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The Finance Ministry raised Rp 14.9 trillion ($1.5 billion) from the sale of rupiah-denominated Islamic bonds to Indonesian citizens on Monday. The sale of the Shariah-compliant sukuk notes is intended to plug its budget deficit but also to spur growth in the Islamic finance sector in the country. The sukuk is called Sukuk Retail Indonesia (Sukri) and was sold to retail investors. Indonesia also plans to sell dollar-denominated sukuk and conventional bonds this year.

A new type of sukuk, introduced by Gatehouse Bank, could make inroads in the market by offering greater security to investors through a structure similar to conventional covered bonds. The Gatehouse sukuk incorporates a purchase undertaking by the bank that gives primary security to noteholders, while in case of default they have secondary security on the property. It is based on an ijara (lease) contract which is commonly used in Islamic finance. Moreover, by adding the second layer of security, the Gatehouse sukuk effectively became asset-backed and not only asset-based. The Gatehouse sukuk pays a 3 percent annual distribution and offers quarterly redemption options.

RAM Ratings has received confirmation from the facility agent that Al-‘Aqar Capital fully redeemed all the outstanding Class A Islamic Medium-Term Notes (IMTN), Class B IMTN, Class C IMTN and Islamic Commercial Papers (ICP) under its MYR 300 million Sukuk Ijarah Programme (2008/2013). RAM has withdrawn the respective AAA, AA2, AAA(bg) and P1 ratings of Al-‘Aqar Capital’s Class A IMTN, Class B IMTN, Class C IMTN and ICP, and no longer has any rating obligation on the debt facility.

According to a report from Standard and Poor’s, an increasing number of African countries are considering issuing sukuk to fund their huge infrastructure needs and to diversify their investor base. South Africa, Nigeria, Senegal, and Mauritania have all announced in recent years their intention to issue sukuk bonds. Moreover, following the Arab spring and the rising influence of Islamist parties in some countries, the development of Islamic finance has gained importance for their governments, for example in Egypt and Tunisia. Standard & Poor’s believes that sukuk issued by African sovereigns could address an investor base in the GCC or at the Islamic Development Bank.

The Cabinet, under Prime Minister Hisham Qandil, stressed that the now-debated Sukuk is not an alternative to the other financing tools. The final blueprint of the Sukuk bill will be presented to the Cabinet next Wednesday 27/2/2013 after taking into consideration all remarks made by al-Azhar, the Central Bank of Egypt and investment associations. If approved, it will be referred to the Shura Council for endorsement on the same day. On the other hand, The Cabinet reviewed the security situation and urged protesters in Tahrir Square to allow the flow of traffic for the sake of citizens.

Qatar-based Barwa Bank arranged $863mn of notes in 2012, and is therefore the eighth-biggest underwriter out of 25 for GCC sukuk. Barwa Bank chief executive officer Steve Troop said that there was a space for an institutional Islamic bank to focus on sukuk. Barwa Bank which started operations in the third quarter of 2009 will wait until releasing first-half results before pursuing a credit rating. Moreover, it is preparing to sell shares in an initial public offering and is being advised by QInvest.

The new Egyptian Sukuk law will be approved on Wednesday by the cabinet before being referred to the Shura Council on the same day. It is fully Sharia-compliant, and it will have a special Sharia committee to oversee its implementation, said Ahmed El-Najjar, member of the economic committee at the Freedom and Justice Party (FJP) and advisor to the minister of finance. The sukuk revenues will be used to bridge the budget deficit gap in an indirect way. However, they will not be used as an alternative to regular debt instruments, but will, rather, function more within a complimentary capacity.

Thomson Reuters will be discussing Oman's leading position as a preferred investment destination for Sukuk during an upcoming forum set to take place on February 24, 2013. It will be investigated what needs to be done to facilitate the country's entry to global Islamic financial markets by Thomson Reuters with support from the General Council for Islamic Banks and Financial Institutions (CIBAFI) and Islamic Research and Training Institute (IRTI). Thought leaders, bankers, and Shariah scholars will discuss the opportunities of setting up Islamic financial markets operations in Oman, how to capitalize on the global Islamic financial markets interest, and explore prospects to develop a strong Islamic interbank and fixed income market.

According to a recent report by Kuwait Finance House (KFH), the Sukuk market is expected to grow by around 30 percent this year, and Sukuk issuance will grow by 20-30 percent. The Islamic capital market now stands aflush with more than US 230 billion in outstanding sukuk papers. Within the corporate sukuk market, USD 26.8 billion worth of papers or 73.5 percent of total issuances were issued in Malaysia, while US 4.2 billion (11.5 percent) was issued in the UAE and USD 3.4 billion (9.3 percent) was issued in Saudi Arabia, the report concluded.

Qatar-based Barwa Bank has become one of the top 10 underwriters of Arabian Gulf Islamic bonds within three years of opening and plans to seek a credit rating in the second half before a possible sukuk sale. The bank arranged US$863 million of notes in 2012, and is considering its own issuance of sukuk. In addition to sovereign clients, Barwa helped Dubai-based Emaar Properties and Abu Dhabi Islamic Bank sell Islamic notes in 2012. The lender had assets of 21.5bn Qatari riyals at the end of June.

The sukuk, which comes amid a period of high demand and a flurry of bond sales in the region, is to be launched by the end of April in the name of Dubai Investments Park, a major real estate development Dubai Investments owns on Dubai's outskirts.

The development of the sukuk market is sending mixed signals. On the one hand, issuance of sukuk in the last year has attracted not just Islamic but conventional investors by the yield, diversification and risk profile. Many deals were innovative, enjoyed popularity and performed well in the aftermarket. On the other hand, the market remained utterly dominated by domestic transactions, and there are still mixed reports about liquidity, both in domestic and cross-border markets. Although sukuks still don’t trade with anything like the volume common in conventional markets, a record year for global sukuk issuance is expected.

Strong investor demand and a need to improve capital adequacy ratios are causing Turkey's Islamic banks to consider issuing subordinated sukuk. Ibrahim Oguducu, head of the financial institutions business at Bank Asya, said longer-tenor subordinated sukuk would help balance mismatches between the maturities of banks' liabilities and assets, while diversifying their funding sources. Subordinated issues might not be expensive for Turkey's Islamic banks that have issued only two sukuk so far.

Indonesia's Finance Ministry is targeting Rp 15 trillion ($1.55 billion) from issuing rupiah-denominated sukuk to its citizens as part of the country’s effort to plug the budget deficit. Dahlan Siamat, director of Islamic financing at the Finance Ministry’s debt management office, said that the sukuk would use government infrastructure projects such as toll roads and bridges as the underlying assets. The government set the annual coupon rate of the rupiah sukuk at 6.0 percent with a tenor of three years.

The economic committee of the Shura Council prepared a draft law for sukuk, which differs from the Ministry of Finance’s current project regarding sukuk. According to Saeed Aref, a member of the council’s economic committee, the draft law grants foreigners the right to invest in sukuk usufruct for a maximum duration of 40 years, saying there will be no maximum percentage of ownership. Al-Azhar will be consulted to see the compatibility of the law with Sharia before the end of dialogue sessions, he added.

The government of Pakistan raised Rs182 billion through a Sukuk against the security of Jinnah International Airport Karachi for budget financing. The Sukuk operations were launched through the Pakistan Domestic Sukuk Company Limited. However, analysts question the use of Islamic bonds for budget financing and linking the return with treasury bills, saying it is forbidden and against Shariah laws. In the last fiscal year, the government borrowed a total Rs412 billion through Sukuk, enabling it to meet 23.2% of financing needs.

According to HSBC, global Islamic bond sales are set to surpass sales from 2012 by 64%. Mohammed Dawood, Dubai-based MD of debt capital markets at HSBC Amanah, says that sales in the six-nation GCC will surge to between $30bn and $35bn this year. The Dubai government kicked off sovereign sukuk sales last month with $750m of 10-year Islamic notes after its borrowing costs fell 40%. Standard and Poor’s estimates show that Islamic financial assets will double by 2015 to $3-trillion.

Bahrain-based Arcapita Bank is planning to liquidate its assets, and will not seek out new investors or investments, according to its reorganisation plan. Creditors will be given equity in two new companies that hold all the assets of Arcapita and several related companies. The proposal also envisions a new $550 million sukuk to be issued to the unsecured creditors. The reorganisation plan will be submitted to creditors for a vote and to the US court for confirmation.

Egypt’s Islamist government is making preparations for the country’s first sovereign sukuk after the cabinet of ministers approved the new draft sukuk bill on January 16. The new finance minister, El-Morsi Hegazy, reportedly plans the law might ultimately raise an additional $10 billion for the sovereign. Investors, however, do not yet sound convinced, since there might be another revolution to come. Nevertheless, Egypt has considerable potential as an Islamic finance market.

London-based private bank Coutts warns of the possible bursting of the bubble in emerging market debts and recommends a switch towards equities and other assets less vulnerable to a sharp withdrawal of investment. According to Gary Dugan, the bank's chief investment officer for Asia and the Middle East, investors should beware in the Middle East of a significant sell-off in sukuk. In recent weeks, financial firms including Fitch Ratings and Goldman Sachs have joined a debate over whether a "bubble" is brewing in fixed-income markets.