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Global primary market off to solid start in second quarter April issuances exceed $13.4 billion

KUWAIT CITY, May 9: The global primary sukuk market has begun 2Q 2014 on a solid footing as the month of April has produced a new issuances volume of more than $13.4bln, making it the most performing month in 2014 year-to-date (YTD). The new sukuk issuances volume in April 2014 exceeds the previous YTD high of $11.2bln in March by almost 20%. The month saw a welcoming return of the Gulf Cooperation Council (GCC) sukuk issuers who expanded their volume with issuances totalling more than $4bln after remaining largely absent in March when total GCC issuances amounted to less than $185mln (excluding the Islamic Development Bank’s $1.5bln issuance).

Issuances by GCC based obligors helped shore up the share of corporate sukuks which accounted for $2.4bln of the total issuance volume in April, registering a 65% increase compared to the $1.45bln volume in March. However proportionately, the market continued to be heavily driven by the sovereign and quasi-sovereign issuers who collectively accounted for approximately 82% of the issuance volume in April (Mar14: 87%). Overall, April 2014’s volume was the third most performing on a monthly basis over the last 12 months. Analysing YTD, 4M14’s volume now amounts to $44.5bln which is in fact 1.6% higher than the $43.8bln volume in 4M13. At such a rate, the prospects are immensely bright and the global primary sukuk market is highly expected to once again surpass the $100bln mark in new sukuk issuances volume this year.

bligors’ based in a total of eight different jurisdictions tapped the primary sukuk market in April. Consistent with the past trend, Malaysia accounted for the largest share of the sukuk market with a $8.64bln volume or 64.4% of the total issuances in the month (Mar14: $7.12bln & 63.6% share). Among the notable issuances in Malaysia include debut corporate sukuk issued by the AAA-rated KLCC REIT which collectively raised MYR1.55bln ($476mln) through four tranches of different sizes, tenures and maturities.

In addition, the Ministry of Finance owned Dana Infra Nasional Berhad in Malaysia also returned to the primary sukuk market since its last issuance in 2013 and raised approximately $802bln through six long-term ringgit-denominated tranches of sukuk. Saudi Arabia was the other major domicile in April accounting for an 18.7% share of the total primary market led by two huge chunks of US Dollar sukuks issued by the government-related entity, Saudi Electric Company (SEC) (Mar14: no issuances excluding IDB’s $1.5bln sukuk). SEC issued two long-term 10 and 30 year sukuk tranches on 8th April which collectively raised $2.5bln in proceeds. Meanwhile, the United Arab Emirates (UAE) also led the revival in GCC sukuk issuances volume with a $1.4bln volume or 10.4% share of the primary market in April (Mar14: no issuances).

Notably, the Government of Dubai returned to the primary sukuk market after a gap of fifteen months to issue a landmark $750mln 15-year maturity sukuk on 30th April, making it the first sovereign issuer in the GCC region to have tapped the longer-term maturity (15 years and above) sukuk market. Other notable jurisdictions issuing sukuk in April include Turkey with a 3.7% share of the total primary market, spearheaded by a $500mln US Dollar corporate sukuk issued by Turkiye Finans (TF), a Turkish participation bank. This issue represents Turkey’s second sukuk issuance in 2014 YTD following the TRY1.33bln sovereign sukuk issued by the Turkish Government in February.

For the short-term liquidity management sukuk, issuances included regular local currency salam sukuk issuances by the Central Banks of Bahrain and Gambia worth $146.6mln and $2.75mln respectively (Mar14: $184.54mln and $5.48mln respectively). Brunei also issued one liquidity management ijarah sukuk raising $80mln in proceeds (Mar14: $155.4mln). By type of issuances, April’s volume was driven by the sovereign and government related-entity issuers in the primary market as collectively these two types of sukuk represented nearly 82% of total sukuks issued. Sovereign issuers made up 57.8% or $7.74bln of the primary market in April (Mar14: 69.12%) while the government-related entity issuers accounted for a comparatively larger 25% or $3.3bln share in April (Mar14: 17.93% or $2.01bln).

The corporate sukuk sector improved its market share as April saw a volume of $ $2.4bln or 17.6% share of the market as compared to the $1.45bln or 12.95% share in March.  A total of six currencies were utilised to issue sukuk in April with the Malaysian Ringgit taking the largest share representing 58% of the issuances (Mar14: 65%). However, the US Dollar with a 39.2% share has a notable surge in April (Mar14: 14%) primarily driven by the US Dollar sukuk issuances in Saudi Arabia, United Arab Emirates and Turkey as well as a $860mln issuance by the International Islamic Liquidity Management Corporation (IILM). The remaining four currencies were the Bahraini Dinar (1.1% share of April’s issuances), Indonesian Rupiah (1%), Brunei Dollar (0.6%), and Gambian Dilasi (0.02%).

A total of 68 sukuks were issued in April vs. 64 sukuks in March. Among these, 18 were issued by the corporate sector totalling $2.4bln (Mar14: 18, $1.45bln); 42 by sovereigns totalling $7.74bln (Mar 14: 37, $7.74bln); and 8 by the government-related entities sector worth $3.3bln (Mar14: 9, $.2.01bln). Murabahah and Ijarah remain the popular structure choice of sukuk issuers accounting for 54.5% and 30.7% respectively of the total issuances in April (Mar14: 46.2% and 18.9%). By sector, the government issuances accounted for 51.4% or $6.9bln of total issuances in April (Mar14: 55.7%, $6.2bln), followed by the power and utilities sector with an 18.7% or $2.5bln share; financial services 13.8% or $1.85bln and Others 16.2% or $2.2bln.

In summary, April’s monthly issuance volume of more than $13.4bln marks it as the most performing month for 2014 YTD and the third most performing month in the last 12 months. The issuances were led by sovereign and quasi-sovereign issuers who collectively accounted for approximately 82% or $11.04bln of the total issuances. The corporate sukuk issuances saw an almost 65% increase in volume to $2.36bln worth of issuances (Mar14: $1.45bln) contributed by the return of the GCC issuers in April as well as corporate sukuk issuances in Turkey and Malaysia. Notably, the share of US dollar sukuks surged in April to almost 40% (Mar14: 14%) driven by $ sukuk issuances in Saudi Arabia, United Arab Emirates, Turkey and by the IILM.

April’s tremendous volume has helped shore 2014’s YTD primary market issuances volume to $44.5bln, which is 1.6% higher than the $43.8bln volume in 4M13. At such a rate and with a healthy and diverse pipeline in place for 2014, which includes debut issuances from United Kingdom, Luxembourg, South Africa, Hong Kong and Tunisia, among others, the prospects are immensely bright and the global primary sukuk market is highly expected to once again surpass the $100bln mark in new sukuk issuances volume this year.

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