Strong Q1 2021 sukuk issuance attracts sovereigns in nascent markets

Despite robust issuance during Q1, there has so far been lower sukuk issuance from GCC sovereigns as their economies continue to recover from the Covid-19 fallout

  
Image used for illustrative purpose.

Image used for illustrative purpose.

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Sukuk issuance had a strong start to the year, with a total of $47.0 billion issued during Q1 2021, compared to $40.8 billion in Q1 2020, according to global data provider Refinitiv.

Issuance activity had slowed during the last quarter of 2020 due to a significant reduction in sukuk borrowing by Saudi Arabia, which has been a heavyweight among sukuk issuers since 2017.

Despite robust issuance during Q1, there has so far been lower sukuk issuance from GCC sovereigns as their economies continue to recover from the fallout of COVID-19 alongside an improvement in oil prices, prompting fiscal consolidation in the near term. GCC governments collectively issued $6.5 billion in sukuk in Q1 2021 compared to $10.2 billion during Q1 2020.

Meanwhile, the Indonesian government ramped up its issuance, raising a total of $10.2 billion to become the top sukuk issuer in Q1. Earlier this year, the Indonesian government announced that it will be increasing sukuk issuance to over $25 billion in sukuk in 2021 to fund its fiscal requirements.

The sukuk market also witnessed increased activity from sovereigns of non-core Islamic finance jurisdictions. The UK government returned to the market with a £500 million sukuk issuance, seven years after its debut issuance in 2014. Maldives issued its debut sovereign sukuk in the international sukuk market, raising $200 million. Domestic sovereign issuances have been announced by the South African, Tunisian and Algerian governments to be held later this year to cover budget deficits.

In March, Jeddah-based Islamic Development Bank (IsDB) issued the world’s largest sustainability and ESG sukuk to date. The five-year issuance raised $2.5 billion in international markets and positioned the bank as the largest issuer of sustainability sukuk, with a total of $5.2 billion. This sukuk was issued as part of IsDB's sustainable finance framework, launched in November 2019 to finance the development bank’s green or social projects.

COVID-19 has been a boon for sustainability investments as recovery from the economic fallout due to the pandemic continues to be the prime focus for governments and corporates. ESG sukuk issuance reached a record value of $4.6 billion in 2020, boosted by large sustainable issuances during the year that are expected to continue to drive ESG sukuk growth in 2021.

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

(Reporting by Jinan AlTaitoon; 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 2021

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