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Issuance of Islamic bonds to drop sharply in 2015: S&P

[DUBAI] The Islamic sukuk or bond market is set to drop sharply this year after Malaysia's central bank, one of the largest global issuers, stopped doing so, Standard & Poor's said Tuesday.

"In the first half of 2015, the Central Bank of Malaysia's pullback saw total sukuk issuance drop by 42.5 per cent compared with the same period a year earlier," said S&P Global Head of Islamic Finance Mohamed Damak.

The country's central bank alone issued US$45 billion of sukuk in 2014 out of a total issuance of US$116.4 billion, he said.

The drop in sukuk comes after years of double-digit growth in the Islamic sharia-compliant bonds.

S&P said in a report that part of the reason behind the bank's decision was that its sukuk were subscribed to by a broad array of investors, preventing them from reaching their intended end-users, primarily Malaysian Islamic banks.

As a result, the central bank decided to switch to other instruments restricted to banks, it said.

Accordingly, S&P revised its forecast for total sukuk issuance this year to about US$50-60 billion from US$100-115 billion, it said.

"Excluding this effect, the market performed relatively well despite the decline in oil prices," S&P said.

Kuala Lumpur and London have been the main centres for sukuk followed by the oil-rich Gulf states.

The global value of outstanding sukuk was US$269.4 billion at the end of 2013.

Unlike conventional bonds, which give ownership of debt, sukuk are asset-based securities that give investors a share because Islamic sharia law prohibits interest-bearing debt.