Dubai: World sukuk issuances that slowed in 2020 in comparison with the earlier yr is predicted to select up momentum in 2021 led by GCC, and different key Islamic international locations in line with score company Customary & Poor’s.
S&P expects market circumstances to stay buoyant all through 2021, with record-low rates of interest and ample liquidity. It forecasts complete sukuk issuance of about $140 billion–$155 billion this yr, because of a restoration in issuance in Malaysia, Indonesia, and the GCC international locations. This compares with a drop in issuance to $139.8 billion in 2020 from $167.3 billion a yr earlier.
“We count on GDP progress within the core Islamic finance international locations — the GCC international locations, Malaysia, Indonesia, and Turkey — to get well from a pointy recession in 2020. We additionally assume that the value of oil will stabilize at about $50 per barrel in 2021. Collectively, these components underpin a stronger efficiency by the worldwide sukuk market in 2021 than in 2020,” mentioned Mohamed Damak, World head of Islamic Finance at S&P.
Probably surge in 2021
S&P expects that some sovereigns within the core Islamic finance international locations will faucet the sukuk market extra aggressively in 2021 together with elevated issuance by corporates.
The company exercise was muted in 2020 as they held on to money and deferred capital expenditure (capex) due to the pandemic. They’re prone to execute a few of this capex in 2021, thereby necessitating entry to capital markets.
We count on GDP progress within the core Islamic finance international locations — the GCC international locations, Malaysia, Indonesia, and Turkey — to get well from a pointy recession in 2020. We additionally assume that the value of oil will stabilize at about $50 per barrel in 2021. Collectively, these components underpin a stronger efficiency by the worldwide sukuk market in 2021 than in 2020.
– Mohamed Damak, World head of Islamic Finance at S&P
Lastly, $65 billion of sukuk mature in 2021, and a part of this sum is prone to be refinanced on the sukuk market.
Rebound in demand
The score company expects pandemic to come back below management step by step in developed international locations from second-quarter 2021, via a mix of vaccines, medical therapies, and testing, and extra extensively within the second half of the yr. This could enable for a lifting of many
social-distancing measures, a resumption of worldwide journey, and a rebound in non-public demand.
Whereas governments’ financing wants are prone to decline in 2021 in contrast with 2020 because the oil worth stabilizes and their economies develop, S&P analysts assume that a part of these wants might be happy with sukuk issuance.
In 2020, some governments within the core Islamic finance international locations issued typical bonds moderately than sukuk, since they’re simpler to construction, and reportedly enable them to faucet a wider investor base.
Central banks additionally diminished their issuance quantity in a lot of the core Islamic finance international locations in 2020, as they injected liquidity into banks and inspired banks to lend it to corporates at preferential charges in response to low oil costs and the pandemic. This meant that the banks had met most of their economies’ financing wants and corporates had much less have to problem sukuk.
DIEDC performs a key position in standardisation
Over the following 12-18 months, there was important progress on the unified world authorized and regulatory framework for Islamic finance that the Dubai Islamic Economic system Growth Middle (DIEDC) and its companions are creating.
DIEDC launched into this challenge with the Islamic Growth Financial institution and the UAE Ministry of Finance and several other different advisors in 2020.
“Relying on the result of the challenge, issuers might profit from a speedier and extra streamlined course of to faucet the Islamic finance market. Traders might also acquire better readability on sukuk decision within the case of default. Total, the business might revenue from better integration of all its parts, together with banking, takaful, and capital market actions,” mentioned Damak.
The financial shocks in 2020 have elevated credit score threat for banks within the core Islamic finance international locations. Nevertheless, this threat has not but absolutely materialized on banks’ steadiness sheets due to the regulatory forbearance and liquidity assist measures carried out in lots of the international locations. In accordance with S&P, the extension of those measures in most international locations has additional delayed the materialization of credit score threat.
“We’re prone to see a rise in default charges amongst corporates and doubtlessly sukuk issuers within the subsequent 12 months, particularly these with low credit score high quality or enterprise plans that rely upon supportive economies and market circumstances. We see strain on actual property builders particularly, given the drop in actual property costs within the GCC and the constructing dangers within the industrial actual property sector,” mentioned Damak.