The steady issuance volume is due to sovereign sukuk issuances from Asia, GCC countries and Africa
By NG MIN SHEN / Pic By BLOOMBERG
GLOBAL sukuk issuances in 2018 rose to US$123.2 billion (RM512.51 billion), up 5.5% from the primary market sukuk issuances of US$116.7 billion in 2017, said the International Islamic Financial Market (IIFM) in its Annual Sukuk Report 2019 released recently.
The steady issuance volume during 2018 was mainly due to sovereign sukuk issuances from Asia, Gulf Cooperation Council (GCC) countries, Africa and certain other jurisdictions with Malaysia continuing to dominate the sukuk market, though shares of countries like Indonesia, the United Arab Emirates (UAE), Saudi Arabia and Turkey to some extent, increased as well.
Although still positive, this growth was moderate compared to 2017, when sukuk issuance jumped 45.3% to US$97.9 billion from US$67.4 billion in 2016 on jumbo issuances from certain GCC countries, as per data from S&P Global Ratings.
“The global sukuk market closed the year 2018 with a modest growth due to higher commodity prices, particularly oil, and the continuation of an increase in sovereign sukuk issuances, stable corporate sukuk issuances in certain jurisdictions, and a healthy sukuk issuance pipeline for 2019,” IIFM said in its report.
For 2018, interesting developments included growing interest in green sukuk, and sukuk with socially responsible investing (SRI) values, as well as sukuk issuance via blockchain technology.
Issuances of short-term sukuk by several jurisdictions from the Far East, GCC, Africa, Asia, the International Islamic Liquidity Management Corp and Kuveyt Turk Participation Bank also achieved a 90% growth last year, providing a boost to Islamic financial institutions’ liquidity management requirements.
Currently, 90.4% of the US$443.78 billion worth of sukuk outstanding globally were issued from well-established markets like Malaysia, Saudi Arabia, the UAE, Indonesia and Bahrain.
Other countries such as Turkey, Pakistan, Qatar, Oman and regions like Africa in particular are likely to gradually increase their market share in the coming years, IIFM stated.Global sukuk, with an issue size of US$100 million or above and with a tenure of more than a year that are set to mature during 2019 and 2020, stand at around US$73.34 billion, the report noted.
“Considering investors’ appetite and sukuk issuances in the pipeline, these maturing sukuk will likely be refinanced with new sukuk issuances, as has been the case in recent years,” the report said.
Total international sukuk issuance fell 14% to US$32.98 billion in 2018 from US$37.64 billion the year before, while domestic sukuk issuances rose 14% to US$90.16 billion from US$79.06 billion previously.
Malaysia was the largest contributor to domestic sukuk issuances with US$48.6 billion, followed by Saudi Arabia with US$14.2 billion, Indonesia with US$13.5 billion and Turkey with US$6.8 billion.
“A trend seen in the research is the continued growth in sukuk issuances from sovereign issuers while the quasi-sovereign, corporate and financial institution issuances also remained stable, contributing to an optimistic outlook for the sukuk market,” IIFM said.
Sovereign issuances in the domestic market made up 65% of the total issuance value in 2018, followed by corporate issuances of 17%, mainly due to the deep corporate sukuk market in Malaysia.
Key drivers of the market during the year in review were interest and entry of new jurisdictions and issuers, issuance of Tier 1 and Tier 2 sukuk (Basel III compliant sukuk), longer tenure sukuk including perpetual sukuk issuances by financial institutions, infrastructure sukuk and relatively larger volume of retail sukuk issuances, particularly from Indonesia.
Demand from GCC countries — namely from Bahrain, Saudi Arabia, the UAE and Oman, Malaysia, Indonesia, Turkey, Pakistan, Brunei Darussalam, the Islamic Development Bank and the African region — remain the main force in maintaining the appeal and growth of the global sukuk market.
Issuances of more debut sukuk and the refinancing of maturing sukuk have contributed in maintaining the positive sukuk volume trajectory, a trend that’s expected to continue, IIFM said.
“Stable to rising commodity prices including oil, possible hold in global reference rates, and the budgetary and development requirements of certain Islamic jurisdictions and institutions have positively contributed to sukuk issuance volumes in 2018 and this trend is expected to continue in 2019,” it added.
The use of gold in sukuk issuance by the Turkish Treasury and Sudan, and asset-backed sukuk issuance by the UK’s Al Rayan Bank were notable developments, with issuances likely to continue in the coming year.
Issuances of sukuk on a fixed profit rate are also set to ramp up, given the investors’ base for such Islamic bonds is far more diverse compared to the early years of sukuk issuance when investors were generally financial institutions.
“The sukuk issued on fixed profit rates provide more trading opportunities and are helping the development of the secondary sukuk market,” IIFM said.On a cumulative basis for the period of 2001 to 2018, Malaysia was the top sukuk issuer with combined domestic and international issuances of US$670 billion, followed by Saudi Arabia with US$118 billion and the UAE and Indonesia with around US$79.4 billion each.
“Malaysia, due to its deep capital market, continues to maintain its lead over its peers in Asia and the GCC region; however, the increase in issuan- ces from Saudi Arabia, Indonesia, the UAE and Bahrain has resulted in a reduction of Malaysia’s share in the global sukuk market in recent years,” IIFM noted.
“Sukuk’s commercial success should not lead us to ignore the underlying principles which are its distinguishing factors compared to conventional bonds. Sukuk is an innovative way to raise financing in a Shariah-compliant manner with strong links to the real economy,” IIFM chairman Khalid Hamad Abdul-Rahman Hamad said.