Global sukuk supply expected to accelerate in 2021: Fitch Ratings

Doaa A.Moneim , Tuesday 12 Jan 2021

The reconciliation deal signed between GCC countries, Egypt and Qatar is also expected to contribute to higher volumes of investments

Fitch Ratings

Global sukuk supply is expected to accelerate in 2021 following a resilient 2020 as issuers seek to address the elevated debt and to meet large budget needs caused by COVID-19, Fitch Ratings on Tuesday.

The reconciliation deal signed between GCC countries, Egypt and Qatar is also expected to contribute to higher volumes of investments.

In this regard, Fitch expected that Qatari sukuk volumes will gradually increase after the normalisation of relations with its GCC neighbours, and the eventual easing of investment restrictions for Islamic investors based in countries like Saudi Arabia and UAE.

Fitch Ratings also said that green, sustainable, transitional and hybrid sukuk, as innovative investment instruments, are likely to continue attracting wider investor demand appetite.

For Islamic finance, Fitch expected sovereign funds in key Islamic finance countries to remain major contributors to overall sukuk volumes, while issuance from first-time sovereign issuers, financial institutions and corporates are set to increase as they face challenging conditions and take advantage of the current lower cost of funding.

Sukuk issuances with maturities of more than 18 months from the GCC region, Malaysia, Indonesia, Turkey and Pakistan dropped slightly by 1.9 percent (Y-o-Y) to reach $41.3 billion in 2020, while the volume of total outstanding Fitch-rated sukuk reached $118.6 billion, a 12.9 percentage higher (Y-o-Y) over the year.

It added that green and sustainable sukuk supply rose significantly by 96.2 percent (Y-o-Y) to reach $8.4 billion in 2020 as well.

Yet, according to Fitch, the rating outlook for sukuk remains challenged, especially that the proportion of sukuk from issuers with negative outlooks increased sharply to 23.4 percent in 2020, up from the 1.5 percent in 2019.

Fitch attributed it to the COVID-19 pandemic, its related disruption and the low oil prices.

For the sake of diversifying its investment instruments and making benefit of Islamic investments, Egypt announced in November its intention to issue first sovereign sukuk.

The cabinet approved in November the sovereign sukuk draft law, to be submitted to parliament for approval, and then to President Abdel-Fattah El-Sisi for ratification.

The action paves the way for Egypt to be a part of the Islamic finance world, which recorded a $2.7 trillion in transactions by the end of June, according to the finance ministry.

Despite the COVID-19 crisis that has hit world economies, this year's global sukuk volumes are expected to match last year's and sukuk supply is expected to increase with the rise in funding needs, according to a report by Fitch Ratings in October.

According to the October report, sovereigns are expected to remain the major contributors to overall sukuk volumes as they face widening fiscal deficits and high borrowing needs, caused by the dual shock of coronavirus-associated economic disruptions and the collapse in global oil prices.

The volume of outstanding Fitch-rated green and sustainability sukuk reached $7.2 billion at the end of the third quarter of 2020.

Throughout September and October, Egypt issued sovereign governmental green bonds, worth $750 million, domestically and in the London exchange stock market, the first of their kind in the Middle East and North Africa.

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