KUALA LUMPUR: S&P Global Ratings expects Sukuk issuance will remain muted over the next six to 18 months, with total issuance of US$50bil to US$55bil in 2016.
It said on Monday that Sukuk issuance in the second half of 2016 will continue to depend on monetary policy developments and volatility in developed markets and also policy actions of sovereigns in core markets – namely Gulf Cooperation Council countries and Malaysia – in response to lower oil prices.
The ratings agency said explained that plummeting oil prices have not boosted sukuk issuance despite some commentators' expectations low oil prices would spur governments in oil-exporting countries to tap the Sukuk market for funding, and maintain current and capital spending.
Instead, total issuance actually dropped in 2015 compared with the previous year, it explained in its report entitled, “Why low oil prices aren't sending Sukuk issuance skyward”.
S&P Global Ratings Global head of Islamic finance Mohamed Damak said: “The complexity of Sukuk issuance, uncertainty regarding US Federal Reserves' policy revisions, and the government's efforts to reduce financing needs in response to weak oil prices have and will continue to weigh on Sukuk market activity.”
He said while governments affected by the price drop are looking to spending cuts, taxation, and the privatisation of state companies to adjust to the new reality, their financing needs remain significant.
"Part of these needs will be met by conventional debt markets and, to a much lesser extent, the Sukuk market, with the complexity of Sukuk issuance remaining a key deterrent to tapping the market, in our view," Damak said.
At the same time, he believes the European Central Bank's quantitative easing programme and the entrance of a few new issuers to the Sukuk market will continue to support issuance volumes.