Moody’s said on Tuesday that higher crude prices have reduced the financing needs of oil-rich Gulf governments. Due to this, Global Sukuk issuance will be slightly lower or flat this year after five straight years of strong growth. Issuance increasing will be seen in the first half of the year by 3% to US$102 billion despite the expected volume as sales are driven from Malaysia and Indonesia.

Issuance volume declined by 19% in Gulf while increased by 22% in the first half of total issuance in Southeast Asia. Reduced issuance from Gulf Cooperation Council partly offset the stronger activity in the cooperate sector.

Stronger activity in the corporate sector was partly offset by the reduced issuance from GCC (Gulf Cooperation Council) government as said by Moody’s. Continued large financial needs in Malaysia and Indonesia will drive strong issuance from that region and Moody’s observed total Sukuk issuance this year in between US$190 billion. And US$200 billion from a record US$205 billion last year. 

Continued economic recovery, strong investor demand and better liquidity in the debt markets will also be helped by the continued economic recovery. Which is long outstripped by the supply of Sukuk. COVID-19 pandemic and last year’s historic oil price crash gave a double shock to the economies of the heavily hydrocarbon-dependent Gulf. 

Activities in non-oil sectors in the Gulf have also begun to recover and roughly double lows reached in March last year as Brent crude is now trading at around US$72. Certain Sharia compliance standards have slowed the issuance of Sukuk from the Gulf as sources have told Reuters the adoption by the United Arab Emirates. 

Issuance in the United Arab Emirates and Bahrain declined to 65% to US$4 billion in the first half and a long-term growth trajectory is expected to continue in Sukuk market. Acceleration in the issuance of instruments like green Sukuk, new issuers and low penetration will bolster the volume. Saudi Arabia’s and Maldives oil giant Aramco debuted in the market this year. 

Muhammad Asim