{"id":95881,"date":"2024-09-17T00:00:00","date_gmt":"2024-09-17T00:00:00","guid":{"rendered":"https:\/\/enterpriseam.com\/uae\/islamic-bond-market-may-see-shift-from-asset-based-to-equity-like-sukuk\/"},"modified":"2024-09-17T00:00:00","modified_gmt":"2024-09-17T00:00:00","slug":"islamic-bond-market-may-see-shift-from-asset-based-to-equity-like-sukuk","status":"publish","type":"post","link":"https:\/\/enterpriseam.com\/uae\/2024\/09\/17\/islamic-bond-market-may-see-shift-from-asset-based-to-equity-like-sukuk\/","title":{"rendered":"Islamic bond market may see shift from asset-based to equity-like sukuk"},"content":{"rendered":"

Sukuk shake-up in the works?<\/strong> The normally steady Islamic bond market may be gearing up for a major overhaul as the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI<\/a>) reviews a proposal that could shift sukuk from asset-based debt instruments to equity-like, asset-backed ones, IFR<\/a> reports.<\/p>\n

Background:<\/strong> First proposed in November 2023, the draft for Sharia Standard 62 has been in the feedback stage, with the deadline extended twice \u2014 most recently to 31 July. There has been no update yet on a third extension.<\/p>\n

What\u2019s the difference? <\/strong>Currently, the structure of sukuk differs from bonds as they rely on an underlying asset, commonly real estate, to generate returns. The new standard, on the other hand, would give sukuk holders asset ownership, exposing them to risks like defaults. Investors would need to assess \u201cthe credit risk of the asset, rather than the credit risk of the obligor,\u201d said Bashar Al Natoor, global head of Islamic finance at Fitch Ratings.<\/p>\n

Issuers would also bear more risk:<\/strong> Issuers could face added costs from asset transfers and legal documentation, in addition to the fact that they tend to prefer retaining full control over their assets, according to a Baker McKenzie<\/a> report. This shift could fragment the market or delay new sukuk issuances until a more balanced structure emerges, S&P said in a report<\/a>. <\/p>\n

Some markets could push back: <\/strong>AAOIFI\u2019s standards are mandatory in countries like the UAE, Qatar, and Bahrain, but some markets might resist. UAE banks, with one of the largest sukuk markets globally, could reject the standard if it restricts liquidity access, IFR notes. This could also mean that the AAOFI\u2019s guidelines could begin to be sidelined, with parallel markets emerging and the AAOFI potentially becoming obsolete, Mehdi Popotte, fixed-income portfolio manager at Arqaam Capital said. <\/p>\n

GCC sukuk are having a moment: <\/strong>This comes as GCC sukuk are seeing their longest winning streak since early 2021, with 11 consecutive weeks of gains, according to Bloomberg\u2019s<\/a> GCC sukuk gauge. With expectations of a US Fed rate cut, investors are flocking to GCC bonds and sukuk, which have outperformed global bonds this year, the business information service reports.<\/p>\n

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MARKETS THIS MORNING- <\/p>\n

It\u2019s another mixed morning for Asia-Pacific markets<\/strong> \u2014 tracking similar movements over on Wall Street as investors prepare for the Federal Reserve to make a rate cut decision in its meeting today and tomorrow. Japan\u2019s Nikkei is down 0.4%, while the Topix is down 0.3%. Meanwhile, markets in South Korea, mainland China, and Taiwan are closed for the mid-Autumn festival. <\/p>\n

Wall Street futures were again flat<\/strong>, with the Nasdaq adding less than 0.1% and S&P 500 futures hovering near the flatline. <\/p>\n

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<\/use><\/svg><\/p>\n<\/td>\n\n

ADX<\/strong><\/p>\n<\/td>\n

\n

9,389<\/p>\n<\/td>\n

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+0.4% (YTD: -2.0%)<\/p>\n<\/td>\n<\/tr>\n

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<\/use><\/svg><\/p>\n<\/td>\n\n

DFM<\/strong><\/p>\n<\/td>\n

\n

4,395<\/p>\n<\/td>\n

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+0.3% (YTD: +8.3%)<\/p>\n<\/td>\n<\/tr>\n

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<\/use><\/svg><\/p>\n<\/td>\n\n

Nasdaq Dubai UAE20<\/strong><\/p>\n<\/td>\n

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3,801<\/p>\n<\/td>\n

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+0.2% (YTD: -1.1%)<\/p>\n<\/td>\n<\/tr>\n

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<\/use><\/svg><\/p>\n<\/td>\n\n

USD : AED<\/strong> CBUAE<\/strong><\/p>\n<\/td>\n

\n

Buy 3.67<\/p>\n<\/td>\n

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Sell 3.67<\/p>\n<\/td>\n<\/tr>\n

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<\/use><\/svg><\/p>\n<\/td>\n\n

EIBOR<\/strong><\/p>\n<\/td>\n

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5.3% o\/n<\/p>\n<\/td>\n

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4.2% 1 yr<\/p>\n<\/td>\n<\/tr>\n

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<\/use><\/svg><\/p>\n<\/td>\n\n

Tadawul<\/strong><\/p>\n<\/td>\n

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11,867<\/p>\n<\/td>\n

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-0.3% (YTD: -0.8)<\/p>\n<\/td>\n<\/tr>\n

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<\/use><\/svg><\/p>\n<\/td>\n\n

EGX30<\/strong><\/p>\n<\/td>\n

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30,260<\/p>\n<\/td>\n

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-0.8% (YTD: +21.6%)<\/p>\n<\/td>\n<\/tr>\n

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<\/use><\/svg><\/p>\n<\/td>\n\n

S&P 500<\/strong><\/p>\n<\/td>\n

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5,633<\/p>\n<\/td>\n

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+0.1% (YTD: +18.1%)<\/p>\n<\/td>\n<\/tr>\n

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<\/use><\/svg><\/p>\n<\/td>\n\n

FTSE 100<\/strong><\/p>\n<\/td>\n

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8,278<\/p>\n<\/td>\n

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+0.1% (YTD: +7.1%)<\/p>\n<\/td>\n<\/tr>\n

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<\/use><\/svg><\/p>\n<\/td>\n\n

Euro Stoxx 50<\/strong><\/p>\n<\/td>\n

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4,828<\/p>\n<\/td>\n

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-0.3% (YTD: +6.8%)<\/p>\n<\/td>\n<\/tr>\n

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<\/use><\/svg><\/p>\n<\/td>\n\n

Brent crude<\/strong><\/p>\n<\/td>\n

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USD 72.94<\/p>\n<\/td>\n

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+1.9%<\/p>\n<\/td>\n<\/tr>\n

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<\/use><\/svg><\/p>\n<\/td>\n\n

Natural gas (Nymex)<\/strong><\/p>\n<\/td>\n

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USD 2.37<\/p>\n<\/td>\n

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+3.0%<\/p>\n<\/td>\n<\/tr>\n

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<\/use><\/svg><\/p>\n<\/td>\n\n

Gold<\/strong><\/p>\n<\/td>\n

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USD 2,608.90<\/p>\n<\/td>\n

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-0.1%<\/p>\n<\/td>\n<\/tr>\n

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<\/use><\/svg><\/p>\n<\/td>\n\n

BTC<\/strong><\/p>\n<\/td>\n

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USD 57,855.20<\/p>\n<\/td>\n

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-3.0% (YTD: +36.5%)<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n

THE CLOSING BELL-<\/strong><\/p>\n

The ADX rose 0.4% yesterday<\/strong> on turnover of AED 1.1 bn. The index is down 2.0% YTD.<\/p>\n

In the green: <\/strong>Hayah Ins. (+15%), Apex Investment (+10.6%) and Ghitha Holding (+3.7%).<\/p>\n

In the red: <\/strong>Aram Group (-9.8%), Foodco National Foodstuff (-9.3%) and Palms Sports (-7.1%). <\/p>\n

Over on the DFM<\/strong>, the index rose 0.3% on turnover of AED 330.3 mn. Meanwhile Nasdaq Dubai closed up 0.2%.<\/p>\n

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CORPORATE ACTIONS-<\/p>\n

#1- Taqa rebrands subsidiaries and merges distribution arms into one unit:<\/strong> The Abu Dhabi National Energy Company (Taqa) has merged its subsidiaries, Abu Dhabi Distribution Company (ADDC) and Al Ain Distribution Company (AADC), into a new entity named Taqa Distribution, according to an ADX disclosure<\/a>(pdf)<\/a>.<\/p>\n

Taqa is also rolling out new names for its fully owned subsidiaries:<\/strong><\/p>\n