Total Sukuk Issuance Declines to $74.5bn in First Half of 2022 –S&P
Total Sukuk issuance dropped to $74.5 billion in the first half of 2022 compared with $93.3 billion during the same period in 2021, both in local and foreign currency, according to a report by global rating firm, S&P Ratings.
The global rating firm said sustainability is becoming more prevalent, noting that over the past six months, several Sukuk transactions with a sustainability tag have come to market. From green to social, S&P is expecting to see higher volumes as issuers meet investors’ demands.
“We believe shrinking global liquidity, increasing complexity related to regulatory standards, and lower financing needs in some core Islamic finance markets will hold back issuance for the remainder of the year.
“Consequently, and even though we expect governments’ local currency issuances will continue to support the development of domestic capital markets, we now forecast total issuance of about $130 billion in 2022 versus $147.4 billion in 2021”.
The report sees issuance numbers not recovering in 2022, saying that most core Islamic finance countries saw declines, with only a few exceptions–such as Turkey, Bahrain, and the United Arab Emirates (UAE)–presenting marginally higher numbers.
Issuance in foreign currency also plummeted, according to the report. S&P said it has revised down its Sukuk issuance forecasts for 2022 to about $130 billion from the firm’s initial projection of $145 billion-$150 billion, while analysts see further risks building.
Historically, it said high inflation has prompted major central banks to change policy stance and accelerate rate increases, which has reduced global liquidity and made it more expensive.
Investors’ risk aversion has also increased, with major segments of the capital markets – for example, speculative-grade issuers – experiencing significantly lower activity in the first half of 2022 compared with 2021.
The Sukuk market, as a component of the global capital market, is not immune to global trends with issuers’ reduced financing needs. The rise in oil prices since 2021 has boosted the balance sheets of several issuers in core Islamic finance countries.
“We were therefore not surprised to see a decrease in issuance in first-half 2022. That said, in Saudi Arabia, we note an increase in local currency issuance volumes since the government aims to develop the local capital market. READ: Banks’ NPLs to Rise Double-Digit as CBN Forbearance Ends –S&P
“We also observe corporates’ continued caution regarding capital expenditure plans. The scars of the pandemic and uncertainty related to the financing environment have led many to rein in growth investments, turn to banks for funding, or start deleveraging”, S&P said. #Total Sukuk Issuance Declines to $74.5bn in First Half of 2022 –S&P
