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Saudi Arabia tops Malaysia in Islamic finance on deficit funding

Saudi Arabia, October 21, 2017

The Islamic world has developed its own financial system to get around the Quran’s injunction against charging or paying interest. For example, under a setup that complies with the religion’s Shariah law, sukuk bonds allow investors to own a share of an asset and receive income from it, and potentially get their full principal back when the bond expires.

Countries like Malaysia and the United Arab Emirates have led the way on the use of sukuk bonds in recent years, but things seem to be shifting this year with Saudi Arabia’s increasing use of the sukuk market amid its ongoing efforts to deal with a severe budget deficit as it waits for oil prices to recover.

“They continue to blaze a trail,” GMSA Investments trader Angelo Rossetto said in April after the Kingdom of Saudi Arabia’s first dollar-denominated sukuk bond sale. This “should be the largest and most liquid sukuk … and should perform well once we are back in full flow.”

The issue

A Bloomberg analysis confirms a shift at the top of the sukuk market this year, finding that Saudi Arabia accounts for 29.3 percent of issuance in 2017, compared with 25.8 percent for Malaysia and 13.6 percent for the UAE. In 2016 the shares were 28.1 percent for Malaysia, 21.9 percent for Saudi Arabia and 19.6 percent for the UAE. Prior to that, Malaysia had dominated every year since 2000, aside from a borrowing binge by the UAE before the global financial crisis.

While the kingdom itself is the leading fundraiser with a 15.7 percent market share, there are large Saudi corporate players as well — Binladin Group has a 5.6 percent share, and a planned sale by Jabal Omar Development to sell 4 billion riyals ($1.1 billion) of sukuk will rank just outside the top 10 when it is completed, the analysis indicates.

Tracking the debt market

Existing subscribers can use Bloomberg’s League Table function, LEAG , to track the Shariah-compliant debt market and the Islamic Capital Markets page to read about Jabal Omar Development Co.’s plans to sell 4 billion riyals ($1.1 billion) of sukuk.