GCC countries will lead a rally in sukuk issuance in the
second half of 2020, with low oil prices and a consequent surge in deficits
triggering strong financing demand among sovereign issuers, Moody's Investors
Service said.
However, after four years of rapid growth, overall global
sukuk issuance is set to fall five per cent this year to about $170 billion in
the aftermath of the coronavirus pandemic, it added.
"The decline will be partly limited by the financing
needs of the GCC countries because of lower oil prices and the pandemic,"
said Nitish Bhojnagarwala, vice-president and senior credit officer at Moody's.
"We expect issuance will rally in the second half of the year to around
$90 billion, led by sovereigns in the Gulf."
Despite the decline, 2020 will still see the second
highest sukuk issuance total ever, following a 36 per cent increase in 2019.
Total issuance in the first six months of 2020 dropped to $77 billion, down 12
per cent from the same period last year, as activity in Malaysia and Indonesia
flagged. Issuance in southeast Asia dropped by 25 per cent, while volumes in
the Middle East rose seven per cent.
Moody's said in the second-half, volumes are likely to
rebound as governments raise money to finance their responses to the
coronavirus crisis.
"Persistently low oil prices could also increase
deficits and financing needs among oil-exporting issuers, primarily in Gulf
countries. We expect some African sovereigns and corporates to enter the
market, following the lead of Egypt and Nigeria earlier this year. Though the
green sukuk market is in its infancy, issuance is likely to accelerate as efforts
to combat climate change gain traction," said the report.
According to S&P Global Ratings, the volume of the
global issuance of sukuk nose-dived 32 per cent in the first quarter of this
year against the first quarter of 2019, and a further decline is expected in
the second quarter of 2020 as several countries implement measures to control
the spread of Covid-19.
The sukuk market is expected to recover in the third
quarter of 2020 but the analysts at the S&P Global are of the view that the
volumes of sukuk issuance in the second half of 2020 won't be sufficient to
compensate for the decline in the first half.
S&P Global Ratings said most government issuers of
sukuk are likely to turn to conventional bond markets as they grapple with the
impact of weaker economic environments and tight budgets while financing
conditions are likely to be extremely difficult for issuers with weak credit
quality.
International Islamic Financial Market has said that the
steady rise in issuance volume during 2019 was mainly due to sovereign sukuk
issuances from Asia, the GCC, Africa and certain other jurisdictions while
Malaysia continues to dominate the sukuk market though share of countries like
Indonesia, the UAE, Saudi Arabia and Turkey increased with good volume.
Abu Dhabi's Aldar Properties, Saudi Arabia's Almarai
Company and Dubai's DP World, Emaar Properties and Dubai Islamic Bank issued
sukuk to raise funds last year. Aldar issued a $500 million sukuk to refinance
its debt while DP World issued a $1 billion sukuk.