Sukuk issuance expected to exceed $20bn in 2008, says S&P

The report titled "Sukuk Market Continues To Grow Despite Gloomy Global Market Conditions."

Total issuance stood at about $14bn in the eight months to Aug. 31, 2008, down from about $23bn during the same period in 2007. This lower level of issuance was largely due to the deteriorated conditions on the global markets resulting in lower investor interest in buying the paper and the related widening of credit spreads.

Most sukuk were issued in markets where liquidity is still abundant and/or appetite for Sharia-compliant instruments is high--namely the countries of the Gulf Cooperation Council (GCC) and Malaysia.

"Despite lower issuance versus last year, we still expect that sukuk issuance will reach $20bn-$25bn in 2008 given the good pipeline," said Standard & Poor's credit analyst Mohamed Damak.

We continue to see a lot of appetite from issuers in a larger number of countries--Muslim and non-Muslim. Entities located in more than 15 countries, predominately non-Muslim, have expressed interest or announced their intention to issue sukuk. We therefore expect the sukuk market to continue globalizing.

More than 50% of sukuk issued in the first half of 2008 were "ijara" (lease financing), most probably as a direct consequence of the debate among some Sharia scholars regarding the Sharia compliance of most sukuk previously issued. To date, Standard & Poor's has rated about 30 sukuk (or sukuk programs), the bulk of which are ijara or "musharaka" (venture capital financing).

The U.S. dollar lost its position as the currency of choice for sukuk issuance in 2008, not only because of its weakness but also due to speculation about the depegging of some GCC currencies from the dollar. Corporates remained the main issuers, with financial institutions and sovereigns far behind.

Standard & Poor's role is to provide market participants with independent and objective opinions about the creditworthiness of issuers or issues--Sharia-compliant or conventional. Our ratings represent opinions about creditworthiness and don't address Sharia compliance.