Fitch says GCC issuers have continued to access the sukuk market to diversify their funding mix and develop the Islamic debt markets in the region
International sukuk issuance from major Islamic finance markets was almost unchanged in the first nine months of 2019 compared with the same period last year, according to Fitch Ratings.
Full-year volumes could still be highly influenced by the funding needs and strategies of large individual borrowers which may come to the market before year-end, as well as by geopolitical developments that could have a positive or negative effect on investor appetite, the agency said in a research note.
Sukuk issuance with a maturity of more than 18 months from the Gulf Cooperation Council (GCC) region, Malaysia, Indonesia, Turkey and Pakistan totalled $30.6 billion in the first nine months of 2019 compared to $31 billion in the year-earlier period.
"This supports our view that volumes normalised rather than declined last year after hitting record levels in 2017," Fitch said.
It added that GCC issuers have continued to access the sukuk market to diversify their funding mix and develop the Islamic debt markets in the region.
Substantial international US dollar-denominated issuance in 2019 included deals from Turkey, Indonesia, Islamic Development Bank Trust Services Limited and First Abu Dhabi Bank, raising a total of $6.5 billion.
These figures do not capture the recent growth in domestic local-currency issuance, such as Saudi Arabia's riyal-denominated local issuance programme, Fitch noted.
Beyond the GCC, Malaysia remained the key source of sukuk supply in 2019. Increased volumes have been driven by Bank Negara Malaysia providing more short-term Islamic Treasury Bills to aid liquidity management at Islamic financial institutions, and also by a surge in local-currency corporate issuance.
"We think new issuance volumes in the coming years will also be supported by refinancing activity. Nearly two-thirds of the $99.4 billion of outstanding Fitch-rated sukuk at the end of June mature in less than five years," the research note said.
It added: "Macroeconomic and geo-political conditions will also affect sukuk issuance. Lower oil prices, which we forecast to average $65/barrel this year and $62.5 next year, down from $71.6 in 2018, tend to increase borrowing by oil-exporting sovereigns," it added.
Fitch also warned that long-standing structural obstacles to sukuk market growth remain. These include a lack of standardisation across sukuk documentation and product structure, financial reporting and sharia codification. Legal uncertainties relating to creditor treatment and enforceability in a default remain largely untested.