2020 sukuk volumes resilient to coronavirus stress - Fitch

Fitch Ratings-Dubai/London-21 October 2020: The volumes of sukuk issuance in the full-year 2020 are expected to be similar to 2019 levels, despite the unprecedented stress from the coronavirus pandemic, Fitch Ratings says. As market conditions further recover, sukuk supply is expected to increase with increased funding needs.

Sovereigns are expected to remain the major contributors to overall sukuk volumes as they face widening fiscal deficits and high borrowing needs, caused by coronavirus-related economic disruptions and lower oil prices. Issuance from financial institutions and corporates is also set to increase as they face challenging business conditions and take advantage of lower funding costs.

Sukuk issuance with a maturity of more than 18 months from the Gulf Cooperation Council region, Malaysia, Indonesia, Turkey and Pakistan reached USD10.5 billion in 3Q20, 14.2% lower than the previous three months. The volume of outstanding Fitch-rated sukuk reached USD116.2 billion at end-3Q20.

The volume of outstanding Fitch-rated Green & Sustainability sukuk reached USD7.2 billion at end-3Q20. Despite the modest growth, the Green & Sustainable sukuk market is still in its infancy and not likely to become a sizeable part of the sukuk market in the short term.

The discontinuance of LIBOR could adversely affect the value of floating-rate sukuk referencing LIBOR or any other such benchmark. Sukuk also face the complexity of ensuring sharia compliance throughout the transition process. However, the bulk of the sukuk market is fixed-rate and so unaffected by the IBOR transition.

Standardisation efforts in the industry continue. The International Islamic Financial Market launched the new Sukuk Al-Ijarah documentation in October. In 3Q20, the Central Bank of Kuwait formed the Higher Committee of Shariah Supervision, and Turkey is also reported to have launched the legal infrastructure for participation finance.

Sukuk primary market trends are examined in Fitch's 'Global Sukuk Market Dashboard: 3Q20', available at www.fitchratings.com.

Copyright Press Releases 2020

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