Friday 29 Mar 2024
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KUALA LUMPUR (March 14): Malaysia continues to dominate global sukuk issuance volumes both in the long- and short-term market, according to Moody's Investors Service. 

“In 2017, issuances by Malaysian corporates, financial institutions and the sovereigns represented 34% of total global issuances. Within Malaysia, we expect that sukuk issuance among Islamic financial institutions will grow 10% to 13% year-on-year (y-o-y) in 2018,” it said in a report on Islamic finance yesterday. 

According to Moody’s, sukuk issuance grew 17% in 2017, amounting to around US$100 billion. This was the second highest long-term issuance in history, after the US$83 billion issued in 2012.

However, the growth is expected to remain broadly stable in 2018, driven largely by large Gulf Cooperation Council (GCC) sovereigns issuance, although the recent recovery in oil prices could potentially lower financing needs.

“Corporate and asset-backed sukuk activity was muted in 2017 because of more attractive conventional market opportunities and we expect the same in 2018. Longer term, issuances in these sectors could be a source of growth underpinning the industry's potential. 

“We expect sukuk issuances to remain broadly stable between US$90 to US$100 billion in 2018,” the report added.

Meanwhile, Moody’s forecasted corporate issuances will remain regionally concentrated and driven by a handful of issuers such as Malaysia, Indonesia and the GCC countries. 

“We expect international sukuk issuance volumes among these corporates to remain low, but be driven by government-related issuers (GRIs) as the Malaysian government uses GRIs as vehicles to expand the country’s sukuk market. 

“A majority of the rated Malaysian corporates have solid credit profiles, and thus benefit from strong access to the bank and domestic bond markets. This reduces the need to issue international sukuk, which could entail an added level of complexity to bank loans or conventional bonds issued to international investors,” Moody’s added.

Nitish Bhojnagarwala, a Vice President and Senior Analyst at Moody's said: "The Islamic finance sector will be supported by governments, whose objective is to grow the Islamic finance industry both domestically and globally, as well as by continued demand for Islamic products from individuals." 

In a statement today, Moody’s said it expects the Islamic finance sector worldwide to continue to show strong growth, as it remains under-represented in the global financial systems.

“The growth of the Islamic finance sector will continue to outstrip the growth of conventional assets across core Islamic finance markets in coming years, as demand for Shari'ah-compliant financial instruments rises,” the statement added.

Malaysia continues to remain a key sovereign issuer in the global sukuk market, although it’s share of annual sovereign sukuk issuance has fallen to 22% in 2017, from 58% in 2010. 

Malaysia retains top spot for the largest Islamic issuer, with an estimated 44% of total sovereign sukuk outstanding in 2017.

Sovereign issuances (including government-related entities and multilateral development banks) increased by 44% in 2017 compared with a year earlier, reaching US$55 billion. Sovereigns accounted for 70% of total long-term issuances in 2017. 

“We estimate that total sovereign sukuk volumes will remain stable in 2018, although some of the large issuances in 2017 may not be repeated in 2018, driving a marginal decline in the overall value,” Moody’s said.

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