Sukuk market will remain subdued in 2017, says S&P

Global sukuk issuance fell short of market expectations last year, although it was higher than in 2015, according to a new report by S&P Global Ratings.

The agency said it believes the sukuk market will remain subdued in 2017, since the issuance process is still quite complex.

When oil prices started falling in 2014, several market observers predicted an issuance boom from 2015, arguing that governments in oil-exporting countries would tap the sukuk market to maintain their spending levels.

However, issuance of sukuk increased only marginally in 2016 compared with 2015, and was even much lower than that of conventional bonds in some core Islamic finance markets, S&P said.

“The sukuk market did not play a countercyclical role in core Islamic finance markets in 2016, and we forecast a stabilisation of total issuance in 2017 at around $60-$65 billion,” said Dr Mohamed Damak, S&P Global Ratings’ head of Islamic finance.

“We believe the complexity of sukuk issuance will continue to weigh on issuance volumes, unless counterbalanced by tangible results on standardization or the establishment of large issuance programs. Returning issuers, new entrants, and regulatory developments can stimulate activity, but more likely in the medium term.”

S&P added that some countries might take the Islamic finance route alongside a conventional one this year, with Bahrain most likely remaining a prominent player after issuing $3.2 billion of sukuk in 2016. Other GCC members will also probably tap the market in 2017, the report said.