To list or not to list?
The great majority of Sukuk issuers have traditionally opted not to list their securities on an exchange. For a variety of reasons, they have not felt it necessary or even desirable. There are clear signs, however, that the appeal of a listing is growing, as the sector matures, new actors become involved, and attitudes change.
In 2012 and 2013 only about 6% by value of newly issued Sukuk were listed, and in previous years the figures were similar. One of the main explanations for this is that many issuers have had little difficulty in selling their securities to a small number of investors who knew them well, and whose interest was clear from an early stage. In such circumstances, some issuers have not felt that a listing would necessarily add significant value. This attitude is understandable, and perfectly normal in a market that is in its relative infancy and involves a limited pool of participants.
Advantages of listing
As the sector expands however, a wider range of issuers and investors are becoming involved. The advantages of regulation, transparency and high visibility become clearer in a larger market place where participants expect capital market norms to apply. It is no coincidence that three of the most high profile issuers of 2014 - the governments of Britain, Hong Kong and South Africa - chose to list their Sukuk. All three were stepping into the market for the first time and offering their securities to a wide range of international investors. And it is not just new entrants who see the value of a listing. Many established Islamic issuers, such as Dar Al Arkan of Saudi Arabia and the Islamic Development Bank, have also listed Sukuk this year.
The advantages of listing include:
Affirming the quality of the issuer: The new sovereign entrants to the market and many other issuers, whatever their stature, understand that listing on a high quality exchange provides comfort to everyone involved. Mandatory disclosures of company announcements, from financial results to changes in the Board of Directors, keep investors up to date with key information. An effective enforcement structure, provided by a respected regulator, supports proper conduct and efficient management by an issuer. This framework creates broad trust among the public for all business transactions carried out by the issuer.
Raising profile in new markets: Issuers benefit from the global visibility that a listing on a world class exchange provides. This enables them to attract more investors in their Sukuk in the primary and secondary market, especially because many fund managers and other institutional investors are required by mandate to select listed securities for a certain percentage of their holdings. A listing also supports the expansion of an issuer’s general business activities into new geographic areas and new markets, by raising the profile of the brand.
Efficiency of listing process: Many issuerswrongly believe thatlisting is an arduous process. In fact the documentation process on a well run exchange is efficient and streamlined, and can be carried out swiftly to fit in with the preferred issuance date. Post-listing, it can be convenient to use an exchange’s infrastructure to make announcements to investors, many of which even a non-listed issuer would make anyway as part of their investor relations outreach.
I believe that the proportion of Sukuk that are listed will rise substantially in coming years. A presence on an exchange will not be appropriate for all Sukuk, of course; some are too short-term, while in other cases an issuance by a small company to a limited group of investors might still not justify the limited time spent on the listing process and associated fees. But for the others, a listing looks increasingly sensible. It will be particularly desirable if, as many industry participants expect, the supply of Sukuk starts to catch up with demand. Issuers for the most part have found plenty of interest in their securities in recent years, but in a more competitive environment a listed instrument will have a distinct advantage over an unlisted one in the eyes of discerning investors.
As Sukuk listings become more common, exchanges will work harder to attract them. Three listing centres currently dominate the scene, by total Sukuk nominal value – Dubai, London and Kuala Lumpur, each with more than 20 billion dollars of listings. Dublin and Riyadh are also prominent. Issuers and investors will no doubt push all the exchanges to streamline their listing procedures and offer enhanced service to the market. The competition can only be good for the industry.
Overall, I believe that listing a Sukuk provides significant visibility and opens doors into new markets. It is an advantage that is not to be missed. Sukuk issuances should be viewed as part of an issuer’s business plan, not merely financial plan, aiding the broad success of the entity as well as meeting its capital-raising needs.
About the author
Chief Executive Officer, Nasdaq Dubai
Mr Ali was appointed Chief Executive Officer in July 2013, after serving as Acting Chief Executive Officer since August 2012. He previously served as Executive Director of Nasdaq Dubai from 2006 to 2008. His experience includes serving as Chief Operating Officer of DIFC Authority and most recently as Executive Director at the Dubai Knowledge & Human Development Authority.
Mr Ali played a key role in the development of the Dubai Strategic Plan 2015 and participated in number of strategy development exercises. These included Nasdaq Dubai’s strategy in 2006 where he had the role of overseeing the implementation of the Market of Markets strategy expanding the exchange’s activities beyond the equity and debt markets into derivatives and other sectors.
Mr Ali holds an Executive MBA from London Business School, a B.Sc. in Applied Computing from Leeds Metropolitan University, and a Master Certificate in Project Management.