Africa to emerge as next big sukuk issuer

Sovereign issuances to lead global Islamic bond market in the near term

Volume of Islamic bond (sukuk) issuance is expected to gain in the next few years as Africa joins other key Islamic markets such as the GCC, Turkey, Malaysia and Indonesia, according to rating agency Moody’s.

“We expect sukuk issuance to proliferate over the coming decade as more African governments tackle the complex regulatory and legislative adjustments required to enable it,” said Peter Mushangwe, an analyst at Moody’s.

The massive amounts of financing needs to fund the continent’s infrastructure deficit will be a key driver. Sukuk issuance in Africa contributes less than half a per cent of global outstanding sukuk.

After a record year of issuance in 2020 dominated by GCC sovereigns at $205 billion, in 2021, global sukuk issuance is expected to consolidate in the range of $190 to $200 billion according to Moody’s estimates.

Decline in GCC issuance

Sukuk issuance in the GCC declined by 19 per cent in the first half to $35.3 billion due to a significant drop in sovereign issuance, which was only partially offset by higher corporate volumes. The sharp year on year decline in the first half of the year is attributed to significant gains in oil prices, resulting in lower financing needs for GCC governments.

The rating agency expects further decline in Islamic bond issuance in the GCC in the second half of the year. Higher oil prices have lowered the gross financing requirements of oil exporting countries relative to 2020. However, new corporate issuers will 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 VPSenior Analyst at Moody’s.

Global sukuk issuance volumes reached $101.7 billion in the first half of 2021, up 3 per cent from $99.1 billion in the same period of 2020. The increase was driven by higher activity in Southeast Asia where volumes rose 22 per cent to $53.9 billion.

Moody’s sukuk issuance to remain steady at around $90 billion to $100 billion in the second half of 2021.