Global sukuk issuance set to be flat at $115b in 2019
By Waheed Abbas
Published: Tue 15 Jan 2019, 8:04 PM
Last updated: Tue 15 Jan 2019, 10:08 PM
Total sukuk issuances growth this year is expected to be almost flat this year in the range of $105 billion to $115 billion as compared to last year's $114.8 billion, a drop of five per cent as compared to previous year, according to Standards & Poor's report released on Tuesday.
The figures are based on the assumption of Brent average $55 per barrel in 2019.
Mohammed Damak, senior director and global head of Islamic Finance at S&P, projected that the total sukuk issuances from the GCC will rise to $48 billion in 2019 as against $46 billion last year with Saudi Arabia leading the region.
However, sukuk issuances in the UAE are projected to slow down this year to $8 billion from $9.1 billion last year with most of the new Islamic bonds coming from the corporates.
The global ratings agency gave both optimistic and pessimistic scenarios for this year's forecast due to uncertainty in the global economy, Fed rate hikes and rising cost of funding for sukuk issuances.
Moreover, liquidity conditions in the GCC improved in 2018, but appear uncertain in 2019. "We assume oil prices will remain flat at $55 in 2019 and beyond. We base our sukuk issuance forecasts on these assumptions. However, oil prices can be extremely volatile and represent upside and downside risks to our forecast. The trend of reopening sukuk supports our base-case forecasts," said Damak.
"Overall, we think issuers' cost of funding will keep rising, and liquidity from developed markets channeled to the sukuk market will continue to reduce and become more expensive. Investors are also concerned about the economic cycle after a long period of expansion. At some point, the cycle will turn and investors will become more risk averse," Damak added.
"Federal Reserve and European Central Bank are progressively closing the liquidity tap. As a result, cost of funding for the issuers will continue to rise and developed markets liquidity channeled to developing markets will continue to reduce. Oil price will (also) be a key factor," he added.
S&P analyst called for accelerating standardisation and creating local currency sukuk markets in the GCC that could help the industry enhance its value proposition and stimulate growth.
Damak stressed that standardization is key for sukuk market sustainability but lack of standardisation is affecting interest of investors from the US and Europe.
"Standardisation is not only achievable but necessary to reach full potential for the sukuk market."
The market is still concentrated in key markets with Malaysia, GCC and Indonesia exceeding 90 per cent of total volume issuances. - firstname.lastname@example.org