Bangkok--23 Apr--Moody's
Moody's Investors Service says that the Asian Sukuk market has undergone a significant drop in issuance levels -- a direct result of the fallout from the global financial crisis -- but it also shows resilience and good long-term prospects.
"Most of the current challenges are because of the adverse nature of the global credit environment and the associated increase in risk perceptions and widening in spreads", says Dominique Gribot-Carroz, a Moody's Vice President and Business Development Executive.
Global Sukuk outstanding at end-2008 amounted to USD103.6 billion, of which 62% were Asian-currency and 26% US-dollar denominated.
"However, despite the drop in volume, it is encouraging to note that sovereign Sukuk issuance has already brought significant vitality to the Asian market in 2009," says Gribot-Carroz, the author of a new Moody's report on the Asian Sukuk sector.
For example, in January, the Monetary Authority of Singapore (MAS) announced the completion of its Sukuk issuance facility, while in 1Q09, the Republic of Indonesia issued its first Sukuk to retail investors, and recently launched its first off-shore issuance, the just-released Moody's report says. And in Malaysia -- the world's largest Sukuk market -- the government has issued sovereign Sukuk this year, and is expected to return to the domestic market later in 2009.
From the perspective of the market's promising prospects, in coming months, issuing Sukuk in Malaysia -- a market where investors are already familiar with the instrument -- could be an option for institutions seeking funding for foreign infrastructure projects, for example, in Thailand or China, the report says.
And Singapore and Hong Kong are likely to continue their efforts to position themselves as efficient platforms for Sukuk issuances.
However, various key issues need to be resolved over the longer term, for example, the ongoing absence of standardized commercial and technical criteria.
The Sukuk market globally remains a relatively young asset class and faces problems typical of any new market, the report says.
Even before the present financial crisis, liquidity on the secondary Sukuk markets was quite limited, while the fact that most Sukuk investors have always adopted a buy-and-hold strategy only exacerbates the problems.
The new Moody's report is entitled, Islamic Finance: Asian Sukuk Market Faces New but also Familiar Challenges. It can be found at www.moodys.com.