Sukuk issuance picked up in Q3; on track to surpass 2019's record

The difficult economic environment due to the pandemic pushed the governments of core Islamic financial markets to ramp up sukuk issuance

  
Image used for illustrative purpose.

Image used for illustrative purpose.

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Total sukuk issuance during the first nine months of 2020 reached a total of $130.5 billion, compared to $127.3 billion for the same period in 2019, according to global data provider Refinitiv. 

Sukuk issuance remained flat during the first half of 2020 as volatility ensued across capital markets with the outbreak of COVID-19. However, the difficult economic environment due to the pandemic pushed the governments of core Islamic financial markets to ramp up sukuk issuance to fund economic recovery.

Growth in 2020 was driven by  issuances from the GCC states, which accounted for 41.3 percent of global sukuk issued so far in 2020 up from a 32.2 percent share for the same period last year. Meanwhile, Malaysia’s share of issuance reduced from 41.9 percent to 36.6 percent in 2020.

Low oil prices and the disruption from COVID-19 lockdowns have substantially widened GCC governments’ fiscal deficits, increasing their combined financing requirements to $180 billion for 2020, according to estimates by S&P Global Ratings. GCC sovereigns raised $83.2 billion in debt markets by the end of Q3 (YTD), including sukuk to the tune of $36.8 billion which made up 44 percent of total issuance.

The Saudi government has significantly ramped up its sukuk issuance, raising $22.4 billion so far this year compared to $15.2 billion in 2019. The kingdom is the top sukuk issuer so far this year, overtaking the Malaysian sovereign for the first time. Since the introduction of the sovereign domestic sukuk program in 2017, the Saudi sukuk market has undergone significant development.

Saudi Arabia has recently caught onto the sustainable debt movement in efforts to further diversify its economy away from the oil sector. In Q3 2020, majority government-owned Saudi Electricity Company came to the market with the first green sukuk – and bond – from a Saudi issuer. The $1.3 billion green sukuk attracted over $4.8 billion in bids from international markets.

In November 2019, Saudi-based Islamic Development Bank (IsDB) issued €1 billion in green sukuk, and earlier that year Majid Al Futtaim, a UAE-based developer and shopping mall operator, was the first corporate in the GCC to issue a green sukuk, worth 2.2 billion dirhams ($600 million) on Nasdaq Dubai, making it the world’s first financial instrument of its kind to focus on sustainability-focused investments.

For more insights and analysis on the sukuk market size and trends, please visit Refinitiv Workspace/Eikon app, Sukuk Now.

(Reporting by Jinan Al Taitoon; editing by Seban Scaria)

(Jinan.AlTaitoon@refinitiv.com)

Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.

© ZAWYA 2020

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