Kuwait – Mubasher: The new rules issued by Kuwait’s Capital Market Authority (CMA) could reinvigorate the country's stalled sukuk market and open the door for issuance by corporations in 2016, Fitch Ratings said on Tuesday.
But it is uncertain how the rules will be received by issuers and investors and how effective the implementation will be, it noted.
According to Fitch, the lack of a specialised legal framework for sukuk has been a key factor in the limited issuance in Kuwait over the past few years and the new rules could therefore be a significant step. They provide a broad framework, setting out general terms and structure of sukuk, requirements for appointing trustees and setting up special purpose vehicles as well as rules on governance and ensuring sharia compliance.
There are requirements for a credit rating for public issuance and the need for approval by the CMA and the Central Bank of Kuwait. The rules also cover perpetual sukuk issuances and update Kuwait's regime for traditional bond issuance.
The recent decline in oil prices has pushed a few of the Gulf Cooperation Council member states to issue or consider domestic issuance of sovereign debt in 2015. Much of this debt is likely to be long term and would be bought by the country's banks. This could consume some of the liquidity that has helped to make bank lending the primary source of funding for Kuwaiti corporates.
A recent memorandum of understanding between the CMA and the Dubai Financial Services Authority (DFSA) is a step towards allowing Kuwaiti financial institutions into the Dubai International Financial Centre, which is emerging as an international hub for sukuk listing. This could eventually broaden the potential investor base for Kuwaiti sukuk by enabling them to be listed in Dubai, according to Fitch.
Kuwait seeks to tap the credit market, whether via sukuk or bonds, to plug the expected budget deficit in the fiscal year 2015/2016, which is estimated at KWD 8 billion ($26.3 billion) as oil prices fell to below the $45 per barrel level.
