Global sukuk issuance to drop as much as 28% in 2018

Tighter liquidity, geopolitical risk and slow progress on standards to hit Islamic debt sales

Tighter liquidity thanks to higher US interest rates may hit global sukuk issuances in 2018, according to S&P. Ryan Carter / The National

Global sukuk issuance may drop by as much as 28 per cent in 2018 on the back of tighter liquidity, mounting geopolitical risks, and slow progress on standardisation, according to ratings agency S&P.

Sukuk issues rose 45 per cent year-on-year to US$97.9 billion in 2017, the highest level since 2014, boosted by Saudi Arabia’s $9bn inaugural sukuk in April and other GCC sovereign issuances, S&P said on Monday in its Global Sukuk Market Outlook.

But tighter global liquidity stemming from US interest rate rises and slower asset purchases by the European Central Bank, coupled with geopolitical risk considerations in the Middle East, will push issuances down to between $70-90bn this year.

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“Overall, we think that the cost of funding for issuers will rise and that liquidity from developed markets channelled to the sukuk market will reduce or become more expensive,” the agency said.

The ongoing diplomatic standoff between Qatar and its neighbours, combined with “continued animosity between Iran and the GCC countries,” may also dampen the appetite of US and European investors for GCC-issued sukuk, it said.

Saudi Arabia’s budget for 2018, unveiled last month, contained a projected 117bn riyals (worth of total debt issuance for the year ahead, compared with 134bn in 2017, with issuances capped at 30 per cent of GDP.

Meanwhile, slow progress on the standardisation of Islamic finance products may also act as a brake on the overall sukuk market in the coming year, S&P predicted, as highlighted by the recent standoff between Dana Gas and its creditors.

The Abu Dhabi-listed energy firm declared $700 million worth of sukuk non-Shariah compliant in June, citing recent developments in Islamic finance.

A December 25 hearing on the legality of the sukuk in a Sharjah court was adjourned, with no indication as to when the next hearing will take place.