GCC sukuk issuance is set to decline in 2021: Moody’s
RATING AGENCY SEES STRONG POTENTIAL FOR GREEN AND SUSTAINABLE BONDS
Sukuk [Islamic bonds] issuances across GCC countries are set to decline in 2021 compared to the previous year according to projections by rating agency Moody’s.
Sukuk issuance in the GCC declined by 19 per cent in the first half to $35.3 billion (Dh130b) due to a significant drop in sovereign issuance, which was only partially offset by higher corporate volumes. The sharp yearon-year decline in the first half of the year is attributed to significant gains in oil prices. The rating agency expects further decline in Islamic bond issuance in the second half of the year.
Partial offset
Higher oil prices have lowered the gross financing requirements of oil exporting countries relative to 2020. However, new corporate issuers are expected to partially offset the lower volumes from the sovereign side.
“In the GCC, we expect issuance to fall in the second half. Higher oil prices have lowered the gross financing requirements of oil exporting countries relative to 2020,” said Ashraf Madani, a VP-Senior Analyst at Moody’s.
According to Moody’s, Saudi Arabia will remain the largest issuer in the GCC. All domestic issuances by the government since July 2017 have been in sukuk format and the government has been increasing the share of domestic borrowing in the overall funding mix. Kuwait will also be a key player.
New entrants
While the rating agency expects activity among other GCC countries to remain muted, its forecast shows sukuk market to maintain its long-term growth trend, backed by new entrants, low penetration and innovative new Islamic products, such as green and sustainable sukuk.
There has been a steady stream of new entrants in recent years. Saudi Aramco and the Government of Maldives made debut issuances in the first half of this year.
The rating agency sees strong potential for the green and sustainable sukuk. Indonesia has now three green sukuk listings on Nasdaq Dubai, including the world’s first sovereign green sukuk, issued in March 2018 for $1.25 billion. The Islamic Development Bank, based in Saudi Arabia, issued its second tranche under its sustainable finance program for $2.5 billion in March this year with the money raised to be used to finance or refinance eligible green and sustainable projects.