Sukuk off to strong start in 1Q - Fitch
Source: Middle East Insurance Review | Jun 2015
Total new sukuk from the GCC and seven other issuers rose 13% y-o-y in the first quarter of this year despite tough market conditions, said Fitch Ratings in a report.
The seven issuers are Malaysia, Indonesia, Turkey, Singapore, Pakistan, Sri Lanka and Taiwan.
Total sukuk and bond issuance in the first quarter was up 47% from the fourth quarter of 2014 when volumes were exceptionally weak, due to falling oil prices and rising geopolitical tension. In the first quarter, however, stability in oil prices enabled some new deals. Sukuk accounted for 26% of total new issuance, marginally down from 31% in the fourth quarter.
Loans (Islamic and conventional syndicated loans) in the GCC and Malaysia were down 25% in the first quarter. However, the quarter to quarter share of Islamic finance deals was up by 198% and accounted for 20% of total new loans, which came mainly from Saudi Arabia and the UAE.
Two notable large sukuk issues in the first quarter were by IDB Trust Services Limited and RAK Capital, at US$1 billion each. In the quarter, the total sukuk issuance volume rated by Fitch grew 3.5% to $45.1 billion, with sovereigns and corporates taking near-equal shares of sukuk issuance at 37% and 36% respectively, followed by financial institutions at 26%.
Fitch expects Islamic finance to continue growing rapidly, with issuance for new sovereigns likely to come from Jordan, Tunisia and Egypt this year. Moreover, liquidity will become more important due to declining oil reserves and also because GCC governments are keen to continue to spend and expand. This could translate to more sukuk issuance, rather than the usual easy bank financing. Islamic banks are also trying to strengthen their balance sheets in preparation for Basel III, which means tapping the sukuk market.