International sukuk issuance from major Islamic finance markets is almost unchanged in the first nine months of 2019 compared with the same period last year, Fitch Ratings says.
Still, the firm expects full-year volumes to be highly influenced by the funding needs and strategies of large individual borrowers which may come to the market before year-end, as well as by geopolitical developments that could have a positive or negative effect on investor appetite.
Fitch said sukuk issuance with a maturity of more than 18 months from the Gulf Cooperation Council (GCC) region, Malaysia, Indonesia, Turkey and Pakistan totalled US$30.6 billion during the nine months in compared with US$31.0 billion a year ago.
“This supports our view that volumes normalised rather than declined last year after hitting record levels in 2017. Sukuk issuance in the nine months of 2019 was close to the US$29.3 billion average for the same period in 2012-2016,” it said in a statement today.
GCC issuers continued to access the sukuk market to diversify their funding mix and develop the Islamic debt markets in the region.
Substantial international US dollar-denominated issuance in 2019 included deals from Turkey, Indonesia, Islamic Development Bank Trust Services Ltd and First Abu Dhabi Bank, raising a total of US$6.5 billion. The figures did not capture the recent growth in domestic local-currency issuance, such as Saudi Arabia’s riyal-denominated local issuance programme.
Fitch said GCC debt markets were still relatively developing, and individual sovereign funding decisions can profoundly affect total supply.
For example, the Saudi Debt Management Office said earlier this year that it planned a new benchmark international Islamic bond issuance as part of its plans to diversify the financing of its national budget deficit, which could boost the 2019 total if executed before year-end.
Beyond the GCC, Malaysia remained the key source of sukuk supply in 2019. Fitch said increased volumes have been driven by Bank Negara Malaysia providing more short-term Islamic Treasury Bills to aid liquidity management at Islamic financial institutions, and also by a surge in local-currency corporate issuance.
Notable corporate deals included energy service firm Serba Dinamik Holdings Bhd’s US$300 million sukuk, rated ‘BB-‘ by Fitch – the first dollar high-yield sukuk offering in the Asia Pacific region.
“The Malaysian market shows how, as the sharia-compliant investor base grows, the cost of sukuk issuance can become more competitive relative to conventional bonds, although this is not yet the case elsewhere,” the firm said.
Fitch thinks new issuance volumes in the coming years would also be supported by refinancing activity. Nearly two-thirds of the US$99.4 billion of outstanding Fitch-rated sukuk at end-June this year mature in less than five years.
Macroeconomic and geopolitical conditions will also affect sukuk issuance.
Lower oil prices, which Fitch forecast to average US$65 per barrel this year and US$62.5 per barrel next year, down from US$71.6 per barrel in 2018, tend to increase borrowing by oil-exporting sovereigns.
Source New Straits Times