Global sukuk issuance in Q3 2008 dropped to $3.21bn, down from $11.34bn in Q3 2007. At the end of Q3 2008, total sukuk issuance for the year to date reached $14.77bn, 59% lower than the comparable amount in 2007 and even lower than the $18bn which the market reached by Q3 2006.
The decline affected both sukuk core areas, namely South East Asia (SEA) and the Gulf Cooperation Council (GCC). The market for corporate sukuk in SEA, which for many years formed the backbone of the industry, was hit hard in Q3, with issuance dropping by 44%, and the overall figure for the year down by 79%. The GCC saw a decline of 52% in total, with corporate issuance dropping by 59%. The GCC has now exceeded SEA as the leader in sukuk issuance.
Reports so far have heaped blame for the slowdown in sukuk on both the ongoing credit crunch and subsequent financial crisis, and on the uncertainty surrounding the new AAOIFI standards on Islamic bonds. The Islamic Finance Information Service notes that the drop in sukuk issuance in the Malaysian corporates sector had started some time ago and was pointed out in the IFIS 2007 Annual sukuk Report. There, IFIS mentioned that Q3 and Q4 2007 had witnessed a large drop in SEA corporate sukuk issuance. Malaysia, the heart of the region, is less influenced by AAOIFI pronouncements than the GCC. So we believe it was the global credit conditions that led to the deterioration in sukuk markets.
The Islamic Finance Information Service was not surprised that issuance in US Dollars declined globally, given the fluctuations in exchange rates and the uncertainty over the value of the dollar. What we did find surprising was the magnitude: not one sukuk denominated in US Dollars was issued in Q3 2008. For the year to date, issuance in US Dollars has dropped by 82% compared to the same timeframe in 2007.
Also noteworthy has been the absence of large sukuk in excess of $1bn. Whereas 2007 saw 11 such mega sukuk, thus far in 2008 we’ve only seen 2, both in the second quarter. It seems that with the markets in such dire straits, there is not enough liquidity to accommodate mega sukuk offerings.
In this tough environment, even sukuk announcements are becoming more subdued. Gone are the announcements for $5bn and $3bn sukuk. What we’re seeing now are smaller announcements, often with less fanfare. In Q3 2008, there was an announcement from Deyaar in the UAE of a $1.3bn sukuk, an announcement from City Developments Limited in Singapore of a $1bn sukuk, and in third place, an announcement from Dubai Banking Group of $500m sukuk.
As for the bookrunners, the Islamic Finance Information Service found that as at end of Q3 2008, HSBC Amanah was in the lead, followed closely by CIMB Islamic and then JP Morgan. Calyon, which headed the bookrunners league table in Q2 2008, fell to fourth place, followed by Aseambankers Malaysia. It is noteworthy that HSBC Amanah, CIMB Islamic and Aseambankers Malaysia had acted for bookrunners for over 20 transactions each, whereas JP Morgan and Calyon had two transactions to their credit apiece.
Wednesday, October 15- 2008 @ 8:22 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.