|01-20-2015, 05:22 PM||#1|
Global sukuk issuance at risk of slowdown this year, S&P says
Sukuk issuance in the world might weaken this year as emerging markets are witnessing a slowdown and as investor demand was hit by fragile sentiment on lower oil prices, Standard & Poor’s (S&P) said.
For 2015, S&P expects global sukuk issuance between $100 billion and $115 billion, nearly the same as the past two years, countering estimates of double-digit growth for Islamic finance assets.
Sovereign and corporate sukuk are the most preferred Islamic financial products, and are mainly used for project financing and raising capital, substituting conventional bonds.
S&P said that a likely setback in Malaysia’s economic growth and in Gulf Cooperation Countries (GCC), who are the main source of sukuk issuance, would hurt the Islamic financial products market.
Demand for sukuk could be hurt by a possible decline in global liquidity when the U.S. Federal Reserve raises interest rates.
Also, the growth Islamic finance products have been supported by GCC banks, which their strength is likely to be lessened from lower oil prices.
Some argue that lower oil prices could in fact, increase debt issuance and in particular, sukuk from Gulf governments and government-related firms.
Gulf States with low fiscal reserves and high spending agendas, such as Bahrain and Oman, will be possibly in need to issue more sovereign debt to pacify the effect of lower oil revenues.
The main case for stronger sukuk issuance could be that materializing public deficits in oil-dependent countries driving more issuance in 2015.
Also, sovereigns who are trying to diversify their funding sources and enhance domestic Islamic capital markets are likely to step up their issuance this year.
The U.K., UAE and Malaysia are striving to become global Islamic finance hubs, and further sovereign sukuk issues would be key in improving price transparency, liquidity and risk evaluation for their markets.
Tunisia is planning to enter the market this year with a $500 million sukuk later this year.
Nigeria, Egypt, Mexico, Korea and the Philippines among others have shown interest in sovereign sukuk issuance but have not yet gone into it.
The slowdown in emerging markets is not helping, as less demand for debt and in particular sukuk would not make it worthwhile for an increased supply of sukuk in the global market.
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