GCC Issuances Help Drive $42.2bn Sukuk Market In 2019

Global sukuk issuance rose 6 percent in 2019 as the range of issuers and investors broadened, although supply is still concentrated geographically, according to Fitch Ratings.

Sukuk issuance with a maturity of more than 18 months from the Gulf Cooperation Council (GCC) region, Malaysia, Indonesia, Turkey and Pakistan totalled $42.2 billion in 2019, up from $39.8 billion in 2018.

The 2019 figure was nearly 40 percent higher than 10 years earlier, although below the record high reached in 2017, Fitch said.

The agency said long-standing structural impediments to growth remain although, as more corporates tap the sukuk market, legal precedents could eventually be set clarifying creditor treatment in a default.

Last year's increase was driven by an uptick in Q4. In October, Saudi Arabia priced a $2.5 billion ten-year issue as part of its systematic efforts to diversify its budget financing and help develop the regional shariah-compliant debt capital markets.

Fitch said sukuk supply has diversified geographically over the last decade, having initially been dominated by issuers from Malaysia and Bahrain.

It added that a more recent trend has been diversification by investor and issuer type. Robust demand from the traditional investor base of Islamic banks who buy for investment and liquidity management purposes has been boosted by other regional and international investors, some of whom have dedicated sukuk funds or sub-funds.

The agency said new products and borrowing strategies are still emerging. Local currency and longer-dated issuance has been a recent feature of some markets, such as Saudi Arabia, adding that maturities have extended, increasing the volume of sukuk outstanding.

About three-quarters of outstanding sukuk will mature in the next nine years, so refinancing should support issuance volumes over the medium term.

Green sukuk have also been issued and sukuk targeted at retail investors are a nascent asset class.

"The importance of sovereigns as major issuers means that geo-political risks will remain relevant to sukuk volumes. Over time, supply may emerge from new jurisdictions, for example in North Africa. Until then, we believe the 'trickle down' effect of issuance extending from sovereigns to corporates in established sukuk jurisdictions will be the biggest source of new issuers," Fitch noted.

It added that while further growth in the market is likely, long-standing structural constraints remain. These include a lack of standardisation and legal uncertainties relating to creditor treatment and enforceability in a distressed situation.