2020 sukuk supply resilient with momentum to continue into 2021

GLOBAL sukuk (Islamic bond) supply is expected to accelerate in 2021 following a resilient 2020 as issuers seek to re-finance maturing debt and fund large budget needs.

Moreover, the easing of the Gulf Cooperation Council (GCC) investment restrictions following the normalisation of relations between Qatar and its neighbours will also contribute to higher volumes, according to Fitch Ratings.

“Innovative and diverse issuances like green, sustainable, transition and hybrid sukuk are likely to continue to attract wider investor demand,” the credit rating agency pointed out in a global sukuk outlook 2021 commentary.

“Sovereigns in key Islamic finance jurisdictions are expected to remain major contributors to overall sukuk volumes.”

Issuance from first-time sovereign issuers, financial institutions and corporates are also set to increase as they face challenging conditions as well as to take advantage of the current lower cost of funding.

According to Fitch Ratings, sukuk issuances with maturities of more than 18 months from the GCC region, Malaysia, Indonesia, Turkey and Pakistan fell slightly by 1.9% year-on-year (yoy)to reach US$41.3 bil in 2020.

The volume of total outstanding Fitch-rated sukuk reached US$118.6 bil, 12.9% higher yoy while Green & Sustainable sukuk supply increased sharply by 96.2% yoy to reach US$8.4 bil.

However, the rating outlook for sukuk remains challenged. The proportion of sukuk from issuers with negative outlooks increased sharply to 23.4% (2019: 1.5%) mainly due to COVID-19-related disruption and low oil prices.

“Only one international sukuk publicly defaulted in 2020: NMC Health plc (unrated by Fitch),” noted the credit rating agency. “About 81.3% of sukuk were investment grade.” – Jan 12, 2021

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