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Abstract: A bonding experience: The Gulf’s Nascent Sukuk Market enlists the Sukuk market in the Per- sian Gulf, Saudi Arabia, Oman, Qatar, Kuwait and Bahrain with comprehensive analyses of the Sukuk market in the GCC. The article discusses popular Sukuk structures in the Gulf and the impact of Du- bai and AAOIFI on the Sukuk global market.
Keyword: Gulf Sukuk Market, Islamic Finance, GCC Sukuk, Islamic Bond, Islamic Financial Market In- struments, Capital Market
A Bonding Experience: The Gulf’s Nascent Sukuk Market
Author: David Smith, Global Islamic Finance Magazine Editorial Team, United Kingdom
Sukuk in the Persian Gulf, or Gulf Co- operation Council, countries-Saudi Arabia; United Arab Emirates (UAE); Oman; Kuwait; Qatar and Bahrain-only really started receiving worldwide rec- ognition in October of last year. That was when the World Bank’s private sector lending arm, the International Finance Corp (IFC), issued the first sukuk to be listed and cleared exclu- sively in the GCC market. In the short period of time between then and now, however, a lot has happened, not least the well-documented events in Dubai. How will such a rollercoaster ride af- fect the future of this nascent sukuk market? How will issuers and inves- tors alike respond in the months and years to come?
18 Global Islamic Finance October 2010
Things looked bright on 21st October 2009, as the IFC announced its issuance of sukuk that went on to be listed on both NASDAQ Du- bai and the Bahrain Stock Exchange. Apart from it being worth the landmark figure of US$100 million, the issuance was so spe- cial because IFC was the first non-Islamic fi- nancial institution to issue a sukuk for term funding in the GCC. At the time the IFC said it hoped the move would inspire other issu- ers to enter the sukuk market’ accelerating its growth within the GCC region in particular.
That is not to say there had not been sig- nificant Gulf issuances prior to this. Dubai World’s property development arm, Nakheel PJSC, listed its first issue of sukuk on the Du- bai International Financial Exchange (DIFX) in December 2006. Worth US$3.52 billion, it was at the time the world’s largest and was successful enough to merit a second issue, in 2008, of US$750 million sukuk. This lat-
ter issuance is, of course, the one that hit the headlines in November 2009, when the Du- bai government, Dubai World’s owner, issued a statement requesting a standstill on all of the conglomerate’s debts, including Nakheel sukuk repayments due the next month. Liter- ally days before the December maturity date, neighbouring emirate Abu Dhabi prevented Nakheel from defaulting on the sukuk by pro- viding Dubai with a US$10 million bail-out package.
Overall, Nakheel’s second issue was the ninth sukuk from a UAE issuer to be listed on the DIFX. Of the other GCC members, Bah- rain and Kuwait are the most prolific issuers, with Bahrain’s first issuance, also the Gulf’s first ever one, coming in June 2001 from the Bahrain Monetary Agency; and Kuwait’s debt issue coming in the form of the corporate In- vestment Dar Second Sukuk in June 2006. The first sukuk to come from Qatar was a
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