Sukuk issuances rise as alternative infrastructure funding instrument
Dalma Capital said more non-regional organisations are turning to Islamic finance, particularly Sukuk instruments, to raise funds for their infrastructure and development projects.
Dalma Capital Management Limited – an alternative investment fund accelerator and advisory firm based in Dubai – has said interest in Sharia-compliant bond issuances from organisations and countries outside the Gulf Cooperation Council (GCC) has increased. In a statement released on Monday, Zahid Aslam, Managing Director of Investment Banking at Dalma Capital, said more non-regional organisations are turning to Islamic finance, particularly Sukuk instruments, to raise funds for their infrastructure and development projects.
“It is our experience that Sukuk-based solutions are establishing themselves as an increasingly attractive alternative for the funding of infrastructure and development projects,” said Aslam. “For example, we are currently working with clients on a variety of ‘off the beaten path’ projects, including a refinery initiative in the CIS (Commonwealth of Independent States) region and a scheme to help develop eco-tourism and sustainable farming in several African nations.”
Sukuks are non-interest, Sharia-compliant bonds. They are Islamic financial instruments for raising long-term financing, without yielding interest for the sukuk holders. A sukuk holder is only entitled to a share in the revenues generated by the project or asset tied to the sukuk. In January, The S&P Global Ratings predicted that the global issuance of Sharia-compliant foreign and local currency bonds will reach $115 billion in 2019. Last December, the Federal Government of Nigeria issued a 7-year N100 billion Sovereign Sukuk, which was oversubscribed at a rate of 132.2 percent.
According to Aslam, there are five main factors responsible for the upswing in Sukuk issuances. He mentioned lower oil prices, which have created a funding shortfall for many countries. He also noted the mounting pressure on global liquidity; the United States Federal Reserve’s ongoing plans to slowly raise interest rates, making borrowing more expensive; global regulation, which is enhancing and becoming more Islamic finance-friendly; and an increase in general awareness outside the GCC of the uses and benefits of Islamic finance.
The CEO of Dalma Capital, Zachary Cefaratti, said, “There is growing evidence that potential borrowers who had never considered Islamic finance are better understanding the clear benefits of such solutions.” He added that this is cemented by the fact that deals can project based, and not centred solely on the credit standing of the borrower.
Dalma Capital, according to the statement, is a licensed and regulated asset manager and investment boutique with a network of institutions and accredited partners. It provides all the necessary solutions for Sukuk issuers and investors.
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