Sukuk Issuance Slowdown after 5-Year Record Streak –Report
Global Sukuk issuance in 2021 set a new record for the fifth consecutive year, reaching a total of $196.5 billion, Refinitiv said in a report. Although this was a rise of 8.2% from $181.6 billion in 2020, which compares with average annual growth of 21% over previous five years, it added.
The report said after issuance built momentum at the start of 2021, it began to slow during the second half of the year as the global economy started its recovery and oil prices strengthened, reducing government borrowing needs in core Sukuk markets.
Total Sukuk issued in the first half of 2022 amounted to $100.9 billion, marginally lower than $104.2 billion a year before, according to the report. Excluding a substantial $6 billion issuance from Saudi Aramco in 2021, however, issuance was up 2.6%.
“At the start of 2022, the prevailing outlook was that the ongoing economic recovery and high oil prices would reduce government borrowing needs in core Sukuk markets within the GCC and Southeast Asia.
“While these developments had little impact on Sukuk issuance in Q1 2022, issuance eventually slowed on the back of multiple interest rate hikes and continued high oil prices.
“The slowing in the second quarter was mainly a result of smaller issuances by the Saudi government, whose funding requirements reduced amid soaring oil revenues”, it stated.
It noted that the Kingdom reported a $15.3 billion budget surplus in Q1, boosted by a 58% increase in oil income from the previous year.
Despite this, the government will continue to curb spending this year, signaling smaller issue sizes ahead, Refinitiv stated. It said at the start of the year, the outlook for Sukuk issuance in 2022 was mixed, though leaning towards an overall decline.
“While 41% of the Sukuk survey respondents expected total issuance in 2022 would exceed $180 billion in value, the remaining respondents had a more conservative view that issuance would fall below $180 billion”.
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Moreover, expectations that oil prices would be sustained above the $100 mark suggested lower borrowing needs and debt issuance from GCC sovereigns, contributing to a slowdown in global Sukuk issuance, it added.
However, continued robust demand for Sukuk and increasing budgetary pressures on emerging economies such as Malaysia, Indonesia and Pakistan have buoyed global issuance so far in 2022.
Refinitiv said Midyear issuances have passed $100 billion, reducing the likelihood of a significant drop over the full year.
According to the report, Sukuk were issued from entities based in 21 countries in 2021, led by Malaysia with a total $72.6 billion, Saudi Arabia with $49.9 billion and Indonesia with $23.4 billion.
These three jurisdictions contributed 75% of Sukuk issued in 2022. Malaysia maintained its usual lead in terms of annual issuance, but on a quarterly basis it was briefly overtaken by Saudi Arabia in Q4 2021 and Q1 2022, Refinitiv said.
Sukuk from Malaysian issuers dropped to around $15 billion in each of these quarters due to lower corporate issuance, before corporate activity picked up in the second quarter of 2022. Malaysia-based issuers raised $34.8 billion in H1 2022, 14% lower than in H1 2021.
It stated that Saudi Sukuk issuance activity slowed during the second quarter as the government reduced the size of its monthly domestic issues. Still, Saudi-based issuers raised $28.1 billion during H1 2022, compared with $24.2 billion during the same period in 2021.
Indonesia remained the third-largest issuance base, although activity in its domestic market slowed further from record levels in 2020 due to lower budget funding requirements.
Returning to the market after six years, the Senegalese government raised CFA330 billion ($525.4 million) for financing the acquisition of government buildings, among other projects. This was the sovereign’s third issuance since its market debut in 2014.
Sukuk issuance from Egypt continued for the third consecutive year, consolidating its status as an emerging Sukuk jurisdiction. To date, Egyptian corporates have issued Sukuk totaling $657.6 million.
However, the country’s debut sovereign Sukuk expected in Q1 2022 was postponed yet again, to the fiscal year ending in June 2023. The decision came as risk metrics highlighted a high likelihood of default on sovereign debt, as bond yields reached 13%, Refinitiv report noted.
# Sukuk Issuance Slowdown after 5-Year Record Streak –Report#