Global sukuk issuance to drop up to 28% this year
Global sukuk issuance may drop by as much as 28 per cent in 2018 on the back of tighter liquidity, mounting geopolitical risks and slow progress on standardisation, according to ratings agency S&P.
Sukuk issues rose 45 per cent year-on-year to US$97.9 billion last year, the highest level since 2014, boosted by Saudi Arabia’s $9bn inaugural sukuk in April and other GCC sovereign issuances, S&P said yesterday in its Global Sukuk Market Outlook.
But tighter global liquidity stemming from US interest rate rises and slower asset purchases by the European Central Bank, coupled with geopolitical risk considerations in the Middle East, will push issuances down to $70bn to $90bn this year.
“Overall, we think that the cost of funding for issuers will rise and that liquidity from developed markets channelled to the sukuk market will reduce or become more expensive,” the agency said.
The ongoing diplomatic stand-off between Qatar and its arabian Gulf neighbours, combined with “continued animosity between Iran and the GCC countries” may also dampen the appetite of US and European investors for sukuk issued in the GCC, it said.
Saudi Arabia’s budget for 2018, unveiled last month, contained a projected 117bn riyals (Dh114.6bn) worth of total debt issuance for the year ahead, compared with 134bn riyals in 2017, with issuances capped at 30 per cent of GDP.
Meanwhile, slow progress on the standardisation of Islamic finance products may also act as a brake on the overall sukuk market in the coming year, S&P predicted, as highlighted by the recent stand-off between Dana Gas and its creditors.
The Abu Dhabi-listed energy firm declared $700 million worth of sukuk non-Shariacompliant in June, citing recent developments in Islamic finance.
A December 25 hearing on the legality of the sukuk in a Sharjah court was adjourned, with no indication as to when the next hearing will take place.