IFR Islamic Finance Report 2009
Welcome to the first Reuters Publishing Islamic special report – produced by journalists from IFR, PFI, Acquisition Monthly and IFR Securitisation Report. This is a truly global effort to capture the up-to-date picture of one of the world's most important capital markets, in detail.
The report is introduced by Rushdi Siddiqui, Global Head of Islamic Finance across the Reuters network. In an important thought-leading piece, he argues: "For Islamic finance to become a global phenomenon and a viable alternative to the conventional asset class, it must reach across the secular aisle and emphasise substance over form."
Basically, Islamic finance must stand on its own two feet and produce returns and results the same or better than other asset classes. There is no reason why this cannot happen, Siddiqui says, adding: "A greater share of investors' portfolios is well within reach."
The Islamic finance market has faced a tough time in 2009. In the sukuk asset class, issuance volumes fell, according to the latest data from S&P, to US$9.3bn in the first seven months of this year compared with US$11.1bn in the same period of 2008. But given the state of the global capital markets, with volume down substantially across all asset classes in the first half, this result is actually not too bad.
And the sukuk pipeline is said to be healthy going forward. David French describes how the market reopened later in the first half of this year following the global financial storm. The reopening has been positive, but he does point out that much of the issuance – as is to be expected – has been on the conventional side from sovereign and quasi-sovereign issuers in the Gulf and South East Asia.
Malaysia accounted for 45% of market activity in the first seven months of the year. Boey Kit Yin says: "Islamic finance runs in the blood of the capital markets in Malaysia. It has taken such a dominance in the industry that it has become mainstream." Nachum Kaplan describes how Indonesia is trying to catch up. Bakyt Azimkanov reviews the strides made by other global centres in trying to establishing Islamic footprints.
Project finance was a big hope for the Islamic market earlier in the decade, but the hopes faded. Now, the two concepts could come together in a more lasting partnership, according to Rod Morrison, taking on the "substance over form" theme from Siddiqui's introduction.
Matthew Attwood, from an equities perspective, takes on the theme too. "Investors buy performance," he says. During the credit crisis those invested in Sharia-compliant indices did well as the companies had little debt. But performance, he points out, in Sharia indices was poor in the run-up to the crisis.
And some Islamic deals suffered during the crisis. Furquan Kidwai details the restructuring of some landmark deals, an important test for the Islamic market. Then Adam Durchslag and Sarah Young look at M&A prospects in the light of the crisis and the restructurings.