The global sukuk market ended the difficult year of 2020 more or less flat. Issuances with maturities of more than 18 months from the GCC (Gulf Cooperation Council) region, Malaysia, Indonesia, Turkey and Pakistan fell by 1.9% year-on-year to US$41.3 billion, according to data from Fitch Ratings.
Despite the slight drop in volumes, the market is expected to recover this year amid growing confidence in the global economy with the rollout of Covid-19 vaccines. More specifically, Fitch believes sovereigns in key Islamic finance jurisdictions will remain major contributors to boosting overall sukuk volumes as they address upcoming maturities.
“Issuance from first-time sovereign issuers, financial institutions and corporates are to increase as they face challenging conditions and take advantage of the current lower funding cost,” the rating agency notes in “Global Sukuk Market Dashboard: 4Q20”.
The normalization of relations between Qatar and its GCC neighbors earlier this month also signals better times ahead, as regional stability could lay the foundation for both issuer and investor confidence going forward. Investors in the region have already welcomed the diplomatic move, with Qatar’s National Bank stock price rising by around 5% since the start of 2021.
Rising interest in green or sustainable sukuk will also to play an important role in further growing the global sukuk market this year, with issuers looking for ways to either diversify their investor base or gain a pricing benefit by adopting sustainable practices. In 2020, there were several interesting sukuk issuances across key Islamic markets, including Malaysia-based Cagamas’ 450 million ringgit (US$108.40) SRI sukuk in October 2020, aimed at providing affordable housing in the country.
Last September, the Saudi Electricity Company executed its US$1.3 billion green sukuk, the first such issuance for a corporate in the kingdom. The sukuk was well received by investors with the orderbook oversubscribed four times. The Republic of Indonesia, a frequent sukuk issuer, also joined the sustainability drive, issuing a US$750 million green sukuk tranche last summer as part of the sovereign’s US$2.5 billion sukuk issuance.
Having proven to be a viable fundraising location, Taiwan could see additional interest from GCC issuers this year. In 2020 the likes of First Abu Dhabi Bank and Qatar Islamic Bank issued their respective Islamic bonds in the market. In 2019 Taiwan revised guidelines allowing foreign companies to issue sukuk on the island.
With plenty of opportunities in the global sukuk market, there is a prediction that sukuk issuance will rise to between US$140 billion and US$155 billion in 2021, according to rating agency S&P Global Ratings. In 2020 global sukuk issuance was forecast to be around US$139.8 billion.