Qatar sukuk issuance was supported in the first half of the year by a $1.3bn issuance by the government, Moody's said in a report Monday.
GCC sukuk issuance fell 33% to $29.8bn in the first half of 2023 compared with the year-earlier period, mostly reflecting a steep decline in Saudi Arabian sovereign volumes, Moody’s Investor Service noted.
Despite the decline, however, the kingdom remained the leading contributor to GCC issuance activity in the first half of the year, with around 50% of total volume, it said.
Oman was the only GCC country not to register any issuance activity during the period.
Supportive hydrocarbon prices continued to strengthen the fiscal balances of hydrocarbon- exporting GCC sovereigns and will translate into budget surpluses this year, considerably reducing the need to issue sukuk.
Unfavourable financing conditions and increased market volatility also reduced opportunities for sovereign actors to refinance debt or to prefinance expected borrowing needs.
Long-term issuance by GCC corporate and financial institutions during the period followed an opposite trajectory to regional sovereign issuance, Moody’s said.
Long-term volumes from corporates and banks rose threefold to a combined $12.6bn (H1 2022: $2.9bn), partly offsetting the decline in sovereign volumes.
Sustained economic growth and diversification agendas in GCC countries gave rise to increased issuance activity to support balance sheet growth.
On the corporate side, cross-border issuance made up the bulk of activity, with $7.4bn issued in the GCC, almost three times the volume for 2022 as a whole.
High demand for sukuk instruments and current scarcity in the market offered opportunities for private-sector actors to issue, Moody’s said.
Globally, sukuk issuance fell 28% to $66bn in the first half of 2023 from $92bn a year earlier, largely reflecting lower volumes from major sovereign issuers, most notably Saudi Arabia.
Moody’s expects global sukuk issuance to decline for a third consecutive year in 2023 after peaking at $205bn in 2020.
“We anticipate issuance of between $150bn and $160bn for the year as a whole, down from $178bn in 2022. Lower volumes from key sovereign issuers directly stemming from ongoing improving fiscal positions explain most of the decline we anticipate for this year.
“In the GCC, as well as Southeast Asia, robust commodity prices associated with sustained economic growth have translated into stronger fiscal positions and lower issuance needs,” Moody’s said.
Lower sovereign volumes contrast with stronger activity on the part of private-sector issuers, which returned to the market in the first half of the year despite unfavourable market conditions.
A significant increase in private-sector volumes was driven by companies completing postponed issuances or seeking to refinance upcoming maturities, as well as first-time issuers looking to diversify their funding sources.
Increasing appetite for sustainable instruments, encouraged by GCC governments ahead of the COP28 summit, also pushed several corporates and financial institutions to issue green sukuk.
“Overall, we remain positive on the long-term prospects for sukuk. These instruments offer access to the Gulf region, where significant financial reserves and solid economic prospects are attracting investors in increasing numbers.
“As sukuk markets in core Islamic countries become more mature and economies continue to develop, we expect the sukuk market's growth prospects to remain solid,” Moody’s noted.
A general view in Riyadh. Sustained economic growth and diversification agendas in GCC countries have given rise to increased sukuk issuance activity to support balance sheet growth, according to Moody’s.