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Dubai: Islamic corporate bond (sukuk) issuance in the Gulf has jumped 17 per cent during the past 12 months to a record $17 billion, international law firm Trowers & Hamlins said in a report yesterday.
The issuance of corporate sukuk in the Gulf has increased more than 10-fold over the past five years, from just $964 million in 2002-03. The value of Islamic bonds issued in the Gulf over the past year was almost 30 per cent than the amount of conventional paper debt, which rose marginally to $11.2 billion in 2007-08 from $11.1 billion.
According to Trowers & Hamlins, despite the credit crunch, Western institutions have emerged as the majority purchasers of Islamic debt, now accounting for around 60 per cent of take-up.
In the first half of this year the global primary sukuk market dropped to $10.9 billion compared to $18.26 billion in the same period last year.
"Appetite for Islamic debt has been remarkably resilient to the credit crunch and shows just how low-risk investing in Gulf corporates is now seen by Western institutions," said Neale Downes, partner, Trowers & Hamlins.
"Fears that Islamic bonds would be under-subscribed as yields from US corporate bonds increased have proved premature. Islamic bonds are linked to the underlying value of assets, so the demand for these instruments, often in preference to US securities, is a good sign of how much growth is still expected to come from the Middle East.
According to Trowers & Hamlins, doubts over the compatibility of some Islamic bonds with Sharia and the impact that would have on Gulf investors' readiness to invest have largely been put to rest.
"Pragmatism guides the vast majority of Gulf investors. Their primary motivation for buying Islamic bonds is the attractive return, the same as Western investors," Downes said.
Research by Trowers & Hamlins shows that the average tenor of sukuk issued between July 1, 2007, and June 30, 2008, was 7.4 years, up from six years in 06/07 and 4.8 years in 05/06. The data also reveals that that sukuk issuance by industry sector is increasingly diverse and is much less dominated by real estate as in previous years.
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