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Decline in corporate sukuk reflects GCC investor unease

The GCC was not the place for sukuk issuance in H1 2018, although the global picture is unchanged.

At end-June 2018, total global Sukuk issuance slipped by 5.2% to $50.3 billion from $53.0 billion a year earlier, CPI Financial said on Zawya.

Saudi Arabia, for example, experienced a negative 37.9% growth in issuance.

Video: Saudi Arabia returns to Dollar-bond market

It added that RAM Rating Services Berhad, the leading and largest credit rating agency in Malaysia and South-East Asia, announced that it maintains its projected global Sukuk issuance at $75 billion- $85 billion.

“This is based on the growth trends in Sukuk issues from Malaysia, Indonesia as well as Bahrain, Kuwait and UAE in H1 2018,” said CPI.

Ruslena Ramli, Head of Islamic Finance at RAM, said, “Overall, the Sukuk market’s showing in 2018 will depend on the performance of the global economy and the state of investment recovery in key Islamic finance countries.”

Related: Why GCC corporates’ Sukuk issuance dried up

GCC issuance decline

RAM said the GCC posted a contraction of 19.1% to $21.3 bn against $26.3 bn at the end of June 2017.

Five Gulf Arab issuers raised around $2.6 bn through Islamic bonds in H1 2018, representing a 60% sharp decline from the first half of 2017, U.S. credit rating agency Standard and Poor’s (S&P) said Tuesday.

The “muted” corporate and infrastructure issuance of Islamic bonds, known as Sukuk, in the GCC was due to “somewhat diminished funding needs, as many GCC corporations continue to operate with relatively limited investment programs,” S&P explained and or “regional and international political developments that have increased investors’ risk perception of the GCC over the past 12 months.”

“Among the five issuers this year was Dubai’s government-controlled carrier Emirates Airline, which launched Sukuk worth $600 million in March,” said S&P.

Video: New Saudi bond issue to cover debt

Timucin Engin, an S&P credit analyst, does not expect the Islamic bonds market to “change much in the second half of 2018.”

According to S&P, the introduction of the value-added tax (VAT), energy subsidy reforms, and other government revenue-enhancing initiatives have also “created pressure and uncertainty.”

However, the GCC’s sovereign Sukuk issues took up the lion’s share of 67.6% of its total Sukuk issuance, according to CPI.