(The following statement was released by the rating agency)
Feb 15 - Standard & Poor's Ratings Services has published a report examining why sukuk
issuance is gaining acceptance in markets beyond its established strongholds in Malaysia,
Indonesia, and the Gulf Cooperation Council (GCC) region (see "Global Crisis Boosts Growth In A
Lively But Fragmented Sukuk Market"). In our view, European banks are reducing their overseas
exposure as their capital requirements have increased and their domestic economies faltered.
Governments in the Middle East and Asia have therefore turned instead to local investors to back
their infrastructure projects. Banks in the Middle East and Asia that comply with Sharia law
have also demonstrated a strong appetite for new assets that meet their requirements.
Until the global credit crisis of 2008, most sukuk issuances came from
corporate issuers; now, most comes from governments and GREs. In our view,
many sovereign issuers hope that Islamic finance will provide them with an
alternative means of supporting their economies by tapping into the excess
liquidity available in regions that were less hard hit by the economic
downturn, such as the GCC region and Asia. Given the slowdown in global
economic growth, we expect this trend to continue in the short term.
Until the Islamic finance industry overcomes its long-term problems, we do not
expect sukuk to become a mainstream asset class. The huge variety of sukuk
structures continues to deter some investors, in our view. The process for
resolving defaults and restructuring sukuk also remains uncertain; although an
increase in the number of issues that have been listed has increased pricing
transparency. Sukuk instruments are, however, increasingly attracting
attention as a source of funding and diversification.