Standard Chartered confident of sukuk pipeline

The issuance of sukuk globally is likely to reach US$50 billion to $55bn this year, according to S&P.

Standard Chartered Bank expects a strong pipeline of sukuk, or Islamic bonds, with issuance coming predominantly from sovereigns and financial institutions, a bank executive said yesterday.

Sukuk issuance has been subdued this year compared with conventional bond sales because of declining liquidity.

The issuance of sukuk globally is likely to reach US$50 billion to $55bn this year, compared with $62bn last year, ratings agency Standard and Poor’s said in September. About $39.4bn worth of sukuk have been sold so far this year, the agency said.

“The sukuk pipeline remains strong,” said Ahsan Ali, the head of Islamic origination at Standard Chartered Saadiq, the Islamic arm of the lender.

Mr Ali declined to give figures or a timeline for the pipeline.

“There is an interest,” Mr Ali said. “Some of them [potential sukuk issuers] are in different stages of preparation, therefore it depends on their particular needs and combination of market conditions.”

Issuers such as Qatar, Abu Dhabi and Saudi Arabia opted this year to sell conventional bonds to help finance their fiscal deficits.

Saudi Arabia last month sold a $17.5bn bond, emerging markets’ biggest ever issuance of a sovereign bond. Earlier, Abu Dhabi issued $5bn in conventional bonds, while Qatar sold $9bn.

Meanwhile, Bahrain sold a $1bn sukuk and $1bn conventional bond last month. “They [issuers of Islamic bonds] have been able to get good pricing and demand from market constituents, not just from the Middle East, but also from Europe and Asia,” Mr Ali said.

Sovereign funds and financial institutions, which have traditionally been the prime sellers of sukuk, will continue to lead issuance, he said.

While sovereigns, particu­larly in the Arabian Gulf, need to fin­ance deficits, financial institutions may offer sukuk to tap liquidity or boost capital.

“As the Islamic base and asset book grows they [Islamic fin­ancial institutions] will need either more liquidity or capital, and we have seen the tier 1 and tier 2 sukuk as well,” Mr Ali said.

Islamic lenders are increasingly issuing capital boosting tier 1 and tier 2 sukuk to meet their capital requirements, particularly to comply with Basel III banking standards.

Follow The National's Business section on Twitter