KUALA LUMPUR: Sovereign long-term sukuk issuance is expected to edge up further in 2020, but lag growth in funding requirements, said Moody’s Investors Service.
Moody’s expects the global long-term gross sovereign sukuk issuance to rise to nearly US$75 billion, up from US$71 billion last year.
This took into account wider fiscal deficits and a drive to develop the market by major sovereign issuers.
Issuance volumes could rise more markedly if oil prices and demand were to be durably dampened as a consequence of the coronavirus outbreak.
This would then leadi to higher deficits and financing requirements among hydrocarbon-exporting issuers, including those in the Gulf Cooperation Council (GCC)1 and Southeast Asia.
“In 2021, we expect total long-term gross sovereign sukuk issuance to decline amid our expectation that fiscal positions of major issuers improve and a larger portion of government funding is met by external sources, likely in conventional format, as global market conditions stabilise.
“Beyond that, gross sovereign issuance will rise further as sukuk from GCC governments begin to mature,” the firm said in a statement today.
Moody’s said the relationship between fiscal deficits and net sukuk issuance among regular sukuk issuers had become more robust, in part because of governments' emphasis on developing domestic capital markets.
For example, Saudi Arabia financed nearly 54 per cent of its 2019 fiscal deficit through net sukuk issuance.
Before 2017, the kingdom relied entirely on conventional bonds, commercial loans and drawdowns from accumulated fiscal reserves.
Recent regulation also foreshadows the entry of new issuers, and reflects the wider acceptance of and demand for sovereign sukuk.
Moody’s saId landmark green sukuk offerings highlighted increasing international emphasis on environmental, social and governance (ESG) sukuk.
“Indonesia's maiden domestic retail green sukuk follows two international green sukuk offerings, while the Islamic Development Bank has become the first Aaa-rated issuer to offer green sukuk, potentially d catalysing similar transactions by other Islamic issuers,” it added.