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Moody's expects global sukuk issuance to moderate further in H2 at US$70-80 bln

12/09/2022 03:57 PM

KUALA LUMPUR, Sept 12 (Bernama) -- Moody’s Investors Service sees global sukuk issuance activity moderating further in the second half of the year (H2) at around US$70 - US$80 billion with Malaysia continuing to dominate the sector. 

“We expect Malaysia to continue to dominate global sukuk issuance, with issuance mostly denominated in local currency,” the rating agency said. “The Malaysian government's promotion of Islamic finance will encourage more corporate and financial institutions to turn to the sukuk market for funding and investments.”

“The government's persistent budget deficit should support issuance going forward, though at a lower volume,’’ it said in an in-depth sector report titled ‘Sukuk issuance to remain under pressure.’

However, Moody’s reckons that higher interest rates and market volatility will maintain pressure on issuance activity by corporate and financial institutions issuers in H2.

In addition, high oil prices have lowered the gross financing requirements of oil exporting countries. 

Issuance reached US$92 billion in the first six months of 2022 as stronger than expected issuance activity from Gulf Cooperation Council (GCC) sovereigns offset a drop in issuance in Southeast Asia and Turkiye.

However, the figures were lower than the US$102 billion recorded in the same period of 2021.

It said one-off issuances supported GCC activity in Saudi Arabia, and the total issuance rose by 27 per cent to US$44.3 billion. By contrast, volumes in Southeast Asia declined by 25 per cent to US$40.5 billion.

The region in the past has been the largest contributor to total sukuk issuances but was outperformed by GCC countries during the period.

“We expect lower government expenditure due to a decline in pandemic-related spending in Malaysia (A3 stable) and Indonesia (Baa2 stable) to reduce fiscal deficits, leading to lower issuance activity.

“However, the drop in government issuances of more than 40 per cent to US$14 billion in H1 compared with US$23 billion a year earlier surprised on the downside.

“Issuances by corporates and financial institutions were also down, though they showed more resilience compared with GCC peers,’’ it noted.

Turkiye, a key issuer in the sukuk market, recorded an even more significant drop in volumes, which fell by 41 per cent to US$7 billion.

Moody’s said long-term issuance remains the key contributor to the sukuk market and accounted for 68 per cent of the global supply of sukuk in H1 compared with 69 per cent for the same period in 2021.

It added that while issuance in Southeast Asia is likely to improve, it does not expect GCC's strong performance in H1 to continue into H2.

“High oil prices will support fiscal surpluses across the region, which will limit new sovereign issuances to refinancing maturing sukuk. Moreover, Saudi Arabia, the region's largest sovereign issuer, has indicated that it has completed its issuance programme for the year,’’ it noted.

Overall, the rating agency projects gross short- and long-term sukuk issuance of US$160 - US$170 billion in 2022, down from US$181 billion in 2021 and a record US$205 billion in 2020.

The decline mainly reflects lower sovereign issuance as major sukuk-issuing sovereigns' improved fiscal positions and higher interest rates pressure issuance activity, Moody’s said.



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