Rising sukuk issuance from corporate and infrastructure sectors could buoy Gulf’s capital markets
Growth in issue volumes in the Gulf's capital markets in 2014 will likely be steady versus the 2013 rate, although low yields could ultimately push up issuance. This is according to a report card Standard & Poor's (S&P;) Ratings Services published today, titled Increasing Corporate And Infrastructure Sukuk Issuance Could Lift The Gulf's Capital Markets.
Low interest rates, generally positive economic fundamentals, the implementation of regulation to support capital markets, mounting demand for Islamic finance, and the continued need for infrastructure investment in Gulf Cooperation Council countries should fuel capital market growth, furthers the report. ”Corporate and project finance entities will remain innovative in their funding solutions,” said Standard & Poor’s credit analyst Karim Nassif. “This was demonstrated by landmark issuances in the infrastructure space last year.”
“Strong investor demand has allowed issuers to tap markets at record low coupon rates and extend debt maturity profiles. This has helped improve their financial credit profiles,” added Standard & Poor’s credit analyst Tommy Trask.
Standard and Poor’s forecast 5 percent GDP growth on average in the Gulf in 2014 on the back of sustained high oil prices. Moreover, they believe issue volumes in GCC capital markets are likely to stay stable or strengthen slightly this year, depending largely on interest rate developments.
The demand for sukuk issuance is also increasing, with some governments such as Dubai in the UAE, aiming to establish Islamic finance hubs. The major risks, however, continue to be an escalation in regional political instability or an unexpected drop in oil prices, say analysts.