Global Sukuk issuance will decline for the third consecutive year to between USD 150 to 160 billion in 2023, from the 2022 tally of USD 178 billion, as the key Gulf sovereign issuers are witnessing stronger fiscal positions, according to the latest report by Moody’s Investors Service.
The decline will be driven by lower volumes from key sovereign issuers in the Gulf Cooperation Council (GCC) and Southeast Asia, directly stemming from the ongoing improving fiscal positions.
“In the GCC and Southeast Asia, robust commodity prices associated with sustained economic growth have translated into stronger fiscal positions and lower issuance needs,” the report remarked.
While interacting with the media, Ashraf Madani, VP-Senior Credit Officer at Moody’s Investors Service, said, “In the first half of 2023, sukuk issuance declined 28% year-on-year (YoY) to USD 66 billion, reflecting muted activity in Saudi Arabia, Indonesia and Turkey amid robust commodity prices.”
“Increased volumes from financial institutions and corporates, driven by first-time issuers, refinancings of near-term maturities and delayed issuances finally coming to market, was not enough to compensate for the decline,” the official added further.
“We expect issuance of USD 80-90 billion in the second half of the year, supported by a partial rebound in Southeast Asia and Turkey, as well as sustained strong volumes from corporates and financial institutions,” Madani predicted.
Despite the downtrend, Moody’s remained positive on the long-term prospects for sukuk, as it represents an excellent alternative to conventional financing and is highly compatible with environmental, social and governance (ESG) principles.
Sukuk even offers privileged access to the Gulf region, where significant financial reserves and solid economic prospects are reportedly attracting investors in increasing numbers.
“Demand for sukuk regularly exceeds the offer, explaining the attractive pricing some issuers achieve despite unfavourable financing conditions. As debt markets in core Islamic countries become more mature and economies continue to develop, we expect growth prospects for the sukuk market will remain solid,” Madani concluded.
Moody’s also stated that Qatar’s sukuk issuance was supported in the first half of 2023 by a USD 1.3 billion issuance by the government, as the Kingdom remained the leading contributor to GCC issuance activity in the first half of the year, with around 50% of total volume, while Oman was the only Gulf country, which didn’t see any issuance activity during the period.