Sukuk issuance will be flat this year says Moodys report

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MANAMA: Sukuk issuance will be flat or slightly lower this year, as higher oil prices have reduced sovereign funding needs in GCC countries, according to a report by Moody’s Investors Service.

“Sukuk issuance will be flat or slightly lower this year, as higher oil prices have reduced sovereign funding needs in GCC countries,” says Ashraf Madani, a vice-president and senior analyst at the ratings agency and the author of the report.

“We expect total gross short- and long-term sukuk issuance in 2021 to reach between $190 billion and $200bn after a record $205bn in 2020.”

The year started strongly with some $102bn in sukuk issued in the six months to June 2021, up 3 per cent from $99bn in the same period of 2020.

Reduced issuance from GCC governments (down 19pc) was partly offset by stronger activity in the corporate sector, while issuance rose significantly (up 22pc) in Southeast Asia.

Improved market conditions led to a strong rebound in corporate issuance but sovereigns remained the largest issuers by value.

Mr Madani expects issuance of up to $100bn in the second half of the year, bolstered by continued economic recovery, improved liquidity in debt markets and strong investor demand, as well as increased sovereign activity in Malaysia and Indonesia where funding needs remain high.

However, sovereign issuance from GCC countries will be lower than in the same period last year due to smaller fiscal deficits on account of higher oil prices.

Nevertheless, the agency expects the sukuk market to maintain its long-term growth trend, backed by new entrants, low penetration and innovative products.

Green sukuk issuance will also accelerate as governments promote sustainable policy agendas and as demand for sustainable investments encourages new issuers to consider green sukuk as an alternative financing tool.

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