KUALA LUMPUR: The global sukuk market is heading towards a correction this year due to a 42.5 per cent pullback in issuance by Bank Negara Malaysia, said Standard &Poor’s Rating Services.
In its latest report, the sovereign rating agency said the central bank’s gesture has opened up opportunities for the International Islamic Liquidity Management Corp (IILM) and the Islamic Development Bank (IDB) to step up their issuance.
It has revised the forecast for total sukuk issuance in 2015 to about US$50 billion-US$60 billion from US$100 billion-US$115 billion, assuming no issuance from Bank Negara in 2015.
It said the market performed relatively well despite the declin in oil prices, supported by an increase in the potential sukuk issuers.
According to S&P global head of Islamic finance Mohamed Damak, in the first half of 2015, Bank Negara's pullback saw total sukuk issuance drop by 42.5 per cent compared to last year.
For 2014, Bank Negara issued over US$45 billion of sukuk out of a total issuance of US$116.4 billion.
"We understand part of the reason behind BNM's decision was that its sukuk were subscribed to by a broad array of investors, preventing them from reaching their intended end-users (primarily Malaysian Islamic banks for liquidity management purposes). “
S&P said the worldwide volume of sukuk issuance dropped by only 10.7 per cent, confirming that the impact of falling oil prices on recurring government spending and investment projects in core markets (namely Gulf Cooperation Council [GCC] countries and Malaysia) was limited in the first half of 2015.
“While we expect this trend to continue in the second half of 2015, the effect of lower oil prices on sukuk issuance in 2016 remains uncertain.”
Such an effect, he said, will depend on whether there is a recovery in oil prices or whether governments in core markets decide to reprioritise their spending and avoid using their reserves and tap the capital markets more aggressively to finance their spending.
Sukuk market performance in the first half of this year was also aided by returning sovereign issuers (from core and noncore markets) and large sporadic issuances from banks and a few non-financial companies (corporates) in the Gulf states and Malaysia.
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