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A New Year for Islamic Debt Capital Markets

The Islamic debt capital market covers multiple asset classes including asset-backed financing, capital loans, repos, term financing, Sukuk and syndicated finance. While some areas (such as asset-backed financing and repos) are still small, sectors such as Sukuk and syndicated financing have found a keen and growing audience around the world. Rebecca Simmonds explores the current state of the market.

Key markets

The total number of Sukuk and Islamic loans issued in 2013 according to data provided by Dealogic is 19. Domestic issuances still make up almost 90% of the Sukuk market, reportedly at a total of US$66.6 billion for the first nine months of 2013, but countries that have been highlighted as key markets such as Malaysia, Saudi Arabia and Dubai are increasingly aiming to issue more international Sukuk. Malaysia’s position as the global leader in the Sukuk market was confirmed, with the country accounting for US$54.33 billion of the US$75 billion of new Sukuk issued globally over the course of the first nine months of 2013 and 63.6% of the total Sukuk outstanding globally, as at the end of August 2013, to the value of US$275.20 billion.

Sukuk issued in 2013 in the GCC totalled US$21.1 billion, including market drivers Saudi Arabia (which issued US$8.69 billion in the first nine months of the year) and the UAE (which issued US$5.17 billion over the same period). Oman approved the first Sukuk issuance in the country in June 2013, for OMR50 million (US$129.45 million). The GCC outperformed other countries in the 2013 syndicated finance market, with eight of the ten top deals of the year occurring in either Saudi Arabia or the UAE; leading the field with over US$7 billion worth of financing. This included a US$1.75 billion equivalent dual currency syndication for Dubai Duty Free and a US$2.55 billion equivalent dual currency syndication for the Investment Corporation of Dubai, facilitated by Dubai Islamic Bank.

Up and coming asset classes include Islamic repurchase agreements (repos), currently a small but growing market, with more transactions in the 2011 than in the whole of the past decade. Asset backed aviation financing is an area that is also set to grow in 2014 as banks in the Middle East prepare to finance the region’s airlines, following a spate of plane orders at the Dubai airshow last year. Shariah compliant financing is expected to play a large role in covering the orders worth US$160 billion.

Significant deals

One of the most anticipated issuances of 2013 was the first Sukuk issued by the Kuala Lumpur-based International Islamic Liquidity Management Corporation (IILM), an international institution to create and issue short-term Shariah compliant financial instruments to facilitate effective cross-border Islamic liquidity management. The Sukuk was issued at US$490 million with a three month tenor and an ‘A-1’ rating from S&P. A deal that captured the headlines in the second half of 2013 was Qatari telecommunications provider Ooredoo’s US$1.25 billion five-year Sukuk.

The company’s first foray into the Sukuk market, the deal was part of a US$2 billion program, and was significant as the first globally issued US dollar-denominated Sukuk using airtime as its underlying profit asset. Industry professionals predict that new issuers will be encouraged by the potential presented in the Sukuk market if non-traditional assets can be utilised in this fashion. The GCC led in syndicated loans in 2013, with deals such as the ACWA Power SAR1.77 billion (US$471.84 million) corporate facility funded by Banque Saudi Fransi, National Commercial Bank, Saudi British Bank and Samba Financial Group and the syndicated financing deal for Emirates Aluminium which was the biggest of the year, at US$3.40 billion. The best performing Islamic syndicated finance deal of 2013 in the GCC was the Jebel Ali Free Zone FZE Sukuk, which gained a 4.3% return: beating the regional average return of 9bps by over four times.

New markets

Whilst the established markets engage in competition to see who will become the undisputed global hub for Islamic finance, there is a level of interest in discerning where the next emerging markets will be. Expert opinion has identified frontrunners in Turkey, Indonesia and Nigeria. With its debut sovereign Sukuk issuance in 2012 and a follow up of US$1.25 million which was 6.2 times oversubscribed, Turkey has entered onto the scene with confidence. North African countries such as Morocco and Tunisia have been tipped as prospects to watch by industry heavyweights – the IDB offered to subscribe to Morocco’s first sovereign Sukuk rather than arrange a loan in 2013 and Tunisia has been mooted as an Islamic finance hub for Francophones. Of the Sub-Saharan African countries, Nigeria’s Osun state has beaten the Nigerian government to the issuance of the first Sukuk in the country, raising NGN10 billion (US$62 million) with its deal.


The Sukuk market in 2013 was subject to more caution in the market – primarily due to uncertainty regarding the timetable for the US Federal Reserve’s decision on tapering of its stimulus program. Data suggests that 2014 will see significant quantities of Sukuk maturing, which experts have predicted will lead to new issuances with longer tenors - moving up from five years to seven years and encouraging entry to the market from new issuers, with the gap between Sukuk supply and demand expected to peak this year. Given that a timetable has been set for the tapering of the US Federal Reserve stimulus, new issuers from Asia and outside of traditional Sukuk markets are expected to add to the growth in sector.

This article first appeared in Islamic Finance News (8 January 2014, Volume 11, Issue 1, Page 43). For more information, please visit