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Global sukuk market to halve in 2015 as major issuer exits-S&P

Dubai: The global sukuk market may halve to $50 billion-$60 billion in 2015 from $100 billion-$115 billion the year earlier, after the Central Bank of Malaysia (BNM)--one of the largest issuers of sukuk worldwide — stopped issuing earlier this year, Standard and Poor’s said in a report on Tuesday.

In the first half of 2015, BNM’s pullback saw total sukuk issuance drop by42.5 per cent compared with the same period a year earlier, the ratings agency said in a statement. Sukuk market performance in the first half of this year was also aided by returning sovereign issuers and large, albeit sporadic issuances from banks and a few nonfinancial companies in the Gulf states and Malaysia. In 2014, BNM alone issued about $45 billion of sukuk out of a total issuance of $116.4 billion.

“We understand part of the reason behind BNM’s decision was that its sukuk were subscribed to by a broad array of investors, preventing them from reaching their intended end-users (primarily Malaysian Islamic banks for liquidity management purposes),” Mohammad Damak, Global Head of Islamic Finance at S&P said.

Limited impact

The worldwide volume of sukuk issuance performed in line with our expectations, total issuance dropping by only 10.7 per cent.

The impact of falling oil prices on recurring government spending and investment projects in core markets (namely Gulf Cooperation Council countries and Malaysia) was limited in the first half of 2015.

The ratings agency expect this trend to continue in the second half of 2015, the effect of lower oil prices on sukuk issuance in 2016 remains uncertain.

“Such an effect will depend on whether there is a recovery in oil prices or whether governments in core markets decide to reprioritize their spending and avoid continuing using their reserves and tap the capital markets more aggressively to finance their spending,” the agency said in an emailed statement.

On a global level, the list of potential sukuk issuers continues to increase, but the timing of their issuance is uncertain.

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