2020 Sukuk supply resilient with momentum to continue into 2021—Analysts

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By Kayode Tokede

A group of analysts at Fitch Ratings have on Tuesday said Global Sukuk supply is expected to accelerate in 2021 following a resilient 2020 as issuers seek to refinance maturing debt and fund large budget needs.

According to them, “The easing of GCC investment restrictions following the normalisation of relations between Qatar and its neighbours will also contribute to higher volumes.

“Innovative and diverse issuances like green, sustainable, transition and hybrid Sukuk are likely to continue to attract wider investor demand.”

They explained that Sovereigns in key Islamic finance jurisdictions are expected to remain major contributors to overall Sukuk volumes.

“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.

“Qatari sukuk volumes are expected to gradually rise after the normalisation of relations between Qatar and its GCC neighbours, and the eventual easing of investment restrictions for Islamic investors based in countries such as Saudi Arabia and UAE.

“Sukuk issuances with maturities of more than 18 months from the GCC region, Malaysia, Indonesia, Turkey and Pakistan fell slightly by 1.9 per cent y-o-y to reach $41.3 billion in 2020.

“The volume of total outstanding Fitch-rated sukuk reached $118.6 billion, 12.9 per cent higher y-o-y. Green & Sustainable sukuk supply increased sharply by 96.2 per cent y-o-y to reach $8.4 billion.

”However, the rating outlook for sukuk remains challenged. The proportion of sukuk from issuers with Negative Outlooks increased sharply to 23.4% (2019: 1.5%), mainly due to Covid-19-related disruption and low oil prices. Only one international sukuk publicly defaulted in 2020: NMC Health plc (unrated by Fitch). About 81.3% of sukuk were investment grade.

“The ICE Benchmark Administration has announced a consultation on the cessation of a number of USD Libor reference tenors being delayed from December 2021 to June 2023, to give extra time for the transition. However, the bulk of the sukuk market is fixed-rate and largely unaffected,”they added.