Dubai – “ASWAQ”
New Sukuk issuances, although high in demand, had slowed down since the past year due to the persistent market uncertainty, according to the study on ‘Sukuk Perceptions and Forecast’ by Thomson Reuters-Barwa bank.
Year 2015 saw a drastic drop in total Sukuk issued in the first nine months by 38.6 per cent to US$48.8 billion, from US$79.5 billion for the same period in 2014, being issued in 12 currencies compared to 16 currencies over the same period in 2014.
Nevertheless, Sukuk market players are optimistic for arobust year ahead as the drop in oil prices has failed to curb investor appetite for Islamic bonds, since markets across the region have ample liquidity to meet credit demand at competitive pricing.
Islamic finance analysts said global Sukuk market is expected to sustain the upward trend in 2015 and will reach US$145 billion compared to US$116.4 billion in 2014. Sukuk represents approximately 15 per cent of the US$1.8 trillion in global Islamic assets, growing at around 20 per cent annually for the past five years, as revealed by the World Bank.
Thomson Reuters’ managing director for the Middle East and North Africa, Nadim Najjar said, “We understand that the volatility in global markets has made the issuers more cautious with their funding decisions, as a result the volume has substantially dropped. Apart from market conditions, the decision by Bank Negara Malaysia to cut short term Sukuk also resulted in further drop in Sukuk issuance.”
Najjar added, “As we have mentioned last year, the debutante sovereigns and corporates of 2014 may not continue to tap the Sukuk market in 2015 and it did not, but the outlook remains stable and growth is forecasted for the upcoming years. With a strong pipeline of US$32 billion from issuers in different countries and sectors, the Sukuk market is forecasted to grow by 15 per cent in 2016.”
Thomson’s study revealed that the potential demand and supply pipeline of sukuk is expected to grow, with demand expected to surpass supply substantially until 2020 reaching US$253.7 billion. The gap between supply and demand is initially forecasted to be US$115.9 billion in 2016, rising to US$145.6 billion in 2017 as demand is growing faster than supply. It is expected that supply will increase in 2016 by 15 per cent as governments of oil-exporting countries start issuing Sukuk to cover their deficits.
This growth is then expected to slide down to eight per cent in 2017 and steady growth will settle in three years thereafter from 2018 to 2020, to be in line with the expected growth of Islamic financial assets.
Despite the low oil prices and anticipation of increasing interest rates, the outlook for the global Sukuk market still remains positive, with many oil-exporting countries, such as Bahrain and Saudi Arabia, already considering Sukuk as a source of funding their budget deficits.