GCC sukuk’s best-kept secret: Dublin

• Dublin is world leader in global sukuk
• Irish capital beats London and Dubai
• Advantage from post-Brexit boost

For many people, the city of Guinness and James Joyce may not be the first place that comes to mind when thinking about Islamic bonds.

Yet, according to a report last month from Fitch Ratings, the Dublin stock exchange – Euronext Dublin – is now the world’s largest listing venue for hard currency global sukuk.

The Irish capital covered 38 percent of the global total of this kind of Islamic bond at the end of this year’s third quarter – outstripping its two main rivals, the London Stock Exchange (LSE) and Nasdaq Dubai.

“A large chunk of this comes from the Gulf Cooperation Council countries, too,” Bashar Al-Natoor, managing director and global head of Fitch Rating’s Islamic Finance Group, tells AGBI. “The GCC is the biggest domicile for issuers.”

Ireland also now has the largest overall public Islamic funds market in a Western jurisdiction and the third largest worldwide, with a 17.9 percent share.

This is just shy of the second largest, Saudi Arabia, which has an 18.5 percent share, while the world leader remains Malaysia, with 26 percent, according to Fitch. 

“This success didn’t just fall into our lap, either,” Maurizio Pastore, group head of debt and fund listing with Euronext, tells AGBI. “We built this from the ground up.”

Dublin’s achievement has been a long slog, with the exchange “nowhere in 2001-2002”, Pastore recalls. 

Since then, a combination of accommodatory regulations from Ireland’s financial authorities and efficient and transparent practices by Euronext have served to make Dublin a major star on the sukuk map.

As ever, too, England’s difficulty has been Ireland’s opportunity.

“With Brexit, many investors wondered whether they needed another European Union-based hub,” Al-Natoor says. “Ireland took advantage of this perception.”

Now, though, the exchange faces some stiff competition as the sukuk trade internationalises further, while also facing new global regulatory and market challenges. 

Regulations, regulations

Several dates have been central in Dublin’s success. 

The first is 2005, when the exchange became the first in Europe to implement a stable legal framework for asset-backed bonds. 

The 2008 financial crash then pushed a drive to diversify, sparking interest in a range of debt instruments and sukuk. 

Then, “we started reviewing and listing sukuks around 2010 and we developed a specific expertise for these structures”, says Pastore.

By 2017, Dublin had overtaken Luxembourg as an issuer. Then, in 2018, the Irish Revenue Commissioners produced a detailed guideline for tax treatment of sukuk, Islamic funds and other sharia-compliant products.

“This legal and tax framework created stability and a clear and level playing field,” says Pastore, “which is so important for international issuers and investors alike.”

This was also happening around the time the UK – and the LSE – was exiting the EU. 

With Ireland still an EU member, “Dublin was also an option where you could still have access to the wider EU market and its sources of investment,” Al-Natoor adds.

The country’s English language and use of English financial law also gave it familiarity to many Gulf-based investors.

Moving fast and building things

Yet, dates and regulations are only one side of the story.

A much longer campaign by Euronext Dublin to establish trust and credibility is the other.

“Whoever executes the listings faster, more transparently and more cost efficiently wins the business,” says Pastore. “This applies for sukuk as for a conventional bond. We have a track record of rapid market access with a knowledgeable team working to review the prospectus and the documentation. The issuance documentation is available on our website.”

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Shariah compliance is also handled by expert scholars from the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). According to Euronext, this approach provides certainty of compliance with Islamic principles.

Now, Euronext Dublin plans to expand its capacity still further, as sukuk widens and internationalises. 

Fitch predicts the global Islamic finance industry will pass $4 trillion in size by the end of 2024, with outstanding volumes of global sukuk at $900 billion – 8.5 percent up, year on year. 

“Corporates as well as sovereigns are going to the market to raise funds via sukuk nowadays,” says Pastore, “and not just those with a link to the UAE or Saudi Arabia.”

Standardisation

There are some potential bumps in the road ahead.

A major challenge is AAOIFI’s new Standard 62 regulation, which requires sukuk to move from being asset-based to asset-backed. 

“Currently asset-backed bonds or sukuk in core jurisdictions are very limited,” says Al-Natoor. 

While the timeline for the regulation’s implementation is not yet known, its adoption could alter sukuk credit profiles.

“They could be exposed to additional credit, market, legal, operational and liquidity risks,” says Al-Natoor.

New products, such as digital issuances, ESG and green sukuk, are also stretching exchanges to come up with the most accommodative models.

At the same time, competition for new listings is fierce.

“London is trying really hard to recover,” says Pastore, “while Nadsaq Dubai is also pushing hard.”

However, “Euronext has the competitive advantage of being the only pan-European platform,” adds Pastore.

With such a strong position already established, too, “in the medium term, we expect to see Ireland continue to be among the top three sukuk-listing destinations, worldwide”, says Al-Natoor.

Good news for the Irish capital.