Islamic bond issues could hit record levels this year, credit ratings agency Fitch Ratings said on Thursday — the same day as Qatar launched a $3 billion issue of Shariah-friendly "sukuks".
Along with an issue of $3.6 billion in conventional instruments, the wealthy Gulf state auctioned $3 billion's worth of three- and five-year sukuks. The bond is a form of debt that is compliant with Islamic Shariah law, which forbids Muslims from investing in interest-generating assets. Instead, sukuks give investors a share in the ownership of an underlying asset, such as property.
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Fitch said Qatar's deal could kick-start a record year for the Shariah-compliant debt market thanks to a combination of solid government spending, economic growth in the Middle East and healthy investor demand. This latter is driven by a strong expansion in the Islamic banking sector and the growing funding needs of Islamic countries, as well as Western investors increasing familiarity with the asset class.
"Regional growth and robust government spending are likely to be partially funded through sukuk programs in established Gulf Cooperation Council sukuk markets. At the same time, strong investor demand is likely to attract debut issues from Islamic and non-Islamic states in 2014," said Bashar Al Natoor, a Fitch specialist in Islamic finance, in a report.
"The push by sovereigns in the region to be become an Islamic finance hub is also likely to spur sukuk issuance," he added.
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