Sovereigns, Banks and Corporates in the Gulf will Boost Sukuk Sales in 2017

Sukuk issuances are expected to be flat at around $70 billion for 2016, but are expected to pick up in 2017 as issuers ranging from sovereigns, banks and corporates in the Gulf look to issue to meet their financing needs.

$40bn of sukuk was issued in the first half of the year with the marketing slowing in the summer and the Eid break. From 2012 to 2014, sukuk issuance exceeded more than $100bn a year, with the 2012 figure of around $150bn, representing more than twice the level expected for this 2016.

“Subdued issuance volumes in 2016 were mostly driven by reduced short-term borrowing by the Malaysian government, one of the largest sukuk issuers globally, as well as the drive of the GCC governments to tap conventional sources of liquidity, which has reduced the attractiveness of the sukuk format” explains Nitish Bhojnagarwala, Assistant Vice President — Analyst at Moody’s.

Mr Bhojnagarwala was speaking during the release of a Moody’s report entitled “Islamic Finance; Prospects Remain Strong Despite Subdued Sukuk Issuance”.

He added “However, we expect increased sukuk issuance into 2017 from sovereigns, banks and corporates in the Gulf, as regional financing needs increase amid lower oil prices” he adds.

Government Efforts Will Pay Off

Kuwait and Saudi Arabia are both seen as potential sukuk issuers in 2016 though are challenged by the relevantly easier issuance of conventional bonds as compared to sukuk. Sovereign sukuk issuances have expanded in Africa where a trio of West African nations, Togo, Ivory Coast and Senegal issued domestically denominated CFA francs sukuk during the summer.

Efforts by government agencies and central banks is driving growth for the Sukuk market as well as the entire Islamic Finance industry, a trend Moody’s expects to continue well into the next decade.

Growing Size of Sukuk and Islamic Finance Industry

Traditionally the size of the Islamic finance industry has been measured as hard assets held by institutions considered being part of the Islamic finance industry. Estimates of the current size of industry range from $1.88 Trillion to $2.1 Trillion with expectations of market size to be $3.4 Trillion by end of 2018. Sukuk represent the second largest segment of the Islamic finance industry (after Islamic Banking). The Bahrain based International Islamic Financial Market (IIFM) in its 2016 Sukuk Report stated 2015 witnessed a major drop in issuances when only USD60.6 billion Sukuk were issued, a massive 43% fall compared to 2014.