Sukuk issuance seen recovering from virus hit
Fitch projects issuance volumes in 2020 to reach 2019 level
Global sukuk issuance volumes are expected to recover in 2020, and reach last year’s levels, despite the unprecedented stress from the coronavirus pandemic, according to Fitch Ratings.
As market conditions further recover, sukuk supply is expected to grow with increased funding needs.
“We expect sukuk supply to increase and continue to be a significant part of the total funding mix in key Islamic finance jurisdictions. Volume in the full year 2020 is expected to be similar to 2019 levels,” Fitch said in a report.
Sovereign demand
Sovereigns are expected to remain the major contributors to overall sukuk volumes as they face widening fiscal deficits and high borrowing needs, caused by coronavirus related economic disruptions and lower oil prices.
Issuance from financial institutions and corporates is also set to increase as they face challenging business conditions and take advantage of lower funding costs.
Sukuk issuance with a maturity of more than 18 months from the Gulf Cooperation Council ( GCC) region, and Malaysia, Indonesia, Turkey and Pakistan reached $ 10.5 billion in the third quarter of 2020, 14.2 per cent lower than in the second quarter. The proportion of sukuk in the total funding mix in these jurisdictions reached 25 per cent.
“We expect sovereigns to remain major contributors to overall sukuk volumes as they face widening fiscal deficits and elevated borrowing needs, caused by coronavirus related economic disruptions and lower oil prices,” Fitch said.
The volume of outstanding Fitch- rated sukuk reached $ 116.2 billion at end of third quarter, of which about 24 per cent is estimated to mature in 2020- 2022. About 81 per cent of issues were investmentgrade and 19 per cent speculative- grade.
Fitch forecasts oil prices will average $ 41/ bbl and $ 45/ bbl in 2020 and 2021 respectively. Issuance from financial institutions and corporates is also set to increase as they face challenging business conditions and take advantage of lower funding costs. The volume of outstanding Fitch- rated Green & Sustainability sukuk reached $ 7.2 billion at end of third quarter 2020, representing 6.2 per cent of the total sukuk portfolio.