Sukuk issuance with a maturity of more than 18 months from the GCC region, Malaysia as well as Indonesia, Turkey and Pakistan totalled $39.8 billion in 2018 - a decline of nearly one-third from the previous year.
Wednesday 30, January 2019 BY KUDAKWASHE MUZORIWA
Fitch ratings said that Sukuk issuance is more likely to recover in 2019 than fall further owing to the oil prices projected to average $65 per barrel.
In a report, Fitch stated that average oil price will support both conventional as well as Sukuk issuance and debt issuance will constitute a larger share of GCC sovereigns' funding given reduced drawdowns from government reserves.
Indonesia made history last year by issuing the first sovereign green Sukuk. Also, the UAE's new debt law is expected to support the federal government to issue sovereign bonds and Sukuk.
Similarly, Saudi Arabia among other sovereigns maintained regular Sukuk issuance in their domestic market last year to improve market functioning and liquidity. Fitch expects this trend to take time to translate into large-scale corporate Sukuk issuance is regions where banks remain the primary source of debt funding, especially in the GCC.
Additionally, recent initiatives to boost standardisation include the agreement between the Malaysia-based Islamic Financial Services Board (IFSB) and the Accounting and Auditing organisation for Islamic Financial Institutions (AAOIFI) in Bahrain to cooperate on prudential, Shari’ah accounting and governance standards is also expected to stabilise Sukuk issuance.
However, long-standing constraints on the expansion of Islamic finance remain, notably the lack of standardisation of product structure, documentation as well as financial reporting and Shari’ah codification.