According to this article, the potential for securitization of assets as per the Islamic model, despite recent setbacks, is very significant. This reinforces the arguments for Chris Cook’s LLP model for dealing with property development projects gone sour.
Heiko Hesse, Andreas Jobst and Juan A. Sole | Feb 13, 2009 @RGE Monitor
“After having nearly ground to a halt last year, the market for securitized debt remains moribund and pricing depressed as banks dispose of non-core assets and raise capital to de-lever and bolster their imploding balance sheets. The complexity of securitization structures, which once obscured actual loss exposures, perpetuated benign asset valuations, and incubated fallacious investor complacency, is now debilitating effective banking sector resolution in a time of systemic distress…”
“That being said, there is a silver lining on the horizon as the structural demand for sukuk persists. Since conventional securitization is virtually absent in Islamic countries, considerable demand for shari’ah-compliant investment assets, such as sukuk, provides an untapped market for structured finance as a means to advance capital market development. Islamic securitization also complements the battered ABS market as an alternative and more diversified funding option that broadens the pricing spectrum and asset supply. With more than US$2 trillion of credit demand projected to be unmet in the next three years as the conventional securitization market remains dysfunctional, the current market situation provides a window of opportunity for sukuk. Just last week, Emirates Islamic Bank (EIB) launched a US$100 million four-year close-ended callable shari’ah-compliant sukuk fund, which will hold a portfolio of sukuk issued by companies, based predominantly in the Middle East and North Africa. In spite of having been hemmed in by the credit crisis, the widespread economic downturn, and the recent slump in the real estate sector of the GCC, the sukuk market is expected to soon gain momentum again.”
After having nearly ground to a halt last year, the market for securitized debt remains moribund and pricing depressed as banks dispose of non-core assets and raise capital to de-lever and bolster their imploding balance sheets. The complexity of securitization structures, which once obscured actual loss exposures, perpetuated benign asset valuations, and incubated fallacious investor complacency, is now debilitating effective banking sector resolution in a time of systemic distress.
