The issuance of sukuk, a Sharia-compliant bond, is set to rise for the fourth year in a row to around $130 billion for 2019, a rise of around six percent, Moody’s Investors Service said in a report.
Saudi Arabia and Malaysia activity has helped drive strong issuance of $87 billion in H1 2019, said the ratings agency, up 37 percent compared to H1 2018. Sovereigns and government-related entities continue to remain the largest issuers by value.
“We therefore expect second-half volumes to moderate to around $43 billion, though Malaysia and Gulf Cooperation Council countries, particularly Saudi Arabia, will continue issuing regularly,” said Nitish Bhojnagarwala, VP-Sr credit officer at Moody's.
In the GCC, oil price recovery since mid-2017 has boosted government revenues and reduced financing requirements, which will weigh on sovereign sukuk issuance. Long-term sukuk growth, however, will continue to be supported by governments in core Islamic finance markets (GCC countries, Malaysia and Indonesia) as each country seeks to adjust their funding mix. The growth in these markets reflects the cultural affinity that each country has with Islamic finance, the agency added.
Further growth in sukuk will be supported by domestic Islamic finance institutions and central bank issuance. African sovereigns are also likely to enter the market – Egypt set up a sharia supervisory committee in April 2019 to oversee sukuk issuance.
Green sukuk is in its infancy, but Moody’s expects issuance to accelerate as initiatives devoted to climate change continue to gain traction.