OVERVIEW
·
The sukuk market is heading toward a
correction in 2015 after the Central Bank of Malaysia (BNM) stopped
issuing and switched to other liquidity management instruments.
· We have therefore revised our forecast for total sukuk issuance in 2015 to about $50 billion-$60 billion from $100 billion-$115 billion, assuming no issuance from BNM in 2015.
· Excluding this effect, the market performed relatively well despite the decline in oil prices.
· The list of potential sukuk issuers continues to increase, but the timing of their issuance is uncertain.
DUBAI (Standard & Poor's) July 7, 2015--The global sukuk market is heading
toward a correction in 2015 after the Central Bank of Malaysia (BNM)--one of
the largest issuers of sukuk worldwide--stopped issuing earlier this year,
says a report published today by Standard & Poor's Ratings Services. But as
the report, titled "Global Sukuk Issuance Stalls In 2015 As Major Issuer Exits
The Market," points out, BNM's move leaves the door open to issuers such as
the International Islamic Liquidity Management Corporation (IILM) and the
Islamic Development Bank (IDB) to step up their issuance and provide the
industry with liquidity, thereby contributing to the development of an Islamic
yield curve.
"In the first half of 2015, BNM's pullback saw total sukuk issuance drop by
42.5% compared with the same period a year earlier, said Standard & Poor's
Global Head of Islamic Finance Mohamed Damak. "In 2014, BNM alone issued about
$45 billion of sukuk out of a total issuance of $116.4 billion.
"We understand part of the reason behind BNM's decision was that its sukuk
were subscribed to by a broad array of investors, preventing them from
reaching their intended end-users (primarily Malaysian Islamic banks for
liquidity management purposes). As a result, BNM decided to switch to other
instruments restricted to banks."
Excluding the BNM effect, the worldwide volume of sukuk issuance performed in
line with our expectations, total issuance dropping by only 10.7%, confirming
that the impact of falling oil prices on recurring government spending and
investment projects in core markets (namely Gulf Cooperation Council [GCC]
countries and Malaysia) was limited in the first half of 2015. While we expect
this trend to continue in the second half of 2015, the effect of lower oil
prices on sukuk issuance in 2016 remains uncertain. Such an effect will depend
on whether there is a recovery in oil prices or whether governments in core
markets decide to reprioritize their spending and avoid continuing using their
reserves and tap the capital markets more aggressively to finance their
spending.
Sukuk market performance in the first half of this year was also aided by
returning sovereign issuers (from core and noncore markets) and large, albeit
sporadic issuances from banks and a few nonfinancial companies (corporates) in
the Gulf states and Malaysia.
Under Standard & Poor's policies, only a Rating Committee can determine a
Credit Rating Action (including a Credit Rating change, affirmation or
withdrawal, Rating Outlook change, or CreditWatch action). This commentary and
its subject matter have not been the subject of Rating Committee action and
should not be interpreted as a change to, or affirmation of, a Credit Rating
or Rating Outlook.
The report is available to subscribers of RatingsDirect at
www.globalcreditportal.com and at www.spcapitaliq.com. If you are not a
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212-438-7280 or sending an e-mail to research_request@
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