The Riyadh skyline. The first-half sale of Sharia-compliant bonds issued by Saudi Arabia helped boost global sukuk issuance volumes. Reuters
The Riyadh skyline. The first-half sale of Sharia-compliant bonds issued by Saudi Arabia helped boost global sukuk issuance volumes. Reuters
The Riyadh skyline. The first-half sale of Sharia-compliant bonds issued by Saudi Arabia helped boost global sukuk issuance volumes. Reuters
The Riyadh skyline. The first-half sale of Sharia-compliant bonds issued by Saudi Arabia helped boost global sukuk issuance volumes. Reuters

Global sukuk issuance may hit $155bn in 2021, S&P says


Sarmad Khan
  • English
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Global sukuk issuance is set to increase to as much as $155 billion in 2021, or 11 per cent more than $139.8bn last year, driven by low interest rates and abundant liquidity, according to S&P Global Ratings.

The ratings agency said a more conservative outlook could be in the range of $140bn. Sukuk worth a record $167bn was issued in 2019.

A continued economic recovery, vaccination campaigns in most Islamic finance countries and oil prices of about $65 a barrel this year will also support growth in sukuk issuance, the rating agency said in its market report on Monday.

“Taken together, these factors point to stronger sukuk market performance in 2021 compared with 2020,” said Mohamed Damak, global head of Islamic finance at S&P.

Global sukuk issuance stood at $90.6bn in the first half of the year, slightly more than $86.4bn recorded in the six months to the end of June 2020.

The market's performance was propelled by Sharia-compliant bond sales in Malaysia, Saudi Arabia and Oman. The sultanate returned to the market after issuing conventional debt in 2020.

The market was also supported by a higher primary issuance volume, which rose by 20 per cent in the first half of 2021.

“Absent an unexpected geopolitical event, a significant drop in oil prices or a shift in liquidity conditions on global capital markets, we expect sukuk issuance will continue to rise,” said Mr Damak.

However, issuance volumes in Bahrain, Indonesia, Turkey and the UAE declined. In Turkey, the decline was mainly due to the rise in local currency-denominated issuances while the UAE's sukuk sales dropped as the country adopted new Sharia standards.

“Despite higher oil prices and lower fiscal deficits, we expect that some sovereigns in the Gulf Cooperation Council will continue to tap the market to fund their economic diversification programmes,” S&P said.

It also expects bank and corporate issuance to “continue to support sukuk market performance" in the second half of 2021, after a muted activity in 2020 when companies preserved cash at the height of the pandemic and deferred capital expenditure.

Sukuk worth about $20bn is set to mature in the second half of this year, some of which will probably be refinanced through the market, S&P said.

Central banks around the world have introduced monetary stimulus measures last year to support the banking sector and help stabilise financial markets as part of their efforts to soften the blow of the pandemic on their economies.

Absent an unexpected geopolitical event, a significant drop in oil prices or a shift in liquidity conditions on global capital markets, we expect sukuk issuance will continue to rise
Mohamed Damak,
global head of Islamic finance at S&P

Interest rates, which have been set near or below zero in many countries, are expected to remain low this year and beyond as the world economy continues to recover.

The International Monetary Fund expects the global economy, which last year slid into its worst recession since the Great Depression, to expand by 6 per cent in 2021.

The $2.4 trillion Sharia-compliant finance industry is expected to register “low to mid-single digit growth” in 2021. It grew by 11.4 per cent in 2019 on the back of higher-than-expected sukuk issuance, according to S&P Global.

The industry is expected to hit $3.69tn in 2024, according to Refinitiv and a report by the Islamic Corporation for the Development of the Private Sector.

Sustainability-linked and green sukuk issuance will also support the global Islamic bond market in the second half of this year. However, the volume of such Sharia-compliant instruments is expected to remain limited, S&P said on Monday.

During the first half, the Islamic Development Bank issued sukuk worth $2.5bn and said it would use 10 per cent of the proceeds to finance green projects, with 90 per cent earmarked for social development programmes. Malaysia also issued a $1.3bn Islamic bond that included an $800 million sustainability tranche.

“Although these types of instruments may appeal to investors with ESG [environment, social and governance] objectives – and we expect to see more of them – we think that they will be the exception rather than the norm,” said Mr Damak.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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2) There are about 11,000 patients in the country in need of organ transplants

3) People must be over 21. Emiratis and residents can register. 

4) The campaign uses the hashtag  #donate_hope

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How the UAE gratuity payment is calculated now

Employees leaving an organisation are entitled to an end-of-service gratuity after completing at least one year of service.

The tenure is calculated on the number of days worked and does not include lengthy leave periods, such as a sabbatical. If you have worked for a company between one and five years, you are paid 21 days of pay based on your final basic salary. After five years, however, you are entitled to 30 days of pay. The total lump sum you receive is based on the duration of your employment.

1. For those who have worked between one and five years, on a basic salary of Dh10,000 (calculation based on 30 days):

a. Dh10,000 ÷ 30 = Dh333.33. Your daily wage is Dh333.33

b. Dh333.33 x 21 = Dh7,000. So 21 days salary equates to Dh7,000 in gratuity entitlement for each year of service. Multiply this figure for every year of service up to five years.

2. For those who have worked more than five years

c. 333.33 x 30 = Dh10,000. So 30 days’ salary is Dh10,000 in gratuity entitlement for each year of service.

Note: The maximum figure cannot exceed two years total salary figure.

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Updated: July 05, 2021, 12:17 PM