RAM: Value of global sukuk issuance expected to be lower this year

PETALING JAYA: Global sukuk issuance for 2017 is expected to be slightly lower than last year in combined value, amid the ramping up of infrastructure-led projects in core sukuk markets.

RAM Rating Services Bhd (RAM Ratings) has projected that global sukuk issuance in combined value would range from US$60bil to US$70bil. Last year, a total of US$72.9bil worth of sukuk was issued globally.

In its latest report, Sukuk Outlook: Growth anchored by core sukuk markets, RAM Ratings said infrastructure-led projects would likely remain a key growth catalyst for the global sukuk market.

“The growth of the core sukuk markets namely Malaysia, Indonesia and the Gulf Cooperation Council countries, will serve as a base vis-a-vis the promotion of sukuk as a key component of their domestic capital markets.

“The involvement of leading institutional bodies will also encourage the acceptance of Islamic finance,” said RAM Ratings, adding that proactive measures to enhance the core and non-core markets would become catalysts in propelling the competitive advantages of sukuk.

Malaysia, Indonesia and the Gulf Cooperation Council countries account for 80% to 90% of global sukuk issuance.

Malaysia, the world’s largest sukuk issuer, has a market share of 33.3% as of end-February 2017.

Malaysia’s ringgit-denominated sukuk issuance in 2017 will reach US$22.2bil to US$26.7bil and be driven by the private sector’s issuance.

“Malaysia’s Islamic securities comprised the bulk of corporate bond issuance in 2016 at 76% compared with 67% a year earlier.

“Sukuk issuances by quasi-government entities and the corporate sector as a proportion of the respective totals increased from 62%-83% to 69%-86% year-on-year.

“This is in line with Malaysia’s status as the market leader in global sukuk issuance, with a 41% market share in 2016,” said RAM Ratings in its report.

The ratings agency pointed out that despite the encouraging signs of growth in global sukuk, dependence on the issuance of sukuk by the core markets will only provide a steady base.

“New growth areas are needed to push the sukuk market forward.

“As of March 2016, the value of outstanding global bonds amounted to US$102.3 trillion, of which outstanding global sukuk represented less than 1%.

“Greater acceptance of Islamic finance as a viable funding alternative will align the competitive advantages of sukuk with those of the mainstream financial markets,” said RAM Ratings, adding that Islamic finance assets stood at about US$2 trillion as of end2016.