Global sukuk issuance may see more sovereign sukuk

KUCHING: With economies battling Covid-19 crisis, global sukuk issuance in 2020 may see additional sovereign Sukuk to support fiscal stimulus, RAM Ratings (RAM) observes.

The global sukuk market delivered a noteworthy performance in 2019, notching up US$130.2 billion of gross issuance –- a 41.6 per cent jump from US$91.9 billion the previous year.

The top five countries by incremental value were Turkey (up 320.4 per cent), Qatar (up 62.2 per cent), Malaysia (up 57.7 per cent), Bahrain (up 45.1 per cent) and Indonesia (up 26.2 per cent).

Even though issuance by non-core markets surged 138 per cent to US$13.3 billion last year, the global sukuk market remained dominated by the Gulf Cooperation Council (GCC, 40 per cent), Malaysia (34 per cent) and Indonesia (15 per cent).

In terms of sovereigns, Saudi

Arabia maintained its lead in the global sovereign sukuk market with a 28.9 per cent (US$21.4 billion) share, followed by Indonesia (25.3 per cent or US$18.7 billion), Malaysia (18.5 per cent or US$13.7 billion) and Turkey (US$7.0 billion or 9.5 per cent).

The primary fund-raising purpose was to support the respective countries’ budget deficits. In terms of corporate sukuk issuance, the top position was retained by Malaysia with US$31.2 billion (or a 55.3 per cent share).

The UAE came next with US$9.8 billion (17.3 per cent), followed by Saudi Arabia (US$9.1 billion or 16.2 per cent) and Qatar (US$2.1 billion or 3.6 per cent).

Going further into 2020, it is clear that the Covid-19 pandemic has wreaked havoc on every aspect of life, with no clear end in sight to date on how long the crisis will last.

Undoubtedly, markets have been in turmoil and this will likely pose uncertainties with regard to future fund-raising activity.

With governments worldwide still weighing the economic implications of Covid-19, various forms of financial aid through economic stimulus packages and interest rate cuts have been announced.

The irony is, however, that the coronavirus crisis will also provide a window of opportunity for sovereigns to raise funds to finance aid packages, and for corporates to lock in more attractive funding rates while taking stock of their financing maturity profiles.

In such highly uncertain times, investors will seek safer havens by moving into bonds and sukuk, thereby benefiting some key economies in the sukuk market.

Global economies are indisputably navigating choppy waters. Governments that can effectively use monetary and fiscal tools to steer their economies in the right direction will stand a fighting chance of emerging less battered by Covid-19.

In the wake of the global equity market meltdown, the debt and sukuk markets will serve as a bulwark to shore up a country’s financial standing.

RAM’s latest issue of Sukuk Snapshot reports that Malaysia retained its lead with a 34.5 per cent share of the global sukuk market, followed by Saudi Arabia (23.4 per cent), Indonesia (15.0 per cent), the UAE (7.5 per cent) and Turkey (6.8 per cent).

As at end-2019, the value of outstanding global sukuk had spiked up to US$574.1 billion (end-2018: US$454.5 billion), a positive indication of sukuk’s relevance as an alternative form of financing in the mainstream global financial sector.