is set for further growth in 2015, with much of this expansion to take place in the
Growth in Islamic assets and activity in the
The cost of sukuk financing is approaching that of conventional bond financing, but for many issuers the price is higher. Borrowers using sukuk need assets to underlie the debt. In addition, there is the cost of structuring the securities, which involves legal counsel and often requires significant input. Shariah scholars must also be hired to analyze the structure. Unfamiliarity with complex sukuk structures can translate into higher advisory fees for prospective issuers, while investors demand higher yields because of limited trading activity in secondary markets.
The
Sovereign sukuk issuance is widening, with many non-Islamic countries seeking to tap this funding avenue to increase liquidity sources. With new countries issuing sukuk, benchmarks are being created, contributing to a growing appetite for further issues. A number of sovereigns, including the
The average yield on 10-year Malaysian sovereign sukuk tends to be around 20-30 basis points higher compared to nonIslamic notes of the same maturity. By comparison,
The average gap between issuance costs for sukuk and conventional bonds in the GCC, however, is very small or nonexistent-and in some cases, it has proved to be cheaper to issue sukuk than conventional bonds. This is because sukuk have become mainstream in most Gulf countries, with demand from liquid institutional investors often exceeding supply.
INCREASING LIQUIDITY
Islamic banking assets in the GCC region now approach
Moreover, more international banks are underwriting sukuk as markets become more familiar with this type of financing. However, the large banks in the Gulf and wider
The financing focus varies among the GCC nations. In
RAISING NEW CAPITAL
In line with the
The issue received 80 orders, amounting to more than
In 2014, DIB completed the acquisition of a 24.9% stake in
On the wholesale side, AD IB was very active in landmark sukuk deals in 2014, including transactions in
Other regional Islamic banks are also witnessing strong growth.
PUBLIC- AND PRIVATE-SECTOR GROWTH
Such deals have contributed significantly to the increase of liquidity and support of Islamic financial markets, with sukuk issuance providing liquidity to infrastructure projects in
The growth of the Islamic finance industry, particularly in banking and capital markets, also provides a strong platform for the financing of household spending on big-ticket items and public finances. As it does, key Islamic finance regions such as the
The push to develop local currency bond and sukuk markets in the region will help to increase liquidity and lower borrowing costs.
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