By Santhosh V Perumal/Business Reporter
Islamic banks in Qatar have raised QR8bn through sukuk, Shariah-principled bonds, in the first quarter of this year as part of shoring up their capital base, according to the banking regulator.
Moreover, investments by the banks dealing in Qatar in Islamic bonds have reached QR47bn in the first three months of this year, Qatar Central Bank Governor HE Sheikh Abdulla bin Saoud al-Thani told a conference on sukuk, organised by International Islamic Center for Reconciliation and Arbitration, the QCB and Qatar Islamic Bank (QIB).
Stressing on the importance of sukuk as one of the prime financial instruments to provide liquidity management, he said QCB has issued bonds valued at QR39bn in order to strengthen the financial position of Islamic banks and also to conform to the Basel III capital norms.
He said Islamic bonds continued on its growth trajectory in spite of the global financial crisis.
QIB CEO Baseel Gamal said that at present, sukuk would attract issuers and investors alike because, with interest and profit rates remaining at historically low levels, investors are searching for yields through safer debt placements.
Gulf states, banks and organisations capitalised on investor appetitin 2012 and through the issuance of sukuk — by issuing long-term debt at record levels — they reduced their borrowing costs. At the same time, the wealth and relative stable environment in the GCC (Gulf Co-operation Council) provided yet another re-assurance to investors, he said.
In 2012, sukuk constituted 50% of market share of overall bond issuance (both Islamic and conventional) in the Gulf region with total issuance of $21.3bn compared to only a 23% share in 2011 with total issuance of $6bn.
The next level of new growth will be seen within the GCC region as more investors and issuers alike looking to establish local sukuk issuance for their local economies but would depend on future long-term funding for regional issuers, new and innovative financing tools in the sukuk market, stronger financial stability with regards to liquidity funding through local means and thus a creation of an active yield curve, and investors’ demand for asset diversification.
As for Qatari sukuk issuance in 2012, they reached 12% of the overall global sukuk issuance which account for $5.5bn out of $46bn, he said, adding sukuk issuances are likely to grow by a further 20% annually driven by increasing investors’ demand in the global marketplace.
“This will encourage corporate entities and government bodies to issue more sukuks especially in Qatar to provide liquidity to fund economic growth and large projects,” Gamal said, adding the main sukuk issuers in 2013 so far have been sovereign bodies (62%), corporate sector (26%) and the remaining by quasi-sovereign entities.
Expecting more corporate(s) tap their long term liquidity needs from the sukuk market, whereby lower cost of funding is achievable; he said “we expect some corporations, to issue sukuk in local currencies thus creating their own yield curve with the potential of issuing on the global markets in the years to come.”
Highlighting that QIB had issued $1.5bn worth sukuk in two tranches of $750mn each; he said overall subscriptions reached $6bn in the second issuance, reflecting increasing investor demand.
He said 48% of the investors were from the Middle East, 30% from Asia, 18% from Europe and 4% from American offshore banks.
Market conditions have supported the growth of the sukuk market on both local and international levels due to the fact that more investors are trying to tap into the Islamic finance market whereby they see a continued strong growth and demand for Islamic products and especially sukuk.
However, he said the global sukuk market still requires yet more practical solutions to face the challenges of sukuk issuance.
Sheikh Abdulla: sukuk continues on growth trajectory, despite the global financial crisis.
