Sukuk sales, which increased 44 per cent last year to US$88 billion, are set to continue to rise this year as issuers refinance debt and sovereigns continue to tap the Sharia-compliant fixed income markets, according to a new report.
Maturing global sukuk, with a ticket size of US$100 million and with a tenor of more than a year, will stand at around $66bn during this year and 2018, said the International Islamic Financial Market (IIFM), a Bahrain-based international standard-setting body.
About 86 per cent of the $367bn outstanding sukuk are held by a small group of countries, including Malaysia, Saudi Arabia, the UAE and Indonesia. Other countries, including Turkey, Pakistan and regions such as Africa are forecast to boost their market share in the next few years.
"Sukuk have been issued for fulfilling the varied financing needs of the issuers such as enhancement of banks' capital base, monetary and budgetary management, project financing, aircraft financing etc, which is an encouraging sign," said Khalid Hamad, the chairman of the IIFM. He added: "As the sukuk market further evolves there is an increasing need for addressing the various challenges that come with the growth of any financial instrument and should be tackled by creating greater transparency and harmonisation in documentation and product structures from Sharia, legal and market perspectives."
Saudi Arabia in April issued $9bn in its first dollar-denominated sukuk sale as Arabian Gulf governments turn to debt markets to finance fiscal deficits.
"There is growing confidence in sukuk market in some of the established sukuk issuing hubs, proof of which is longer dated sukuk ranging from 30 years to perpetual issuances coming to the market," said Ijlal Alvi, the chief executive of IIFM.
"Except Malaysia, the corporate sukuk issuances in most of the established jurisdictions is below expectation and challenges have to be resolved to support greater sukuk issuance by corporate entities."
IIFM's prediction of greater sukuk issuances is in line with forecasts from S&P Global Ratings.
The rating agency expects sukuk sales this year to range between $75bn and $80bn, higher than its previous estimate of $60bn to $65bn as more governments tap the fixed income market for their funding needs. This year's sales will be exceptional and are unlikely to be repeated next year, the agency said.
Governments, which last year primarily tapped conventional debt markets, are seeking to diversify their investors' base this year with sukuk sales.
The rating agency forecast that Gulf governments' financing needs will reach $275bn between this year and 2019. About 50 per cent of that figure will be met from issuances from the fixed income markets, with a preference for conventional bonds over sukuk, it added.