Amidst a lower interest budget, Global sukuk issuance is poised to surge above $150bn this year

S&P Global stated that both the Sovereign as well as corporate borrowers are all poised to power in the overall Sukuk deals within this year in 2021.

As per the statement given by the global head of Islamic finance at ratings agency S&P Global, Mohamed Damak the universal Sukuk Issuance is all poised in to spring back within this year 2021 to as much as $151 billion with the huge rush as observed in borrowers to trade out Sharia-compliant bonds amid low interest rates.

He further added to in the report that: The overall this years Financial Recovery within the three fundamental Islamic Financial Markets- the Malaysia, Indonesia as well as the GCC driven by abundant liquidity powered by the territories Central Banks globally, will power out the expansion within the Market.

As forecasted the overall issuance within the year 2021, will be in the net worth of $140-$150Bn range. As per the lower end of the forecasted budget, the overall market size this year in 2021, would be just over the $139.6bn net worth as witnessed during preceding year 2020, and however, lower than the $167bn record as witnessed within two years ago as in 2019.

Mr Damak stated “Market conditions should remain buoyant throughout 2021, with record-low interest rates and abundant liquidity.”

“We also expect GDP growth in the core Islamic finance countries … to recover from a sharp recession in 2020 [and] we assume that the price of oil will stabilise at about $50 per barrel in 2021. Together, these factors underpin a stronger performance by the global sukuk market in 2021.”

For powering the volumes of issuances, the ratings agency assumes that $65Bn of the Sukuk would mature within this year, with a part of that amount to be refinanced.

“Their activity was muted in 2020 as they held on to cash and deferred capital expenditure because of the pandemic,” Mr Damak said. “They [corporate sector issuers] are likely to execute some of this capex in 2021, thereby necessitating access to capital markets.”

While some sovereigns in fundamental Islamic finance nations will tap the sukuk market more combative manner in 2021, the market will also take an advantage from the augmented sale of corporate Islamic bonds.

First Abu Dhabi Bank, the UAE’s biggest bank by assets, on Monday said it elevated $500m through the lowest ever profit on a five-year dollar-denominated sukuk by a Middle East and North Africa bank. Valuing on the initial dollar sukuk deal of the year signified a “negative new issue premium” when compared to FAB’s January 2025 maturity sukuk, the lender added.

Central banks around the world have rolled out economic impetus measures the preceding year to provision financial markets and limit the influence of the pandemic on their economies. Interest rates have been set near or below zero in many countries.

Lower interest rates are anticipated to remain in place this year and beyond, as the global economy endures to recover. The International Monetary Fund assumes that the global GDP to develop 5.2 percent in 2021 after contracting 4.4 percent the preceding year.

“We expect central banks will retain interest rates exceptionally low and endure to offer liquidity support as compulsory,” Mr Damak stated.

S&P evaluated a sukuk market revival is based on the statement that the pandemic will come under control steadily in the core nations from the second quarter of 2021, via a blend of vaccines, medical treatments and testing.

However, shortcoming perils for the core Islamic economic nations remain noteworthy, including their capability to regulate the pandemic even with the accessibility of vaccines.

“The main risk is that further waves of Covid-19 and the requisite containment measures may harm the nations’ fragile economic recovery,” Mr Damak said. “This could affect the nations directly, or indirectly through lower commodity prices, exports and capital flows.”

S&P envisages the number of defaults or rearrangements among sukuk issuers with low credit quality will upsurge in 2021 as “supervisory moderation measures come to a closure”.

“This will test the sturdiness of the legal documents used for sukuk issuances,” it warned.

Mr Damak assumes a unified global legal and supervisory framework for Islamic finance market to develop over the next 12 to 18 months. “We believe that such a framework could help resolute the deficiency of standardisation and harmonisation that the Islamic finance trade has faced for decades.”

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