Nasdaq Dubai listed a $1 billion green Sukuk by Islamic Development Bank in December 2019. S&P analysts anticipate total sukuk issuance of $160 billion to -170 billion in 2020. Image Credit: Nasdaq Dubai

Dubai: Global sukuk issuance in 2020 is expected to surge further on the back of strong growth in 2019 supported by continued demand for issuance from GCC countries and core Islamic finance markets, according to rating agency Standard & Poor’s.

“Although global financial conditions should remain highly accommodative next year, we don’t expect additional easing by the US Federal Reserve and only a marginal deposit rate cut by the European Central Bank in 2020. In addition, more than $10 trillion of debt has negative yields. Therefore, we think that issuers with a good credit story will continue to tap the market with relative ease,” said Mohamed Damak, Senior Director and Global Head of Islamic Finance at S&P.

Total sukuk issuance increased to $162 billion in 2019, compared with $129 billion in 2018. Sukuk issuances from Malaysia, Saudi Arabia, Indonesia, Turkey, and Qatar supported the activity of the market.

S&P analysts anticipate total sukuk issuance of $160 billion to -170 billion in 2020, including $40 to $45 billion of foreign currency issuance. This represents about 5 per cent growth on the $162 billion seen in 2019.

Top issuers

In addition to the GCC, Malaysia and Indonesia, leading issuers last year included the International Islamic Liquidity Management Corporation, and to a lesser extent other private sector and government-related entity issuers.

Saudi Arabia supported the market with higher issuances of local currency denominated government sukuk under its unlimited programme and a few private sector issuers tapping the market.

Qatari issuers returned to the market through sovereign and bank issuances and Kuwait’s central bank continued to offer sukuk as liquidity management instruments for Kuwaiti banks.

In contrast, issuance volumes increased slightly in Bahrain and dropped in the UAE. In Bahrain, the government had less need to tap capital markets because funds from the $10 billion GCC support package began to be disbursed. For the UAE, there was a marginal drop explained by corporates front-loading their issuance programs in 2018 to prepare for less supportive market conditions.

In the wider Middle East, Turkey increased its volumes, with total sukuk issuance of $13.8 billion in 2019, compared with $8.4 billion in 2018. Turkish issuers have been under significant pressure in recent months given their major reliance on external debt and declining rollover ratios.

Bright outlook

While adoption of new data technology such as blockchain is expected to ease documentation and increase issuance volumes, the rising demand for Green sukuks too is likely to help boost issuance volumes.

Event risk has rapidly escalated in the Gulf region following recent developments between Iran and the US. Although a fully-fledged direct military confrontation is not anticipated by S&P analysts, they view any escalation could impact market sentiment.

“We consider that a potential intensification of proxy conflicts will further undermine confidence and investment in the region,” said Damak.