With much of its large-scale sovereign funding needs for infrastructural development already met by 2022, Qatar is now looking to broaden its domestic capital market and Shariah compliant investment base by issuing what would be its second-ever local currency Sukuk.
In this shift away from US dollar-denominated Sukuk, which has been the trend among GCC nations, Qatar is aiming to emulate the Malaysian example of also reducing currency exchange risks on these financial instruments, Al Rayan Investment Acting CEO Akber Khan told IFN Investor.
This domestic-focused capital market approach was made possible because Qatar had invested around US$350 billion since 2010 on this nation’s infrastructural requirements ahead of the 2022 FIFA World Cup tournament.
Akber said only US$10 billion was spent on stadiums while the rest went toward completing what Qatar had aimed to have ready by 2030 — finishing eight years ahead of schedule instead. This left a convenient window of lesser investor pressure to bolster growth of the local capital market.
Another reason for the local currency Sukuk issuance is to further increase access to local corporates and investors. Akber said the number of local corporates who can issue US$500 million is fewer compared with those which can issue QAR500 million (US$133.86 million). This amount is seen as the industry standard benchmark for a typical Sukuk issuance and once a few such issues are completed, Akber expects the doors to open to lower totals in Qatari riyals with a new asset class for investors via this broadening of the local capital market.
Being a government-controlled financial entity, Al Rayan Investment is aiming to issue the benchmark QAR500 million Sukuk around Q3 2024 and if successful, a second similar tranche by Q1 2025. There had been only a previous local currency Sukuk issuance by Qatar Islamic Bank and Akber said regulators had since made some adjustments after subscriptions to this previous Sukuk issue were hampered by overly strict legal restrictions.
Because of infrastructural spending completed ahead of 2030, Akber admitted there has been a slight dampening effect on Qatar equities. But medium-term prospects look bright with Qatar soon to invest heavily in expanding its liquefied natural gas (LNG)-related facilities. Being among the world’s top three largest exporters of LNG, along with Australia and the US, Qatar is raising its annual 77 million tons output with facilities expansion over three phases to 142 million tons by 2030.
The world’s largest ethylene cracker is being built in Qatar and among the facilities expansion will be an ammonia plant construction from next year. When completed, this project is expected to lead to a 50–60% increase in Qatar’s GDP from 2030.
With this potential ahead, Akber said medium-to-long-term investors may be returning soon to invest in relatively cheap Qatar equities because current valuations are at multi-year lows.
