Global sukuk issuance will decline for the third consecutive year to between $150 billion and $160 billion in 2023, from $178 billion last year, as key GCC sovereign issuers are witnessing stronger fiscal positions, according to a new report by Moody’s Investors Service.
The decline will be driven by lower volumes from key sovereign issuers in the Gulf Cooperation Council (GCC) and Southeast Asia, directly stemming from ongoing improving fiscal positions.
“In the GCC and Southeast Asia, robust commodity prices associated with sustained economic growth have translated into stronger fiscal positions and lower issuance needs,” the report said.
In the first half of 2023, sukuk issuance declined 28% year-on-year (YoY) to $66 billion, reflecting muted activity in Saudi Arabia, Indonesia and Turkey amid robust commodity prices, said Ashraf Madani, VP-Senior Credit Officer at Moody’s Investors Service.
Increased volumes from financial institutions and corporates, driven by first-time issuers, refinancings of near-term maturities and delayed issuances finally coming to market, was not enough to compensate for the decline, he added.
“We expect issuance of $80- $90 billion in the second half of the year, supported by a partial rebound in Southeast Asia and Turkey, as well as sustained strong volumes from corporates and financial institutions,” Madani stated.
Overall, Moody’s remains positive on the long-term prospects for sukuk, as it represents an excellent alternative to conventional financing and is highly compatible with environmental, social and governance (ESG) principles.
They even offer privileged access to the Gulf region, where significant financial reserves and solid economic prospects are attracting investors in increasing numbers.
“Demand for sukuk regularly exceeds the offer, explaining the attractive pricing some issuers achieve despite unfavourable financing conditions. As debt markets in core Islamic countries become more mature and economies continue to develop, we expect growth prospects for the sukuk market will remain solid,” Madani stated.
(Editing by Seban Scaria email@example.com)