Sukuk issuance costs still above conventional bonds in Asia

Costs of issuing Islamic bonds in Asia are still significantly higher than the costs of issuing conventional bonds, a study by the Asian Development Bank found. In Indonesia, profit rates for sukuk issued by the government are on average 86 basis points higher than comparable conventional government bonds. In Malaysia profit rates for sukuk are on average 8 bps higher. However, lack of familiarity with complex sukuk structures can translate into higher advisory fees for prospective issuers, while investors demand higher yields because of limited trading activity in secondary markets for sukuk. The average gap between issuance costs for sukuk and conventional bonds in the Gulf is believed to be very small or non-existent - and in some cases, it has even proved cheaper to issue sukuk.