The centre of power in Islamic debt issuance is shifting back to South East Asia after the Gulf enjoyed a short rise to prominence before the global financial crisis. The value of Islamic bonds, or sukuk, raised in the Gulf so far this year has fallen by 25 per cent to US$2.5 billion (Dh9.18bn) compared with the same period last year, Bloomberg reported. Asian borrowers have raised $5.7bn this year. Khalid Howladar, an Islamic finance expert at Moody's Investors Service, said while appetite for Gulf sukuk had been driven by global demand, the Asian economies where sukuk are popular - Malaysia and Indonesia - have great domestic interest.
"In the Asian countries like Indonesia and Malaysia, demand is more domestically driven," Mr Howladar said. "The people there want it, the governments want it, the regulators want it and the whole system works in concert to make it happen. Here I think it's more capital market driven." Saudi Arabia has the potential to harness a domestic surge in demand, he said, given its population of about 25 million and strong culture of investing.
Analysts have long thought that appetite for Gulf sukuk might pick up as Dubai World neared a deal on its $23.5bn debt restructuring. But there is little evidence of that coming closer to reality, even as the government-owned conglomerate sews up a final pact with scores of banks and trade creditors. "It's of strategic importance that some of the countries here in the Gulf look towards developing these markets," Mohammed Dawood, the director of debt capital markets at HSBC in Dubai, said last week. "Especially to compete with Malaysia, the development of the local market will be crucial."
The Malaysian government has played a crucial role in developing and sustaining the local Islamic finance market there over the past two decades. The government has built up regulatory structures for Sharia-compliant assets and made the industry's growth a political priority. As a result, Malaysia is now the world's largest issuer of sukuk, with $1.25bn of the securities sold in May. No government in the Gulf has issued Islamic bonds this year.
afitch@thenational.ae