Record Saudi issuance supports strong growth in sukuk market: Fitch

Sukuk issuance in core Islamic finance markets will grow at least as rapidly in 2017 as it did last year, Fitch Ratings said in a report on Tuesday, noting that its expectations were enforced by Saudi Arabia's record $9 billion issue.

“The heavily oversubscribed Saudi sukuk suggests the main limitation on growth is likely to be the relatively limited pool of potential near-term issuers, rather than limited demand,” Fitch said.

New sukuk issuance with a maturity over 18 months from the core Islamic finance markets –including the Gulf Cooperation Council (GCC) region, Malaysia, Indonesia, Turkey and Pakistan – totaled $24.1 billion in the first four months of the year, an increase of 11 percent from the $21.7 billion issued in the entire first half of 2016.

The share of sukuk in the total issuance in these markets has also risen to 37 percent so far this year, from 30 percent in H1 2016.

“Sukuk issuance in the core markets is already 60 percent of the total for 2016, but we do not expect any further issues this year to even approach the size of Saudi Arabia's sukuk, and if the Saudi authorities were to tap international markets again this year, we believe it would probably be via a bond,” Fitch said.

Issuance is expected to tail off after May, after the start of Ramadan, it added, noting that it expects more issuers to enter the market in the longer term.

“More banks may use sukuk and bonds for reasons including building capital buffers, diversifying their funding sources and taking advantage of relatively low funding costs. These trends will vary from country to country,” it said.

Corporate issuance are also expected to increase in core markets as structures become more standardized and transparent following the introduction and updating of sukuk laws in the past few years, Fitch said.