Font Size
Share this article


Print Friendly Version
29 March 2020
SUKUK

Global sovereign Sukuk issuance to grow modestly in 2020, Moody’s

The nexus between fiscal deficits and net Sukuk issuance among regular Islamic bond issuers has become more robust, while recent regulation also foreshadows the entry of new issuers

Saudi Arabia, Indonesia and Malaysia will continue to increase the share of domestic Sukuk in their fiscal deficit financing/iStock

by Kudakwashe Muzoriwa

Moody’s expects global long-term gross sovereign Sukuk issuance to reach $75 billion this year, a six per cent increase compared to $71 billion in 2019, taking into account wider fiscal deficits and a drive to develop the market by major sovereign issuers.

In a report, Moody’s stated that issuance volumes could rise more markedly if oil prices and demand were to be durably dampened as a consequence of the coronavirus outbreak, leading to higher deficits and financing requirements among hydrocarbon-exporting issuers, including those in GCC and Southeast Asia.

Greater borrowing needs reflect the impact of the recent plunge in oil prices amid the global economic downturn as a result of the COVID-19 outbreak as well as a small increase in refinancing.

Furthermore, Saudi Arabia, Indonesia and Malaysia will continue to increase the share of domestic Sukuk in their fiscal deficit financing and Turkey is also expected to continue being a prominent Islamic bond issuer.

According to Moody’s, Saudi Arabia (A1 stable) financed around 54 per cent of its 2019 fiscal deficit through net Sukuk issuance, whereas before 2017 it relied entirely on conventional bonds, commercial loans and drawdowns from accumulated fiscal reserves.

Christian de Guzman, a Moody's Senior Vice President, said, “We expect that wider fiscal deficits, larger scheduled repayments and a deepening of domestic Islamic financial markets will lead to higher Sukuk issuance over the coming years.”

The integration of environmental, social and governance (ESG) considerations into investment mandates is also expected to drive the development of green Sukuk offerings.

Moody’s said that Indonesia’s (Baa2 stable) maiden domestic retail green Sukuk follows two international green Sukuk offerings, while the Islamic Development Bank (Aaa stable) has become the first Aaa-rated issuer to offer green Sukuk, potentially stimulating similar transactions by other Shari’ah-compliant issuers.

However, in 2021, Moody’s expects long-term gross sovereign Sukuk issuance to decline amid improvement of major issuers’ fiscal positions and a larger portion of government funding being met by external sources as global market conditions stabilise.

Beyond 2021, gross sovereign issuance will rise further as Sukuk from the Gulf region begins to mature.


RELATED STORIES: Moody’s Sukuk oil Gulf Indonesia Islamic Development Bank ESG) Malaysia Saudi Arabia

MOST READ


RECOMMENDED NEWS



BRANDS MAGAZINES LATEST EDITION

OUR BRANDS



CPI Financial was established in Dubai in 1999 to meet the needs of an ever-expanding financial community, offering a comprehensive portfolio of market-leading products and services tailor-made for the banking and financial services sectors.


Subscribe to our News Letter

Subscribe

© 2019 CPI Financial. All rights reserved.

No part of this website may be reproduced or used in any form of advertising without prior permission in writing from the editor.