KUALA LUMPUR, Aug 20 - Global sales of new Islamic bonds in 2008 will struggle to match last year's $16 billion due to the credit crisis, the world's top sukuk arranger said on Wednesday, contrary to views that the industry would shelter investors scarred by the credit crunch.
Islamic bonds have to be backed by assets and generally eschew the complex, opaque structures of its conventional peers which led to the subprime crisis.
Islamic law, or the sharia, also forbids speculative contracts, which some bankers say help shield investors from excessive risk.
But Badlisyah Abdul Ghani, chief executive of CIMB Islamic Bank, said the $1 trillion industry does not offer absolute protection from the credit woes afflicting conventional markets.
"The sukuk market is essentially a credit market, you can't run away from that. It is asset-based, therefore it gives a greater comfort level to the investors," Badlisyah told reporters after launching an Islamic fund.
"Notwitstanding that, it still goes back to the credit capacity and credit risk of the obligor. So when there is a credit crunch in the market, automatically there is an impact."
He said it would be "very difficult" for total new sukuk issues this year to reach the $16 billion mark logged in 2007, with some issuers expected to hold off until next year.
"This year I don't think we will surpass that mark," Badlisyah said. "If the market is difficult, it's not good for them to come now so they'll probably wait a little bit longer."
Several issuers such as Qatar's Doha Bank's
But some firms such as Dubai Electricity and Water Authority have recently tapped the Islamic market after earlier putting on hold their fund-raising plan.
In Southeast Asia, Singapore firm City Developments
Badlisyah said the infrastructure sector would remain the most active issuer of sukuk this year, with most sales likely to emerge from the Gulf and Malaysia.
Malaysia has the world's largest Islamic bond market. At the end of 2007, it accounted for about 60 percent of the global sukuk outstanding worth around $100 billion, the central bank has said.
About $10 billion of Islamic bonds have been issued globally this year, Badlisyah added.
CIMB Islamic is part of CIMB Group, which is listed on the Malaysian stock exchange through Bumiputra-Commerce Holdings