Global sukuk issuance rises 6% in 2019 as range of issuers broadens

The issuance of Islamic bonds with a maturity of more than 18 months increased to $42.2bn

Saudi Arabia is expected to see the biggest rise in sovereign sukuk issuances from the GCC in 2020, Moody's says. AP

Global sukuk issuance rose 6 per cent in 2019 as the range of issuers and investors broadened but long-standing structural impediments to growth remain, according to Fitch Ratings.

Sukuk issuance with a maturity of more than 18 months from the GCC, Malaysia, Indonesia, Turkey and Pakistan increased to $42.2 billion (Dh154.9bn) last year, the ratings agency said in a report this week. The 2019 figure was nearly 40 per cent higher than a decade earlier, but a record high reached in 2017.

Last year's increase was driven by an uptick in sukuk issuance in the fourth quarter, Fitch said. In October, Saudi Arabia priced a $2.5bn ten-year issue as the kingdom focuses on diversifying its budget financing and help develop regional shariah-compliant debt capital markets.

The report also said the supply of sukuk has diversified geographically over the last decade, having initially been dominated by issuers from Malaysia and Bahrain. A more recent trend has been diversification by investor and issuer type.

“Robust demand from the traditional investor base of Islamic banks who buy for investment and liquidity management purposes has been boosted by other regional and international investors, some of whom have dedicated sukuk funds or sub-funds," Fitch said.

The inclusion of both conventional bonds and rated sukuk from five GCC countries in the JP Morgan EM Bond Index from 2019 also supported this process, it said.

In 2020 and 2021, oil exporting sovereigns will remain major contributors to overall sukuk volumes, as borrowing needs increase due to low oil prices forecast, according to the report.

Last year also saw several debuts including a $500 million five-year deal from Arabian Centres Company, a Saudi Arabia-based real estate company, and Malaysian energy services group Serba Dinamik's $300m sukuk due 2022, which was the first US dollar high-yield sukuk offering in the Asia-Pacific region.

“The importance of sovereigns as major issuers means that geo-political risks will remain relevant to sukuk volumes,” Fitch said.

"Over time, supply may emerge from new jurisdictions, for example in North Africa. Until then, we believe the 'trickle down' effect of issuance extending from sovereigns to corporates in established sukuk jurisdictions will be the biggest source of new issuers."
Further growth in the market is likely, although sukuk are by definition specialist products and long-standing structural constraints remain, it said. These include a lack of standardisation and legal uncertainties relating to creditor treatment and enforceability in a distressed situation.