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Sukuk issuance is set to rise 6 percent to around $130 billion this year, a fourth consecutive annual increase, Moody’s Investors Service said in a report.
The ratings agency forecasts a modest second half issuance at around $43 billion following a strong issuance in the first half of 2019, driven by Saudi Arabia and Malaysia.
"Increased activity in Saudi Arabia and Malaysia helped drive strong issuance of $87 billion in the first six months and this has reduced funding needs," said Nitish Bhojnagarwala, VP-Senior Credit Officer at Moody's.
According to the report, government and corporate entities in Malaysia and the GCC, particularly Saudi Arabia, are expected to continue issuing regularly in H2 2019.
A recovery in oil prices since mid-2017 has boosted revenues and reduced the gross financing requirements of the oil-exporting countries relative to 2016 and 2017, weighing on sovereign sukuk issuance.
“However, we expect borrowing requirements for the GCC sovereigns will likely be higher in 2019 when compared to 2018, due to our expectation of a lower average oil prices. Even so, we expect GCC sovereigns to continue diversifying their funding mix in favour of sukuk instruments in order to develop their Islamic debt markets,” the report said.
With Egypt setting up a Shariah supervisory committee in April 2019, to oversee sukuk issuance, Moody’s expects some African sovereigns to enter the market.
During H1 2019, total issuance of long-term sukuk, defined as those with maturity greater than 1 year, increased by 20 percent year-on-year, led by Turkey (380 percent), Indonesia (+22 percent), Malaysia (+21 percent) and Saudi Arabia (+16 percent). Overall, long term issuances accounted for 60 percent of the global supply of sukuk.
Volumes in Malaysia increased by 23 percent to $36 billion, making the country the world's leading issuer, with a 41 percent share of the total.
(Writing by Gerard Aoun, editing by Seban Scaria)
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