Total sukuk issuance in Qatar rose to $2.9bn in the first half of this year from $2bn in H1, 2018, Moody’s Investor Service has said in a report.
“The increase reflected rising international sukuk issuance from Qatari financial institutions. During this period, local currency sukuk issued by the central bank remained stable,” Moody’s said Tuesday.
Issuance declined marginally in the other GCC countries to a combined $10.8bn in the first half of this year from $11.3bn in H1, 2018.
Total sukuk volumes grew to $87.4bn in the first half of 2019, up 37% from $64bn in the same period of 2018.
The increase was driven by the GCC region, where issuance rose 9% to $26.5bn followed by Southeast Asia, where it grew 41% to $53bn and Turkey where it grew 300% to $7.9bn, Moody’s noted.
“We expect total sukuk issuance of around $130bn in 2019, at the top end of the $120bn to $130bn range we projected at the beginning of the year, and up from $123bn in 2018. Our full-year expectation reflects robust issuance of $87bn during the first half of 2019, spread across short and long term instruments. We expect second-half volumes to moderate to around $43bn, as strong issuance in the first six months has reduced sovereign and corporate funding needs.
“However, we expect government and corporate entities in Malaysia (A3 stable) and the Gulf Cooperation Council (GCC) countries, to continue issuing regularly.”
In the GCC region, a recovery in oil prices since mid-2017 has boosted revenues and reduced the gross financing requirements of the oil-exporting countries relative to 2016 and 2017, weighing on sovereign sukuk issuance.
However, Moody’s expects borrowing requirements for the GCC sovereigns will likely be higher this year when compared to 2018, due to its expectation of a lower average oil prices.
“Even so, we expect GCC sovereigns to continue diversifying their funding mix in favour of sukuk instruments in order to develop their Islamic debt markets,” Moody’s said.
Moody’s expects global sukuk issuance to increase by 6% to $130bn in 2019. Although this would fall short of the 8% expansion achieved in 2018, it is consistent with its expectation of strong long term growth for the sector.
“Sukuk issuance is on course to complete its fourth consecutive year of expansion,” Moody’s said.
Moody’s expects some African sovereigns to enter the market. While the green sukuk market is in its infancy, it expects issuance to accelerate as efforts to combat climate change gain traction, building on initial green sukuk transactions in Malaysia and Indonesia.
Governments across the core Islamic finance markets (GCC, Malaysia and Indonesia) continue to shift their funding mix towards a combination of Islamic and conventional instruments, supporting long-term growth in sukuk volumes.
The change, Moody’s said, “reflects these countries' cultural affinity with Islamic finance, and their governments' desire” to promote Shariah-compliant banking.
Rising demand for sukuk from domestic Islamic banks, and central bank issuance in the core Islamic finance markets, are also supportive.
Moody’s expects product innovation to help overcome some of the structural constraints that have historically held back the development of sukuk markets.
The sukuk sector has also benefited from the English High Court's ruling in favour of sukuk investors in the Dana Gas case in November 2017. The ruling was credit positive for the Islamic finance industry because it added certainty regarding the legal enforceability of sukuk particularly in English law.