Fitch Ratings: Sukuk issuance rose in 2019 as diversification continues

Fitch Ratings-London/Dubai-11 February 2020: Global sukuk issuance rose 6% in 2019 as the range of issuers and investors broadened, although supply is still concentrated geographically, Fitch Ratings says. Long-standing structural impediments to growth remain although, as more corporates tap the sukuk market, potentially including those with weaker credit profiles, legal precedents could eventually be set clarifying creditor treatment in a default.

Sukuk issuance with a maturity of more than 18 months from the Gulf Cooperation Council (GCC) region, Malaysia, Indonesia, Turkey and Pakistan totalled USD42.2 billion in 2019, up from USD39.8 billion in 2018. The 2019 figure was nearly 40% higher than ten years earlier, although below the record high reached in 2017.

Link to Infogram: Sukuk and Conventional Bond Issuance

Last year's increase was driven by an uptick in 4Q19. Decisions by major borrowers to tap the market are still a significant determinant of sukuk volumes. In October, for example, Saudi Arabia priced a USD2.5 billion ten-year issue as part of its systematic efforts to diversify its budget financing and help develop the regional shariah-compliant debt capital markets.

Sukuk supply has diversified geographically over the last decade, having initially been dominated by issuers from Malaysia and Bahrain. A more recent trend has been diversification by investor and issuer type. Robust demand from the traditional investor base of Islamic banks who buy for investment and liquidity management purposes has been boosted by other regional and international investors, some of whom have dedicated sukuk funds or sub-funds. The inclusion of both conventional bonds and rated sukuk from five GCC countries in the JP Morgan EM Bond Index from 2019 has supported this process.