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04 March 2020

Formosa Sukuk could help GCC issuers diversify their funding

The Formosa bond market is nearly entirely dollar-denominated, making it a good fit for GCC issuers given that Arabian Gulf countries’ currencies are pegged to the dollar

The Formosa bond market had close to $175 billion of outstanding debt in February 2020/iStock

by Kudakwashe Muzoriwa

Fitch Ratings said that the expansion of Taiwan's Formosa bond market to include Sukuk instruments could help GCC issuers, including Islamic banks, to diversify their funding and widen their investor pool without increasing currency risk.

The Taiwanese initiative could also boost Sukuk's recognition among global investors, which could help to tighten the pricing of Sukuk relative to bonds.

Fitch stated that the ability of GCC issuers to tap the Formosa market for Sukuk is expected to boost the overall global Sukuk market, although it will take time for investor appetite to develop and issuance is restricted to investment-grade issuers.

The Formosa bond market had close to $175 billion of outstanding debt in February 2020, compared with total GCC local-currency Sukuk of around $100 billion, and a total global Sukuk market of nearly $500 billion.

The Formosa Sukuk market was launched in 2019 after Taiwan's regulators announced guidelines allowing foreign borrowers to issue Sukuk denominated in currencies other than the New Taiwan dollar. ‘

These instruments can be sold to local insurers, banks and professional investors, as well as internationally.



RELATED STORIES: GCC Formosa Sukuk Taiwan




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