Sukuk volume in 2009: opinions differ

An English online grocery store Ocado received £10 million in financing using Shari'ah-compliant leasing (ijara). Although the transaction is small and uses a relatively simple Islamic finance product, it has significance, I think, because it is the company's first use of Islamic finance and it chose this type of finance because of the "competitive offering" from the Bank of London and the Middle East, a Shari'ah-compliant wholesale bank in the U.K. There are relatively few instances where Western companies chose Islamic finance products based on their price competitiveness (e.g., the $166 million East Cameron Gas Co. sukuk), but there is potential for this to become more common if Shari'ah-compliant banks are able to tap sources of capital and have not been hurt themselves by the credit crisis through the slowing of global growth where health companies find that they can only receive finance from conventional banks at extremely high cost.

According to a poll conducted by Reuters, the amount of sukuk expected to come from Southeast Asia, a region with a large volume of sukuk in recent years, is around $5 billion, far below last year. Most of the issuance is expected to be issued by governments. A previous estimate for Malaysia put the volume from that country at $4 billion for 2009. The GCC region is also expected to see far smaller volume of sukuk with unnamed bankers telling Reuters they expect to see issuance between $4 and $8 billion. Standard & Poor's, however, believes there are $45 billion of sukuk in the pipeline and the number that reach the market in 2009 will depend on whether the market becomes more favorable than it is now.

Other News

• Gatehouse Bank announced a new $1 billion 'Milestone Sukuk' platform and a first issue on the platform that it claims makes the issue of sukuk easier.
  
• Islamic financial institution Arcapita Bank, based in Bahrain and Atlanta, Georgia was downgraded recently, in part because of its 'high leverage'. The high leverage aspect is surprising because Islamic finance is often characterized as putting significant limits on allowable leverage.
  
• Turkey's first sukuk, a revenue-linked bond, was a flop raising only about one-quarter of the planned amount.
  
• Organizers of the 2009 Asia Sukuk Summit, in contrast, believe that countries where Islamic finance is just beginning to become into significance like Jordan, Hong Kong, Singapore and Japan will issue sukuk this year.