A business upsurge caused by strong oil prices combined with bigger appetites for Islamic finance will sharply boost sukuk issues in Saudi Arabia in the coming years, a leading Saudi bank said yesterday.
The Gulf Kingdom, the world's oil superpower, is already ranked third in the world after the UAE and Malaysia in terms of Islamic bonds following mega sukuk issues by Sabic and other local companies, said the National Commercial Bank (NCB), the largest bank in Saudi Arabia.
In its weekly bulletin sent to Emirates Business, NCB said Islamic financing, especially sukuk, has become what it described as a vital avenue of raising funds in the Gulf and other parts of the world. It estimated their global volume at nearly $47.1 billion (Dh172bn) in 2007, sharply higher than the $25bn issue in 2006.
In the GCC, the number of corporate sukuk substantially grew by 62 per cent in 2007 while their value jumped to nearly $13.5bn in 2007 from $6.8bn in 2006, and $2bn in 2005.
"The Kingdom was ranked third in 2007, after the UAE and Malaysia, in its share from issuances of corporate sukuk worth more than $1bn, with three issuances," the report said.
"Overall, the kingdom's total value of corporate sukuk issued and announced in 2007 were $5.68bn and $5.7bn, respectively."
It said the types of sukuk involved were investment Islamic bonds, Sukuk Al Ijara, Sukuk Al Manfa'a as well as General Sukuk.
The Saudi Arabian Basic Industries Corporation (Sabic), Alrajhi cement, Zamil Group, Saudi Electricity, Saad Group and Daar International had been involved in the issuances and announcements.
"We expect that growth in mega-sukuk issuances will propel the currently non-existent small- or medium-sized sukuk issuances, which will expand the Islamic financing market in the Kingdom further," the study said.
In a recent report, the Kuwait-based Global Investment House (GIH), said the UAE had overtaken Malaysia in the size of sukuk issue and it expected such activity to gain momentum in the Gulf countries because of the economic boom.
Although the sukuk activity emerged only a few years ago, it has sharply grown in the Middle East and other parts of the world, with its total value surging from around $7.2bn in 2004 to $27bn in 2006 and nearly $39bn in the first 10 months of 2007, according to GIH.
Its figures showed the UAE has emerged as the world's number one in sukuk issues during 2001-2007, contributing nearly 36.2 per cent of world's total.
Malaysia accounted for around 32.1 per cent in the same period despite the fact that Kuala Lumpur had the largest number of sukuk issued, amounting to 137 issues, as compared to the total number of issues of 29 in the UAE.
"It is important to note that the Emirates had a few huge sukuk issues in 2006 and 2007 which helped the UAE surpass Malaysia in total sukuk size. A few examples of these are the $3.52bn Nakheel Sukuk, the $3.5bn PCFC Sukuk, and the $2.5bn Aldar Properties Sukuk," GIH said.
"The recent surge in oil prices has benefited the GCC states tremendously. The abundant liquidity has helped them embark on major infrastructure and real estate projects, in addition to projects in many other economic sectors," GIH said.
