News
Low Appetite For Dubai Sukuks
| January 31, 2010 by Rob Morris
Dubai coastline
Investors question Dubai sukuk market following company defaults in the UAE.
The appetite for Dubai-based sukuks will be low this year as investors perturbed by recent defaults involving UAE companies look to other markets, a credit ratings agency has claimed.
Standard & Poor’s (S&P) said that sharia’a compliant bonds were considered risky investments after Kuwait’s Investment Dar and Saudi’s Saad Group defaulted on their respective loans in 2009. Both companies had recently completed sukuk issues.
“We believe the prospects are weaker for Dubai-based issuers and potentially other countries in the Gulf because investors are likely to have a low risk appetite and ask for a higher return to reflect the higher risks that they perceive,” said S&P’s credit analyst Mohamed Damak in ‘The Sukuk Market Is Likely To Show Steady Growth In 2010′ report.
A third default involving Dubai-based property developer Nakheel was narrowly avoided late last year after its parent company, Dubai World, secured a $10bn finance package from Abu Dhabi.
Dubai World needed the capital to meet its financial obligations, following heavy investment in property development, and help Nakheel satisfy a $3.52bn loan.
Despite the perceived risks in Dubai, the global sukuk market’s medium-term growth prospects following last year’s collective $23.3bn issues were promising, according to Damak.
Malaysia, with its established Islamic banking system, regulatory framework and government support, was the most attractive sukuk market for investors in 2009.
Previously announced sukuks scheduled for this year would total $20bn if issued. The figure could swell to $30bn if unconfirmed sources mentioned in S&P’s report contribute a further $10bn.
While the global sukuk market was expected to perform well this year, its long-term prospects were unclear, Damak said.
“Beyond 2010, a major impediment to the emergence of an integrated, global sukuk market remains, in our view, lack of standardisation, especially regarding Sharia compliance and the legal environment.”
