SINGAPORE: Standard & Poor’s Ratings Services said corporate and infrastructure sukuk issuance is likely to rise over the next few years, despite a dip in issues over the past eight months compared to the same period of 2013.
Issuance has trended downward this year in the Gulf Cooperation Council (GCC) and Malaysia, dropping 33 per cent and 7 per cent, respectively.
By contrast, total sukuk issuance (including financial institutions and sovereigns) grew by 19 per cent in the GCC and by 6 per cent in Malaysia over the same period.
"We attribute the decline in corporate and infrastructure sukuk in large part to cheap and ample bank liquidity, which has made issuers less reliant on the capital markets,” said Standard & Poor's credit analyst Karim Nassif.
The overall small pool of sukuk issuers, and seasonal factors such as the early Ramadan this year, have also played a role, he added.
"We nevertheless believe corporate and infrastructure sukuk issuance will increase again over the next few years as companies' refinancing needs grow and as entities establish themselves as sukuk issuers," said Nassif.
In a report titled "Why Corporate And Infrastructure Sukuk Issuance Is Declining, Despite Healthy Prospects", the rating agency said corporate and infrastructure issuance is likely to remain more volatile and difficult to predict than total sukuk issuance.
It will likely remain largely a function of the specific needs of the corporate and infrastructure entities that comprise the pool of sukuk issuers in the GCC and Malaysia.
“Continued high levels of bank liquidity and uncertainty among investors about compliance standards continue to hold back growth of the corporate and infrastructure sukuk market, “ said the report.
Nassif said the creation of local or regional institutional investment frameworks, for example, to enable pension or insurance funds to invest in sukuk, would go some way toward creating a deeper and more liquid sukuk market.