Global sukuk issuance to gain momentum in 2015

Dubai: Global sukuk issuance is expected to gain momentum in 2015 as oil-exporting GCC countries and Malaysia are likely to tap the sukuk market to fund their public spending plans, according to Khalid Howladar, senior credit officer at Moody’s.

In 2014, global sukuk issuance growth was flat at $114 billion (Dh418.7 billion) compared to around $120 billion in 2013. Issuance last year was adversely impacted by a 20 per cent decline in Malaysian sukuk market, representing more than two-thirds of global issuance.

A decrease in the Malaysian government sector issuance last year was somewhat mitigated by new sovereign entrants such as the UK, Luxembourg and South Africa.

The last three years have seen the global sukuk market double, with a compounded annual growth rate of 33 per cent for the previous 10 years. The stock of sukuk outstanding almost quadrupled during that period as annual issuance rose sharply from less than $32 billion in 2010 to a record $118 billion at year-end 2014.

The sovereign sukuk market has grown strongly over the last three years, with annual issuance rising sharply from less than $15 billion in 2010 to more than $20 billion in 2014.

The continued growth in issuance was driven by a number of factors such as growing familiarity of global investors with sukuk instruments, increasing Islamic investment liquidity looking for sukuk, growing retail and corporate demand for Islamic financial services and increasing standardisation of unsecured Islamic structures.
"While growing global investor demand and Islamic investment liquidity is boosting demand for sukuk, the supply side of the market is booted by sovereign and government-related issuers. Increased policy support from governments of both Muslim and non-Muslim countries are also helping sukuk issuance growth," Howladar said.

The Islamic financial services industry is small but growing fast, according to Moody’s. While the industry is estimated to hold about $1.5 trillion of assets globally, annual growth rates in excess of 10 per cent and increasing penetration in Gulf and Asian countries have made the sector one of the most active.

Sovereign sukuk outstanding accounts for around 36 per cent of the $296 billion outstanding global sukuk market as of July 2014. Taking into account government-related entities — which often have quasi-sovereign credit risk — the combined total exceeds one half of total sukuk issuance.
Sovereign volumes have grown strongly over the past decade and now reach a cumulative issuance total of $438 billion as of July 2014. Many sovereign sukuk have matured while sukuk outstanding amounted to $105 billion as of July 2014

"The year 2014 has become a landmark year for sovereign sukuk, with the UK, Hong Kong and South Africa issuing [their] inaugural sukuks," Howladar said. "All three are non- Islamic countries, and the transactions indicate a significant change in the potential size, depth and liquidity of this market."

Volumes of sovereign sukuk have increased significantly over the last three years as governments in Asia, the Gulf Cooperation Council (GCC), Europe and now Africa seek to tap increased demand for Sharia-compliant financial assets and further support their domestic policy goals for Islamic finance.

By Babu Das Augustine Banking Editor – Gulf News 2015. All rights reserved.

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