Malaysia continues to dominate the sukuk market

RAM Ratings said in line with the downward bias in global interest rates and the subsequent search for yields, domestic bond yields also retreated across the entire maturity spectrum and rating bands in June.

KUALA LUMPUR: Moody’s Investors Service expects sukuk issuance by Islamic financial institutions in Malaysia to grow 10-13% in 2018 and Malaysia will remain key a issuer in south-east Asia.

“We expect Malaysia will continue to dominate global sukuk issuance volumes both in the long- and short-term market. 

“Within Malaysia, we expect that sukuk issuance by Islamic financial institutions will grow 10-13% year-on-year in 2018. The bulk of such issuance will be denominated in ringgit, as in previous years,” Moody’s said in a report titled: Cross-Sector - Sukuk Market Outlook - H1 2018 Update.

The international rating agency expects global sukuk issuance to reach US$90-US$100bil in 2018, in line with 2017 levels.

“Our expectation of broadly stable issuance for the year comes despite a 12% decrease to US$55bil in the first half of 2018. Some large 2017 transactions from Gulf Cooperation Council (GCC) sovereigns may not be repeated this year as rising oil prices have reduced their financing needs.

“However, we expect regular issuance from government and corporate entities in Malaysia (A3 stable) and Indonesia (Baa2 stable) in the second half of 2018 to continue supporting sukuk volumes,” it said. 

Moody’s said the lower GCC issuance in H1 2018 was partly offset by solid growth in government and corporate issuance in Malaysia, which continues to dominate the market with a 41% share.

Moody’s said green sukuk issuance was set to accelerate in Malaysia and Indonesia as governments in both countries seek to promote sustainable policy agendas by attracting private capital into low-carbon and climate-resilient infrastructure projects. 

“The world’s first green sukuk was issued last year in Malaysia, and the government of Indonesia unveiled the first sovereign green sukuk in February 2018, raising
US$1.25bil.
 
“More recently, BIMB Investment Management Bhd, a subsidiary of Bank Islam Malaysia Bhd, launched the first ever environmental, social and governance (ESG) sukuk fund, which should also support demand for green sukuk,” it said.