Moody's sees global sukuk issuance rising to US$130b

“While the green sukuk market is in its infancy, we expect issuance to accelerate as efforts to combat climate change gain traction, building on initial green sukuk transactions in Malaysia and Indonesia,” Moody's said.

KUALA LUMPUR: Moody's Investors Service expects total sukuk issuance of around US$130bil in 2019, at the top end of the US$120bil to US$130bil range it projected at the beginning of the year.

In its sector report issued on Wednesday, the rating agency expected this to increase by 5.7% from US$123 billion in 2018.

“Our full-year expectation reflects robust issuance of US$87bil during the first half of 2019, spread across short and long term instruments.

“We expect second-half volumes to moderate to around US$43bil, as strong issuance in the first six months has reduced sovereign and corporate funding needs, ” it said.

Moody's expect government and corporate entities in Malaysia (A3 stable) and the Gulf Cooperation Council (GCC) countries, particularly Saudi Arabia, to continue issuing regularly.

It also expects sukuk issuance volumes to grow by 6% to around US$130bil in 2019. Although down slightly from an 8% increase in 2018, this would mark the fifth consecutive year of expansion.

Total issuance in the first six months of 2019 rose to US$87bil, up 37% compared with the same period last year, driven by increased activity in Saudi Arabia and Malaysia.

Total Southeast Asian issuance rose 41%, spread across both short and long term sukuks, while GCC volumes rose 9%.

Sovereigns and government related entities remained the largest issuers by value. Issuance in Turkey rose rapidly from a low base, following the start of trading in Islamic lease certificates on the Istanbul stock exchange in August 2018.

“We expect volumes to fall back to around US$43bil in the second half of 2019, as some issuers typically front load their annual funding activities.

“Higher oil prices, which support GCC government revenues, could also weigh on sovereign issuance in the region. However, the launch in July 2018 of a primary dealers programme for government sukuk in Saudi Arabia (A1 stable), remains a supportive factor.

“New entrants and green sukuk could stimulate issuance. We expect some African sovereigns to enter the market, with Egypt setting up a Shariah supervisory committee in April 2019, to oversee sukuk issuance.

“While the green sukuk market is in its infancy, we expect issuance to accelerate as efforts to combat climate change gain traction, building on initial green sukuk transactions in Malaysia and Indonesia, ” Moody's said.