DUBAI -Paced by a remarkable vibrancy in UAE's Islamic finance sector, the volume of sukuk issuances in the Middle East, particularly the GCC states, rose substantially to 53 from 38 last year, industry watchers said.

Worldwide, the total number of sukuk issued in 2007 was 207, compared with 199 in 2006 and 89 in 2005. In terms of value, the number of sukuk issued in 2007 added up to $47.099 billion, up 73 per cent, compared with about $25 billion in 2006 and $10 billion in 2005, according to Islamic Finance Information Service (IFIS)

Listed sukuk on the Dubai International Financial Exchange alone amounted to about $16.1 billion at year-end 2007, up from $7.6 billion in 2006, recording more than 100 per cent growth, according to S&P.  In a recent report, it said the surge in sukuk issuance highlighted both issuers' and investors' growing interest in Islamic finance. "Demand is likely to be met in the GCC, where there are signs that issuers are increasingly turning to sukuk to raise funds in a context of rapid economic growth.

However, Islamic finance experts pointed out that as home to most of the $24 billion worth of sukuks launched worldwide during the past five years, Dubai needs to have more market-makers to create a vibrant secondary market to sustain its leadership in Islamic finance, financial experts said.  Faced with increased competition from Bahrain, Riyadh, Singapore, Kuala Lumpur and even London as a centre of Islamic finance, Dubai should encourage institutional investors who own a large chunk of the sukuks to come to the secondary market to make it active. "With a market-making mechanism in place, Dubai can facilitate more liquidity in sukuk trading," they said.

The number of corporate sukuk in the GCC grew to 21 in 2007 from 13 in 2006 and 10. The value of these sukuk rose too, rising to $13.5 billion in 2007 from $6.8 billion in 2006 and $2 billion in 2005.

IFIS noted that there was  a drop in the number of sukuk issued in Southeast Asia, mainly as a result of a fall in Malaysian corporate medium-sized issuance. Despite this, Malaysia remains the world's leader in sukuk issuance by both number and value, with 2007 trade totalling about $25 billion. In addition, the Malaysian ringgit remains the most common currency for sukuk issuance, followed by the dollar. In Malaysia, most sukuk are issued in ringgits, while in the GCC, the majority are issued in dollars.
Firas Abi Ali, IFIS' senior analyst and product manager, said the number of issuances would continue to increase, both for corporate borrowers and for sovereign borrowers, especially in the GCC, where the market is starting from a much smaller base compared to South East Asia. "The market weathered the global credit turmoil rather well and showed strong resilience.
We expect this tenacity to survive the coming year. In all likelihood the number of sukuk issued in Malaysia will continue to exceed the number issued in the GCC. However, with the tendency for mega-sukuk expanding in the GCC, we would not be surprised if total value of sukuk issued there were to exceed that of Malaysia in the coming year or two."
According to the report, Pakistan was the fastest growing market in 2007, enjoying a substantial rise in volumes, with the number of sukuk issued rising to 20 from four in 2006. Another remarkable feature of 2007 was the explosion in the number of sukuk worth more than $1 billion.
There were only four such sukuk in 2006 -two in the UAE and two in Malaysia -but in 2007 there were 14 such issues, spread between Malaysia with six, the UAE with five and Saudi Arabia with three.    These 14 sukuk alone represented 56 per cent of the total value of the global market.
FIS report said Southeast Asia and specifically Malaysia, continues to offer the most accessible markets for small and medium sized borrowers. It added that 55 of the sukuk issued in Southeast Asia during 2007 have been worth between $1 millionand $10 million, whereas not a single sukuk in the GCC has fallen within that range.
As for sukuk worth between $10 million and $100 million, 45 came from Southeast Asia and 27 came from the GCC. Of those 27, some 25 of them came from the government of Bahrain and just two came from corporate borrowers. "On the whole, the GCC market is inhospitable to small and medium-sized borrowers. There have only been five corporate sukuk issuances worth less than $100 million throughout the life of the GCC market."
Another feature of the 2007 sukuk market has been the decrease in the number of corporate sukuk issued and yet the increase in their value. In 2007, 156 corporate sukuk were issued, compared with 167 in 2006 and 86 in 2005 but their value has been growing consistently, rising to $37 billionin 2007 from $21 billionin 2006 and $11 billionin 2005.
This decrease in the number of issued sukuk has come mostly from Malaysia, where the number of corporate issuances fell to 112 in 2007 from 148, although as in the GCC, the total value of these issuances rose, increasing to $22.9 billion from $13.7 billion.