Global sukuk issuance to reach $200bn this year, Moody's says

Total issuance is likely to stay below the record $205bn achieved last year amid the pandemic

The Riyadh skyline. Saudi Arabia was the biggest GCC sukuk issuer in the first six months of this year. Reuters

Global sukuk issuances in 2021 are likely to remain below the record levels achieved in 2020, as higher oil prices and continued economic recovery reduce financing needs of sovereigns in the Gulf region, Moody’s Investors Service has said.

Gross short and long-term sukuk issuances in 2021 are expected to reach between $190 billion and $200bn, the ratings agency said in a report on Tuesday.

Volumes will however be below the $205bn recorded in 2020, it added.

Economies of oil-rich Gulf states have bounced back strongly from the twin shocks of an oil price slump and the pandemic.

Rapid mass vaccination campaigns and monetary and fiscal measures by governments and central banks in the region have supported the economic rebound.

"[The overall] sukuk issuance will be flat or slightly lower this year,” said Ashraf Madani, a vice president and Analyst at Moody's.

“We expect issuance of between $90bn and $100bn in the second half of the year, bolstered by continued economic recovery, improved liquidity in debt markets and strong investor demand.

"However, sovereign issuance from GCC countries will be lower than in the same period last year.”

Sukuk issuance in the GCC fell 19 per cent in the first half to $35.3bn, owing to a “significant drop in sovereign issuance”.

Saudi Arabia remained the largest issuer in the GCC, accounting for around 62 per cent or $22bn of the total volume – down from $24.5bn in the first half of 2020.

Oil prices this year have also risen to above $70 per barrel, which has helped the sovereigns boost revenues and cut their budget deficit.

Demand for crude has been steady as the pandemic-linked movement restrictions ease and economic activity picks up.

The International Monetary Fund expects the world economy to expand 6 per cent in 2021 after last year plunging into its worst recession since the 1930s.

Moody’s expects sovereign issuances in Malaysia and Indonesia, where funding needs remain high, to drive sukuk issues in the remainder of the year.

“We also anticipate increased issuance from corporates and banks,” Moody’s said.

"A steady stream of new issuers have joined the sukuk market in recent years and we expect this trend to continue.”

Moody’s expects green sukuk issuance to also accelerate this year as governments promote sustainable policy agendas, prompting new issuers to consider it as an alternative financing tool.