The return of GCC country issuers to the market, high levels of liquidity in Indonesia, Turkey’s efforts to tap all available financing sources, and good performance in Malaysia boosted global sukuk issuance by 25.6 percent in 2019 compared with 2018.
Foreign currency issuance also increased by almost 20.8 percent during the year, explained primarily by activity in Turkey, and also issuance by Qatari banks and Malaysian corporates.
The S&P Global Ratings said yesterday it anticipates a total sukuk issuance of $160bn-$170bn this year, including $40bn-$45bn of foreign currency issuance. This represents about 5 percent growth on the $162bn seen in 2019.
“Abundant global liquidity and negative yields on more than $10 trillion of debt mean that issuers with a good credit story will find relatively easy entry to the sukuk market in 2020. Therefore, barring an abrupt turn of the economic cycle or a significant deterioration in the geopolitical environment, we think issuers from core Islamic finance markets (the GCC, Malaysia, Indonesia, and Turkey) will maintain good access to the sukuk market. We believe new fintech propositions in the Gulf are likely to open the market to small and midsize issuers”, the rating agency noted.
In addition, given the increasing commitment to the Principles of Responsible Investments, S&P believes that the green sukuk market will continue to expand, aided by opportunities related to energy mix diversification in the GCC/Malaysia and investor diversification.
In 2019, total sukuk issuance increased to $162bn, compared with $129bn in 2018. Sukuk issuances from Qatar, Malaysia and Indonesia supported the activity of the market.
Middle East, Turkey increased its volumes, with total sukuk issuance of $13.8bn in 2019, compared with $8.4bn in 2018. Turkish issuers have been under significant pressure in recent months given their major reliance on external debt and declining rollover ratios. This meant they actively tapped all available pockets of liquidity including the sukuk market.
In the GCC, Qatari issuers returned to the market through sovereign and bank issuances and Kuwait’s central bank continued to offer sukuk as liquidity management instruments for Kuwaiti banks.
In contrast, issuance volumes increased slightly in Bahrain and dropped in the United Arab Emirates (UAE). In Bahrain, the government had less need to tap capital markets because funds from the $10bn GCC support package began to be disbursed. For the UAE, there was a marginal drop explained by corporates front-loading their issuance programs in 2018 to prepare for less supportive market conditions.
Overall, the market structure by geography remained relatively stable and concentrated in a few core Islamic finance markets with limited involvement of noncore markets or new issuers. S&P believes that the green sukuk market will continue to expand. It expects green sukuk issuance to increase in 2020.
Source The Peninsula