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Global Sukuk: The Rise of Wakala

September 5, 2011
By Adnan Halawi, Team Leader – Fixed Income, Zawya

05 September 2011
Global Sukuk Review: August 2011

Despite the summer holidays accompanied by the month of Ramadan, the Islamic bonds market witnessed noticeable activity in August 2011. There were some launches as well as announcements that some much-delayed and long-awaited sukuk would finally be issued, as early as September or in the fourth quarter of the year. A total of USD6 billion of sukuk were sold in August, according to the Zawya Sukuk Monitor, compared to USD4.7 issued in the same period of 2010.

Perhaps the most interesting development in August was the Government of Indonesia selling its first Islamic treasury bills in two consecutive auctions on August 2 and August 23, raising IDR570 billion (USD66.8 million) and IDR330 billion (USD38.7 million), respectively. Both with six-month tenors, the issues see Indonesia following Bahrain, Gambia, Brunei and Malaysia into the short-term sukuk market.

Two long-awaited benchmark sukuk saw the light in the Gulf. The UAE’s Nakheel finally announced it is in the process of issuing the first tranche of its fourth sukuk as part of a restructuring plan. Saudi Arabia’s SATORP received the approval from the Capital Market Authority and said a roadshow will take place in September to sell its long-awaited sukuk.

Just as the month was about to end, Al Hilal Bank announced it might issue a benchmark sukuk to finance its expansion and that this might take place before the year ends. Al Hilal joins a list of Gulf banks that are aiming to sell sukuk for the first time in 2011; others include Qatar’s QIIB and Masraf Al Rayan, and Bahrain’s Al Baraka. Earlier in the month, two Gulf companies issued sukuk: the UAE’s First Gulf Bank sold a USD650 million sukuk on August 2 and listed it on the London Stock Exchange, and Kuwait’s Gulf Investment Corporation issued a second tranche under its MYR program on August 3.

Iran is witnessing increased sukuk issuance. A few months after Mahan Air did an issue in March 2011, it was revealed that Omid Investment Management Corporation is about to issue a similar sukuk.

Wakala Sukuk On The Rise?

An interesting development in 2011 is the increased use of Wakala (Agency) structure in sukuk. Data compiled by Zawya Sukuk Monitor shows USD5.3 billion of sukuk issued in 2011 to date are completely or partly structured as Wakala, up from USD1.8 billion in the same period last year. Interestingly, most of the benchmark, international and cross-border sukuk that were issued in 2011 used the Wakala structure.

A major reason behind this could be the fact that this innovative structure is considered Shariah-complaint in both the GCC and Malaysia. The largest Wakala sukuk in 2011 was the USD2 billion Wakala Global Sukuk which was sold by the Malaysian government in the international markets. An example of a cross-border Wakala sukuk is the Gulf Investment Corporation‘s sukuk program, of which two tranches have been sold so far totaling USD550 million. “We are pleased that the Islamic medium-term notes, which were structured in accordance with the Shariah principle of Wakalah bi Istithmar, was an innovative structure that met the Shariah compliance of both Kuwait, where GIC is based, and Malaysia, where the sukuk is issued,” said Hisham Al Razzuqi, Chief Executive Officer of GIC.

Another benefit of using the Wakala structure is that it enables the originator to utilize certain assets that cannot be traded on the secondary market such as Murabaha and Istisna contracts.

Source: Zawya Sukuk Monitor

The sukuk market has witnessed many interesting developments in 2011 and market activity is expected to pick up in the last third. Apart from the increase in Wakala issues, other trends can be tracked in the previous issue of Global Sukuk Review: Shorter And Wider.

Adnan Halawi
Team Leader – Fixed Income

© Zawya 2011


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