Key issuers of Islamic bonds are expected to at least match their US$32 billion sales last year as governments seek funding to plug fiscal deficits and update legislation, Fitch said on Monday.
“Sukuk issuance should be supported in the medium to long term by the recent introduction and revamping of sukuk laws in some countries, the growing Islamic finance industry in these countries and increasing sovereign funding needs,” said the credit rating agency.
The GCC, Malaysia, Indonesia, Turkey and Pakistan issued $21.7bn worth of sukuk with maturity of more than 18 months in the first half of this year, up by 11.3 per cent from $19.5bn on the year-earlier period, Fitch said.
“Investor appetite for the countries included in this analysis moderately improved earlier this year, due to a hunt for yield in light of low rates in mature markets and by stabilisation of commodity prices,” the agency said. “The UK’s vote to leave the European Union has also reinforced the pressure on interest rates.”
Sukuk issuance could have been higher in the first half had some Arabian Gulf states opted for Islamic bonds rather than conventional paper. Abu Dhabi issued $5bn worth of conventional bonds, while Qatar sold $9bn.
Kuwait and Saudi Arabia could sell sukuk this year to finance their fiscal deficits, Fitch said.
Its report jars with the views of fellow ratings agency Standard & Poor’s, which said earlier this month it expects total sukuk issuance this year to drop as sovereigns choose conventional bonds over sukuk due to the complexity of the latter.
Follow The National's Business section on Twitter