Sukuk financing becoming ‘more important’ in the Gulf’s fixed income market
In a recent article titled “Low Interest Rates Should Keep Gulf Banks’ Debt Issuance Levels Strong In 2013,” Standard & Poor’s Ratings Services has outlined reasons why it expects issuance levels at Gulf banks to remain high this year.
“We noted a sharp rebound in Gulf banks’ activity in debt capital markets in 2012, as they took the opportunity to issue long-term debt at healthy prices under the favourable market conditions,” said Standard & Poor’s credit analyst Timucin Engin. “Given the interest from institutional investors, the banks’ rapid growth, and the supportive environment for issuing long-term debt instruments at low cost, we think Gulf banks will have another busy issuance year.”
Last year, banks in the Gulf Cooperation Council (GCC) were able to capitalise on investors’ global search for higher yields, and their issuance volumes were substantially higher than in 2011.
As Gulf banks look to diversify their funding base, sukuk is becoming more important in the GCC’s fixed-income market, representing almost half of Gulf banks’ issuance in 2011 and 2012.
“Sukuk is becoming a key component of Gulf banks’ funding bases,” Engin said. “About 50% of banks’ debt issued in 2011 and 45% in 2012 was in the form of sukuk. Last year, banks issued $6.7bn of sukuk, representing year-over-year growth of 136%,” he added.