Sukuk market flat over first nine months of 2019, says Fitch

Sukuk issuance with a maturity longer than 18 months reached $30.6bn in the year to September

FAB maintained a strong balance sheet amid challenging market conditions. Chris Whiteoak / The National

Sukuk issuance remained flat in the first nine months of the year, and total volumes for 2019 will depend on "geopolitical developments that could have a positive or negative effect on investor appetite", as well as the needs of individual borrowers, according to Fitch Ratings.

Sukuk issuance with a maturity longer than 18 months reached $30.6 billion in the first nine months, slightly lower than the $31bn (Dh113.8bn) issued in the same period last year, the ratings agency said. The figures tracked issuance from the Arabian Gulf, Malaysia, Indonesia, Turkey and Pakistan.

"This supports our view that volumes normalised rather than declined last year after hitting record levels in 2017," the agency said in a note. Sukuk issuance over the nine-month period averaged $29.3bn between 2012-16.

The market for sukuk, or Islamic bonds, has grown strong over the past decade as more investors have sought Sharia-compliant assets.

Turkey and Indonesia were among the main sovereign issuers of US dollar-denominated sukuk, and the Islamic Development Bank Trust and First Abu Dhabi Bank were two of the biggest corporate issuers, tapping debt markets for $1.5bn and $850m, respectively.

However, these figures do not include numbers for sukuk issued in local currencies, which is rising rapidly as Gulf countries set up their own debt management offices and issue debt in local currencies, even when these are pegged to the dollar.

Saudi Arabia, for instance, has an ongoing sukuk issuance programme in Saudi riyals which saw it issue 8.8bn riyals (Dh8.61bn) in September alone. The kingdom also issued its first 30-year sukuk denominated in riyals in April this year.

"GCC debt markets are still relatively developing, and individual sovereign funding decisions can profoundly affect total supply. For example, the Saudi Debt Management Office said earlier this year that it plans a new benchmark international Islamic bond issuance as part of its plans to diversify the financing of its national budget deficit, which could boost the 2019 total if executed before year-end," Fitch Ratings said.

The ratings agency added that lower oil prices will also lead to increased borrowing by oil-exporting sovereigns. It forecasts an average oil price of $65 per barrel this year, down from $71.60 per barrel last year.

In August, rival ratings agency Moody's projected that total sukuk issuance (in any currency) would increase by 6 per cent to $130bn this year, after hitting $87.4bn in the first six months.