Thomson Reuters, the world’s leading provider of intelligent information for businesses and professionals, in partnership with Barwa Bank, Qatar’s newest Islamic bank in which government is a majority owner, released the findings of its fourth consecutive Sukuk Perceptions and Forecast study.
A buoyant 2014 had sukuk market players optimistic for another robust year but market uncertainty, especially with the drop in oil prices and the expected increase in global interest rates, have dampened activity in the market, Albawaba reported.
The global sukuk market in 2015 welcomed significantly fewer new issuers compared to 2014. In fact there was only one new issuer—the Omani government, which issued its debut sovereign sukuk in October, 2015 (Oman’s first sukuk was a corporate issuance from Al Tilal Development Company in 2013).
Total sukuk issued in the first 9 months of 2015 dropped a drastic 38.6% to $48.8 billion from $79.5 billion for the same period in 2014. The sukuk papers were also issued in 12 currencies in first nine months of 2015 compared to 16 over the same period in 2014.
Nadim Najjar, managing director, Middle East & North Africa, Thomson Reuters, said: “The global sukuk market in 2015 has dropped in terms of volume and we understand that the volatility in global markets has made the issuers more cautious with their funding decisions, as a result the volume has substantially dropped. Apart from market conditions, the decision by Bank Negara Malaysia to cut short term sukuk also resulted in further drop in sukuk issuance.”
He continued: “As we have mentioned last year, the debutante sovereigns and corporates of 2014 may not continue to tap the sukuk market in 2015 and it did not, but the outlook remains stable and growth is forecast for the upcoming years. With a strong pipeline of $32 billion, from issuers in different countries and sectors, the sukuk market is forecast to grow by 15% in 2016.”
Overall, the report found that the potential demand and supply pipeline of sukuk is expected to grow. Despite this increase, demand is still expected to outstrip supply substantially until 2020 reaching $253.7 billion. Initially the gap between supply and demand is forecast to be $115.9 billion in 2016, increasing to $145.6 billion in 2017 as demand is growing faster than supply.
It is expected that supply would increase in 2016 by 15% as governments of oil-exporting countries start issuing sukuk to cover their deficits. This growth will then slide down to 8% in 2017 and steady growth will settle in for the following 3 years (2018-2020) to be in line with the expected growth of Islamic financial assets.
Another area the report highlights is the effect of the drop in oil prices to sukuk. In the era of low oil prices and anticipation of increasing interest rates the outlook for the global sukuk market remains positive.
