Sukuk issuance will drop in 2021 as finances of Gulf countries improve

Sukuk volumes in the GCC declined by 19% in H1-21

  
Image used for illustrative purpose.

Image used for illustrative purpose.

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After five consecutive years of growth, global sukuk issuances will be flat or slightly lower this year as higher crude prices have reduced oil-rich Gulf governments' funding needs, Moody's said on Tuesday.

The decline comes despite issuances rising in the first half of the year by 3 percent to $102 billion, driven by sales from Malaysia and Indonesia.

Issuance volume declined 19 percent in the Gulf Cooperation Council (GCC), while they rose 22 percent in Southeast Asia, Moody’s Investors Services said.

"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 VP-Senior Analyst at Moody's and the author of the report.

"We expect total gross short- and long-term sukuk issuance in 2021 to reach between $190 billion and $200 billion after a record $205 billion in 2020," he added.

The Gulf oil producers have seen their finances improve on the back of a recovery in crude oil prices. Brent is now trading at around $72, up from lows reached last year when the COVID pandemic-induced lockdowns reduced demand.

In addition, economic activity in non-oil sectors in the GCC has also begun to recover on the back of widespread vaccinations and the opening up of travel.

According to Moody’s, improved market conditions led to a strong rebound in corporate issuance but sovereigns remained the largest issuers by value.

Green sukuk issuance will also increase as governments promote sustainable policy agendas and as demand for sustainable investments encourages new issuers to consider green sukuk as an alternative financing tool, Moody’s said.

(Writing by Brinda Darasha; editing by Daniel Luiz)

brinda.darasha@refinitiv.com

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