Moody’s: Malaysia continues to dominate the sukuk market in Southeast Asia

by S BIRRUNTHA / pic by TMR FILE 

MALAYSIA is expected to continue to dominate global sukuk issuance with activity primarily denominated in local currency, according to a report by Moody’s Investors Service yesterday.

Moody’s VP-senior analyst Ashraf Madani said Malaysia remains the largest contributor with issuances up 15% at US$37.5 billion in the first half of 2021 (1H21) compared to 1H20.

He noted that Malaysia’s leadership in terms of issuance is also partly due to large local currency-denominated short-term issuances by sovereign, corporates and financial institutions.

Sukuk issuance in Southeast Asia rose 22% year-on-year (YoY) in 1H21 with increased issuance from all sectors (sovereigns, financial institutions, corporates and short-term issuances).

Meanwhile, Madani said the global sukuk issuance will be flat or slightly lower this year after five straight years of strong growth, as higher oil prices have reduced sovereign funding needs in gulf cooperation council (GCC) countries.

He added that the total gross short-term and long-term sukuk issuance in 2021 to reach between $190 billion and $200 billion after a record $205 billion in 2020.

He said nevertheless, the year started strongly with some $102 billion in sukuk issued in the six months to June 2021, up from $99 billion in the same period of 2020. 

“Reduced issuance from GCC governments was partly offset by stronger activity in the corporate sector, while issuance rose significantly in Southeast Asia. 

“We expect issuance of between $90 billion to $100 billion in the second half of the year, bolstered by continued economic recovery, improved liquidity in debt markets and strong investor demand,” he added.

Madani said however, sovereign issuance from GCC countries will be lower than in the same period last year due to smaller fiscal deficits on account of higher oil prices.

He noted that the improving economic conditions and high funding needs will support issuance activity in Southeast Asia.

Meanwhile, Madani also expects Sukuk issuance activity to remain healthy for the second half of 2021 (2H21).

“We expect continued solid sukuk issuance in the second half of the year, driven by increased sovereign activity in Malaysia and Indonesia where funding needs remain high. 

“We also anticipate increased issuance from corporates and banks. But sovereign sukuk issuance from hydrocarbon exporting states will moderate because higher oil prices have reduced their financing needs,” he added.

Moving forward, Madani said the sukuk market will maintain its long-term growth trend, backed by new entrants, low penetration and innovative new Islamic products, such as green and sustainable sukuk.