Sukuk Market Growth & Diversification

London Sukuk SummitJune 2012

Exponential Growth…

2007 was the best year on record until 2011 took over

The industry was negatively affected by the global financial crisis in 2008/2009

Source: Zawya Sukuk Monitor

Key Growth Factors

Large pools of Muslim wealth and abundant liquidity Demand still exceeds supply Thriving Islamic funds industry Alternative source of funding Diverge from risky equity Safe haven, asset-backed/based Huge financing and refinancing requirements Drying up of syndicated loans market Adoption of Islamic finance and banking by post Arab Spring

regimes Eurozone debt crisis pushing investors and borrowers to other

regions Islamic banks are less connected to problems in Europe Islamic banks are relatively liquid compared to their conventional

counterparts

Bearish outlook…

Zawya expects 2012 to be at least as good as 2011

Best-case scenario implies USD126 billion worth of sukuk could be sold in 2012

Source: Zawya Sukuk Monitor

Despite obstacles…

Disputes and debates across different Shariah schools (Ex: GCC versus Malaysia)

Lack of standardization & harmonization High issuance/structuring costs Lack of suitable regulatory framework Double taxation in some jurisdictions Underdeveloped secondary market Opposition from political parties in certain

jurisdictions Supply remains limited

Outstanding Sukuk Market

The current outstanding global sukuk market is estimated at USD 214 billion as of May 2012

South-East Asia accounts for 70% of the total with Malaysia alone USD132 billion (62%) followed by Indonesia

Saudi Arabia and UAE top GCC, followed by Qatar and Bahrain

Source: Zawya Sukuk Monitor

International vs. Domestic

19% of the current outstanding sukuk market is international

81% of the market is domestic

In 2006, sukuk were almost equally distributed between domestic and international

International issuance retreated after the global financial crisis

2007 was the best for internationally sold sukuk

Source: Zawya Sukuk Monitor

Breakdown by Exchange Listing

London SE is currently home for the largest amount of listed sukuk globally, followed by Bursa Malaysia, Nasdaq Dubai, Labuan, and Saudi’s Tadawul

We expect other exchanges to join the club such as Qatar Stock Exchange

Bursa Malaysia’s efforts & incentives paid off

Source: Zawya Sukuk Monitor

Geographical Expansion

Number of countries issuing sukuk almost doubled from 10 to 19 between 2006 and 2012

The trend is expected to continue as more countries join the club

Countries from all continents could witness sukuk sales including African, Australian, Russian and European states Source: Zawya Sukuk

Monitor

Currency Diversification

It follows naturally that currencies used to sell sukuk more than doubled between 2006 and 2011 from 7 to 17

As more countries witness sukuk and other witness domestic issuance for the first time

Malaysian Ringgit and US Dollar remain the most frequent

First British Pound in 2010, first Jordanian Dinar and Dim Sum in 2011

Source: Zawya Sukuk Monitor

Significant Developments 2011-2012

Conventional issuers stepping in (South Africa, Goldman Sachs, Taqa, HSBC ME, Majid Al Futtaim)

Innovation continues in terms of structures including first perpetual out of Malaysia by MAS soon, ALIM structure introduced in 2010, more use of Wakala

Increased cross-border issuance (GIB, Taqa, NBAD, GIC, Khazanah)

Rise of project-finance sukuk New countries adjusting their tax and regulation

to facilitate issuance (Egypt, South Africa)

Significant Developments 2011-2012

• Saudi Arabia’s GACA USD 4 billion sukuk acts as catalyst for more issuance out of the Kingdom which sold USD7.8 billion in first 5 months of 2012

• Short term sukuk gains popularity (Indonesia introduces short-term bills, Saudi Bin Laden, Pakistan’s 6-month corporate sukuk, IILM plans similar initiative, among others)

• New sectors, currencies, and markets (Turkey)• Launching Islamic Interbank Benchmark Rate

(IIBR) in November 2011

Conventional retreat in favor of Islamic (MENA) Gap reduced

between conventional bonds and sukuk in the MENA region partly due to increased sale of the latter in the GCC

Trend could persist should North African countries start selling sukuk

Egypt, Tunisia, and Libya showed interest

Jordan and Palestine from the Levant as well

Yemen started in 2011 and resumed in 2012 after unrest

Source: Zawya Sukuk Monitor, Zawya Bonds

Monitor

Prepared by:

Adnan Halawi – Team Leader, Fixed Income

Abir Atamech – Sukuk Analyst

Email: sukuk@zawya.comWebsite: www.zawya.com/sukuk