Moody’s foresees a substantial increase in Sukuk volumes from Saudi Arabia and the GCC - IFN

Moody’s foresees a substantial increase in Sukuk volumes from Saudi Arabia and  the GCC

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GLOBAL: In spite of the decelerated pace in Sukuk issuances this year, Moody’s carries an optimistic view on the Sukuk landscape for 2014. Based on a special comment released by the ratings agency yesterday, global Sukuk offerings are likely to maintain positive long-term growth trends. This is attributed to the increasing demand for Islamic financial assets and services; the growing familiarity and comfort of global investors with Sukuk instruments; a heightened support from governments of Muslim countries; and an improved standardization of unsecured Sukuk structures. Due to volatile market conditions, Sukuk issuances for 2013 is expected to only exceed US$51 billion, a cumulated amount that is much lower than US$81 billion recorded last year. Given the extensive financing needs of the region, Sukuk volumes are estimated to rise particularly among GCC-based borrowers issuing in foreign currency. Speaking exclusively to Islamic Finance news, Khalid Howladar, vice-president and senior credit officer at Moody’s, said: “Across the region, concentration risk is an issue for banks which is starting to limit their lending to large corporates particularly the government-related entities. This should push these corporates out to the bond and Sukuk market and that should create more volumes in the Gulf. An example of this is the recent UAE central bank guidelines for banks seek to limit their lending to large corporates. UAE in particular should see a lot more global issuance in the next few years.” The Arabian Gulf countries will continue to dominate foreign currency issuances. As their currencies are pegged to the US dollar, GCC countries possess a stronger presence in the international Sukuk market. Khalid points out that the GCC region requires a deeper base of institutional investors such as pension, insurance and Takaful funds in order to create deeper pools of local liquidity beyond the banks. “I think Saudi will see a material increase next year, there’s a lot of demand that will support good pricing levels. Banks in particular may use the opportunity to term out the maturity profiles of their funding,” adds Khalid. Commanding two-thirds, or US$168 billion, out of total Sukuk issued, Malaysia continues to dominate the Sukuk market. The country seeks to convert up to 40% of its domestic financing to be Shariah compliant by the year 2020. However as it is mostly denominated in Malaysian ringgit, the country’s Islamic debentures are said to have limited their appeal to international investors.