Sukuk issuances beat 2019 record, fueled by COVID-19 crisis

Sukuk issuances slowed significantly during Q4, with lower sovereign issuance in the GCC, particularly in Saudi Arabia

Image used for illustrative purpose.

Image used for illustrative purpose.

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Total sukuk issuances worldwide set a new record during 2020, reaching a total of $172.1 billion, compared to $169.1 billion issued in 2019, according to global data provider Refinitiv.

Sukuk issuances saw strong momentum during the first nine months of 2020 as COVID-19 lockdown measures and a crash in oil prices prompted a ramp-up in sovereign issuance in key sukuk markets. This was to finance sweeping stimulus packages aimed at alleviating the economic impact of the pandemic.

However, issuance slowed significantly during Q4 as GCC governments, and particularly Saudi Arabia, reduced their borrowing, the Islamic Finance Research Division at Refinitiv said. Excess borrowing in previous quarters and fiscal measures taken to narrow deficits reduced the need of GCC sovereigns to tap capital markets during the last quarter of 2020, it said. 

The economic ramifications of COVID-19 resulted in wider fiscal deficit and, in turn, higher combined financing requirements of $180 billion in 2020. GCC governments had collectively issued $105.7 billion in debt, of which $41.2 came from sovereign sukuk – a new record for GCC sovereign sukuk issuance.

Sukuk issuance from Saudi Arabia totaled $22.7 billion in 2020, increasing 25 percent from 2019. By the end of Q3 2020, the Saudi government showed promise of overtaking the Malaysian government as the top sukuk issuer for the year. However, the Saudi government wrapped up its domestic borrowing by the end of Q3 2020, securing an excess of SAR 2.6 billion to cover financing needs till the end of the year.

Sukuk issuances are expected to pick up further momentum during 2021, with an eye on some active and first-time issuers tapping the sukuk market. According to the Islamic Finance Research Division at Refinitiv, the recent reconciliation and ending of the blockade on Qatar have reopened the country’s access to its major sukuk investor base – GCC-based Islamic financial institutions – prompting sukuk issuances from Qatar-based entities. Issuance from Qatar nearly halved to $2.4 billion in 2020 from $5.1 billion in 2019.

The Egyptian government’s debut sukuk is in the horizon after Egypt’ cabinet approved the Sovereign Sukuk Act in November2020.The country’s Financial Regulatory Authority (FRA) revealed its plan to issue two sovereign sukuk offerings in early 2021. Egypt had witnessed both its first and second sukuk issuances by Talaat Moustafa Group (EGP 2 billion) and Sarwa Capital (EGP 2.5 billion), with $635 million in expected further issuances in 2021.

The Indonesian government announced plans to increase its sukuk issuance to over $25 billion in sukuk in 2021, accounting for 30 percent of its total sovereign debt issuance. The issuance will include a global Wakala sukuk, during the first half of the year, worth at least $2.5 billion, as well as semi-monthly domestic sukuk. The Indonesian governments also plans to continue tapping the retail sukuk market with two retail sukuk, a savings sukuk and a cash waqf-linked sukuk. 

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

(Reporting by Jinan AlTaitoon and Abdulaziz Goni editing by Seban Scaria) 

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© ZAWYA 2021

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