Islamic Bond Issuance Falls Globally in H12018
(26 July 2018 - Malaysia) The total global issuance of Islamic (sukuk) bonds fell 5.2 percent year on year to $50.3 billion. Sukuk bonds are a type of debt that complies with Shariah, or Islamic law that among others bans the charging of interest and speculation.
Islamic bonds replace coupons with pay-outs derived from profit-generating tangible assets, such as leases or a joint venture. Declining volumes in the Middle East contributed to the result the most prominently according to Malaysian ratings agency ‘RAM Ratings. Lower issuance in Qatar, Saudi Arabia and Turkey were a result of budget tightening, negatively impacting sovereign sukuk issuance. Malaysia continued to lead sovereign issuance, notching a 4.7 percent increase to $19.4 billion in the first half of 2018 and representing 38.7 percent of global market share. Lower issuance by Saudi and Qatar caused total issuance by the GCC to drop by 19.1% to $21.3 billion in the first six months of the year.
Private sector Issuance accounted for 72 percent of the securities with the balance attributed to sovereign sukuk. Malaysia’s leading position has been under siege as other emerging markets build out their respective sukuk markets in addition to Malaysia's newly installed government reviewing infrastructure projects approved by the previous government. Malaysia has led the promotion of Islamic finance, encouraging its public and private sectors via incentives to issue sukuk as an alternative fundraising method. Indonesian sukuk issuance has risen 52.6 percent to $6.6 billion, backed by a 10-year Islamic finance masterplan unveiled in 2016. But unlike Malaysia, 95 percent of Indonesian issuance came from the public sector. RAM attributed the gap between the two countries partly to a negligible cost difference compared to fundraising through bank loans and a lack of knowledge about sukuk issuance in the corporate sector. Indonesia also became the first country to issue green sukuk worth $1.25 billion in February to finance projects including renewable energy and waste management.
Green bond issuance is set to pick up pace as governments seek to promote sustainable policy agendas by encouraging private capital into low-carbon and climate-resilient infrastructure projects according to ratings house Moody's. Five companies issued green sukuk in Malaysia worth $924 million since last July to fund energy projects, according to RAM. The sukuk market in 2018 will depend on the performance of the global economy and the state of the investment recovery in key Islamic finance countries said Ruslena Ramli, RAM's head of Islamic finance. RAM forecasts that global sukuk issuance for 2018 will reach between $75 billion and $85 billion, lower than the 2017 total of $97.3 billion.
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