07/12/2017 11:13 AST

Moody’s says in a new report that the global sukuk market will continue to rebound from a sharp drop in volumes in 2015, supported by rising sovereign issuance, product innovation, increasing demand from retail banks and a narrowing of spreads over conventional bonds. "Sovereigns have underpinned a recovery in the global sukuk market this year, with their issuance increasing by 50% in the first eight months of 2017," says Christian de Guzman, a Moody's vice president -- senior credit officer and one of the report's authors. "We expect sovereign sukuk issuance volumes will continue to grow in 2018 as governments look to diversify their financing mix and satisfy the liquidity needs of Islamic retail banks."

Moody's estimates total sukuk issuance will reach around $95bn by the end of this year, after touching more than $85bn in 2016, including more than $50bn of sukuk issuance by sovereigns. High borrowing needs for GCC sovereigns will continue to support sovereign sukuk issuance through 2018 which Moody's expects to reach around $148bn in terms of volume.

GCC countries drove the market's growth in 2017 with Saudi Arabia raising the lion's share of sukuk during the year to a total of $17bn, or 40% of global long-term sovereign sukuk issued in the first eight months of this year with the trend looking likely to continue over the medium term, driven largely by fiscal deficits caused by ultra-low oil prices. Other countries with large fiscal deficits to tackle, such as Oman and Bahrain -- estimated at 11.9% and 13.4% of GDP in 2017 respectively -- will also contribute to the market's expansion.

Other factors contributing to higher sovereign sukuk issuance include demand from domestic banks, and product innovation. Outside of the GCC, Malaysia continues to lead in sukuk volumes; though in recent months its share has been falling. Nonetheless, it remains the largest sukuk market with an estimated 43% of total sovereign sukuk outstanding in 2016.

On the other hand, Indonesia's share in annual sukuk issuance has increased to 30% in 2016 (from just under 10% in 2010) and will likely grow with the government's efforts to develop the Islamic finance sector.

Although the number of new entrants into the sukuk market has declined since 2014, important debut issues have helped revitalise the overall market. For instance, Nigeria issued its first sukuk this year and a number of sovereigns have indicated that they intend to take advantage of the asset-based nature of sukuk financing to finance their sizeable infrastructure needs, including Niger (unrated), Kenya, Ghana, Morocco, Tunisia and Algeria (unrated).

FTSE Global Markets

Ticker Price Volume
QNBK 135.21 176,223
SABIC 110.24 4,338,435
ALMARAI 53.98 562,958
BURUJ 34.51 80,357
PETRORABIGH 24.75 1,456,662
STC 78.66 497,315
WALAA 33.30 525,591
Index Closing Change
NIKKEI 225 21,380.97 -99.93 (-0.46%)
DAX 12,307.33 90.31 (0.73%)
S&P 500 2,716.94 4.02 (0.14%)
Asian business sentiment hits 7-year high


Business confidence among Asian companies rose in the first quarter to the highest level in seven years, a survey showed, as a fresh surge by the Chinese economy offset concerns about rising trade ba

Oman Daily Observer

Pakistan seeks to support Islamic finance industry


The Pakistan government is mulling a dedicated division at the finance ministry to deal with the affairs of fast-growing Islamic banking industry in Pakistan, Adviser to Prime Minister on Finance Mif

Gulf Times

UK inflation slows to 2.7%: official data


Britain’s annual inflation rate slowed in February as food and transport costs rose by less than one year ago, official data showed on Tuesday. “The Consumer Prices Index (CPI) 12-month rate was 2.7

Gulf News

Trump plans to hit China with $60 billion in annual tariffs


Following up on his threat to punish Beijing for intellectual property theft, US President Donald Trump is preparing to hit China with a $60 billion annual tariff package. The tariff package, which T

Oman Daily Observer

China forms new economic team as Xi kicks off 2nd term


China elevated a key confidante of President Xi Jinping to one of the top positions in government yesterday as Beijing cracks down on riskier financing and a debt build-up that may pose systemic risk

Gulf Times