Global sovereign sukuk issuance to surpass record high of $93 billion by 2020

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JEDDAH — Sovereign and supranational sukuk issuance expected to surpass all-time high of $93 billion by 2020, Moody’s Investors Service said on Tuesday in it is new research titled “Global sovereign sukuk issuance to recover in 2019”.

It added that deepening of sukuk market will allow sovereigns to diversify their financing sources. The report noted that after a decline last year, “global sovereign and supranational sukuk issuance will recover in 2019 and surpass its record-high volumes by 2020 - and possibly sooner - if oil prices remain moderate.”

A deepening of the global sukuk market will allow sovereigns to further diversify their sources of financing while also providing a source that is more stable than conventional bonds given the strong structural demand for Shariah-compliant securities from Islamic financial institutions.

The recovery in issuance stems from higher deficit financing needs amid moderate oil prices, in particular for sovereign issuers in the Gulf Cooperation Council, higher sukuk refinancing needs especially in Malaysia, and a gradual increase in the share of sukuk in major issuers’ fiscal deficit financing.

“In the medium-term, gross issuance will rise further as the sukuk issued by the Gulf Cooperation Council governments begin to mature and are refinanced via new issuance,” said Alexander Perjessy, a Moody’s Vice President - Senior Analyst and author of the report.

By 2020, Moody’s expects total sovereign and supranational sukuk issuance, including short-term securities, to surpass the all-time high of $93 billion, reached in 2012, up from $78 billion in 2018. A deepening of the global sukuk market will allow sovereigns to diversify further their sources of financing. It will also provide a source that is more stable than conventional bonds given the strong structural demand for Shariah-compliant securities from Islamic financial institutions.

Global gross sovereign sukuk issuance declined by 5% to $78 billion in 2018, from $82 billion in 2017, but Moody’s expects it to pick back up in 2019 due to higher deficit financing needs amid moderate oil prices, higher sukuk refinancing needs, especially in Malaysia (A3 stable), and as major issuers gradually increase the share of sukuk in total net issuance.

“By 2020, we expect total gross sovereign sukuk issuance, including short-term securities, to surpass the all-time high of $93 billion reached in 2012. In the medium term, gross sovereign issuance will rise further as the sukuk issued by Gulf Cooperation Council (GCC) governments begin to mature.”

Malaysia has by far the largest stock of outstanding long-term sovereign sukuk ($84 billion), followed by Indonesia (Baa2 stable) and Saudi Arabia (A1 stable), with around $40 billion each. The three sovereigns, and Qatar (Aa3 stable), have been the most active in promoting the market’s development.

During 2015-18, sukuk issues filled nearly 80% of Malaysia’s fiscal deficit financing needs whereas they covered about a third of Qatar’s and Indonesia’s fiscal deficit .

The Islamic Development Bank (IsDB, Aaa stable) remains by far the largest issuer among the supranationals with more than $16 billion of outstanding sukuk at the end of 2018. — SG


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