GCC sovereign sukuk issuance to rise in H2 2020

FE Team | Published: August 23, 2020 23:19:54

DUBAI, Aug 23 (Gulf News): A recovery in market conditions and an increase in the borrowing requirements of the world's largest sukuk sovereign issuers including the GCC governments will fuel a rise in nominal sukuk issuance this year, rating agency Moody's said in a recent report.
The recovery will support a full-year increase in sovereign sukuk issuance of around 40 per cent to $92 billion in 2020. However, despite an increase in nominal issuance, Moody's still expects the proportion of sukuk in the funding mix of major issuers will decline this year.
"While year-on-year sovereign sukuk issuance volumes remained flat in the first half of 2020 despite a significant increase in government financing requirements due to low oil prices and coronavirus related spending, we expect that issuance will bounce back over the rest of 2020 as market conditions normalise," said Thaddeus Best, an analyst at Moody's.
Beyond 2020, Moody's expect the sukuk market's growth prospects to remain strong. The slow recovery in oil prices is likely to keep funding requirements of GCC sovereigns elevated over the next three years.
In year-on-year terms, sovereign sukuk issuance was stable in the first half of 2020, in contrast to a broader increase in emerging market issuance. According to Moody's, the complex operational requirements for sukuk compared to conventional debt instruments, pressures on bank liquidity and an increase in borrowing costs kept sukuk issuance volumes flat despite rising borrowing requirements.