DUBAI - Ratings agency Standard and Poor's
(S&P) could introduce an index for sukuk, or Islamic bonds, next
year, although liquidity in the secondary market remained an
obstacle, a senior executive said on Sunday.
Investor demand for a measure of sukuk performance has been
growing as interest in Sharia-compliant investment instruments
increases globally.
"The issue with sukuks has always been that they do not have
a secondary market, there's no trading, and you can't really
have an index unless you have a secondary market," said Alka
Banerjee, vice president of Global Equities within S&P's Index
Services group.
"Maybe by next year we'll be in a place to have a sukuk
index."
Banerjee said S&P had received requests for a
Sharia-compliant debt index product, but did not elaborate.
Christopher O'Brien, vice president for global business
development at S&P said in April the ratings agency had been
approached by southeast Asian and Middle Eastern institutions.
Sukuk issuance received a double blow last year from the
global liquidity freeze and a debate on the compliance of some
of its structures with Islamic law, with issuance slumping more
than 50 percent to $14.9 billion, according to S&P.
"We know the sukuk market took a big hit during this crisis,
and some sukuks have defaulted, which should not have happened,
considering the way they are structured," Banerjee said.
A Reuters poll conducted in October said global sukuk
issuance may exceed $20 billion in 2010. n increase
in issues in the Gulf Arab region as well as investor appetite
for Sharia-compliant debt is already becoming more apparent.
The government of Dubai last week placed nearly $2 billion
in new five-year sukuk issues, a move which helped boost
confidence in the emirate.
A $1 billion sukuk issue by Abu Dhabi's Tourism, Development
and Investment Co in October generated orders worth $6.5
billion and also started trading in the secondary market,
highlighting demand.
"We're in a wait and watch mode," Banerjee said.
Sharia indices made up 3 percent of S&P's index portfolio
data business at the end of 2008.