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Fitch: Sukuk issuance slows in 1H15; external conditions drag

Link to Fitch Ratings' Report: Islamic Finance Monitor 1H15

Fitch Ratings says in a new report that total new bonds and sukuk (with a maturity of more than 18 months) from the Gulf Cooperation Council (GCC), Malaysia, Indonesia, Turkey, Singapore, Pakistan, Sri Lanka, and Taiwan (GCC+7) declined 27% in 1H15 from a year ago.

Bonds were down 30% and sukuk by 16%. In 2Q15 sukuk accounted for 20% of total new issuance, marginally up from 18% in 2Q14.

The decline is driven by falling oil prices, challenging external funding conditions due to the expected Federal Reserve interest rate hike, and uncertainties over Greece during 2H15. These factors have led to increased volatility in global financial markets, making it more challenging to raise funds in sukuk core markets and emerging markets in general.

In 1H15 GCC sukuk and bond issuance declined 25% yoy. Loans (Islamic and conventional syndicated loans) in the GCC+7 issuers were down 7% in 2Q15. However, Islamic finance deals were up 47% yoy in 1H15 and accounted for 13% of total new loans. Islamic finance deals share in 2Q15 increased 9.5%, which was lower than in 1Q15 at 16.5%, but still above the last few years’ average of 7%. Islamic deals came mostly from the GCC – mainly Saudi Arabia and the UAE.

Strong sovereign and financial institution (FI) sukuk Issuance in 1H15, notably the Republic of Indonesia issued a USD2bn 10-year wakala sukuk due in 2025, which is the largest single-tranche US dollar sukuk issuance in Asia. Key FI sukuk issues in 2Q15 were by Dubai Islamic Bank and Noor bank at USD750m each.

Corporates continued to be relatively quiet in terms of issuance. In 2Q15 the total sukuk issuance volume rated by Fitch grew 7.2% to USD48.3bn, with sovereigns standing at 39% and corporates at 34%, followed by FI accounting for 27%.