S&P report highlights desire for longer-term paper (By IFN)

Thursday 13^th September 2012

GLOBAL: Standard & Poor's (S&P) has recently released a report citing the potential for Sukuk to become the instrument of choice particularly for the funding of infrastructure projects in Asia and the GCC. The report, entitled: “Beyond borders: The GCC and Asia could rev up their economies — And the Islamic finance market” stated that the current dearth in longer-term paper, especially in the conventional market could create a greater affinity for Islamic paper amongst corporates looking to fuel capital intensive projects such as infrastructure and development in these markets. According to S&P, the GCC market saw over US$19 billion-worth of issuances as of July 2012, and of that, infrastructure represented 30%, compared with just 7% in the previous year. The reasons behind this surge are low yields, relatively high liquidity, large capital expenditure needs, and strong investor appetite. The report also noted that although the GCC’s collective Islamic finance activities totals at an estimated US$1 trillion, it is Malaysia who is leading the pack when it comes to Sukuk issuances. Allan Redimerio, credit analyst at S&P said: “Malaysia is now the world leader in Sukuk issuance. Political will, recognition of beneficial ownership, tax incentives and a rising investor base have all supported the country's continued growth trajectory.” Malaysia has issued a number of record-size Sukuk for its infrastructure needs namely Projek Lebuhraya Usahasama (PLUS)’s RM30.6 billion (US$9.94 billion) Sukuk and DanaInfra Nasional’s RM2.4 billion (US$779.42 million) Sukuk this year alone. The report also added that cross-border deals between Asia and the GCC, such as the Abu Dhabi National Energy Company’s ringgit-denominated Sukuk, which saw high demand from a wide pool of investors, could also potentially be seminal in the standardization and globalization of the Islamic finance market.