GCC to lead global sukuk issuance in 2019: Moody’s

Global sovereign and supranational sukuk issuance will recover in 2019, after a decline last year, and surpass its record-high volumes by 2020 - and possibly sooner - if oil prices remain moderate, Moody's Investors Service said in a recent report.

The recovery in issuance stems from higher deficit financing needs amid moderate oil prices, in particular for sovereign issuers in the Gulf Cooperation Council (GCC), higher sukuk refinancing needs especially in Malaysia, and a gradual increase in the share of sukuk in major issuers' fiscal deficit financing, Moody’s added.

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“In the medium-term, gross issuance will rise further as the sukuk issued by the GCC governments begin to mature and are refinanced via new issuance,” said Alexander Perjessy, a Moody's Vice President - Senior Analyst and author of the report.

Noting that the commitment to sukuk market development will drive deepening in global sovereign sukuk market, the report said Malaysia has by far the largest stock of outstanding long-term sovereign sukuk ($84 billion), followed by Indonesia and Saudi Arabia, with around $40 billion each, Moody’s report added.

The three sovereigns, and Qatar, have been the most active in promoting the market's development. During 2015-18, sukuk issues filled nearly 80 percent of Malaysia's fiscal deficit financing needs whereas they covered about a third of Qatar's and Indonesia's fiscal deficit and around 14 percent of Saudi Arabia's, Moody’s noted.

The Islamic Development Bank remains by far the largest issuer among the supranationals with more than $16 billion of outstanding sukuk at the end of 2018.

Also see: Moody's affirms stable outlook for GCC sovereigns

By 2020, Moody's expects total sovereign and supranational sukuk issuance, including short-term securities, to surpass the all-time high of $93 billion, reached in 2012, up from $78 billion in 2018.

The report said a deepening of the global sukuk market will allow sovereigns to diversify further their sources of financing.

It will also provide a source that is more stable than conventional bonds given the strong structural demand for Shari'ah-compliant securities from Islamic financial institutions.