RIYADH: The global sukuk issuance for the second quarter is building up even as it faces short-term uncertainties amid continued macro volatilities, revealed US-based Fitch Ratings in its report released on Wednesday.
“Islamic investor’s liquidity and investment appetite continues to be supportive of the longer-term sukuk story,” said Bashar Al-Natoor, the global head of Islamic finance at Fitch Ratings, in its global outlook report.
The sukuk issuance business declined 18.5 percent in the first quarter of 2023 to $45.3 billion compared to the year-ago period due to market volatilities and lackluster investor appetite.
“Persistent macro volatilities and uncertainties, contraction in global liquidity and investor risk appetite, and monetary tightening is affecting sukuk and bond issuance in regions where Islamic finance is active,” added Al-Natoor.
This is mainly attributed to the surge in crude oil prices, which has reduced new financing needs for many oil-exporting sovereigns.
However, Malaysia, Bahrain, and several core oil-importing countries still have funding needs and are expected to have budget deficits in 2023.
Last month, US credit rating agency Moody’s Investors Service announced that improved fiscal positions of energy-exporting issuers like Saudi Arabia will help stabilize long-term sovereign sukuk issuance at around $80 billion in 2023 and $80 billion to $85 billion in 2024.
The macroeconomic situation will continue to boost fiscal balances of energy-exporting sovereign sukuk issuers, with most Gulf Cooperation Council region countries recording budget surpluses in 2023-2024.
“Consequently, GCC issuance in 2023 will be mainly driven by governments’ decisions to refinance or repay maturing sukuk using surplus funds,” said Alexander Perjessy, the vice president and senior credit officer at Moody’s.
“We expect lower gross issuance from GCC to be broadly offset by higher volumes elsewhere, particularly in Indonesia, where domestic sukuk issuance dipped significantly last year,” he continued.
The report also said that recently announced new government sukuk initiatives by the Kingdom and Egypt provide a minor upside risk to their sukuk issuance forecasts. Furthermore, Saudi Arabia aims to introduce a domestic sukuk savings program for ordinary retail investors.
Earlier this month, Saudi Arabia’s National Debt Management Center announced the closure of the riyal-denominated sukuk program issuance for April, with the total bid amount received at SR2.471 billion.
