Gulf sovereigns to drive sukuk issuance growth in H2 2021 – S&P

DUBAI: Gulf Cooperation Council nations will continue to drive sukuk issuance in the second half of this year even after oil prices rose, as they seek to fund economic diversification projects, according to S&P Global Ratings.
First-half sukuk issuance rose to $90.6 billion, up from $86.4 billion in the same period during 2020, led by an increase in sales from Saudi Arabia and Malaysia and Oman’s return to the market. Issuance by Bahrain, Indonesia, Turkey and the UAE declined, with the latter’s sales dropping by 50 percent following its adoption of Sharia Standard 59, S&P analysts including Dubai-based Mohamed Damak wrote in the report.
“Despite higher oil prices and lower fiscal deficits, we expect that some sovereigns in the Gulf Cooperation Council will continue to tap the market to fund their economic diversification programs,” the analysts wrote.
“We also expect that bank and corporate issuances will continue to support sukuk market performance in second-half 2021. Corporate activity was muted in 2020 as companies held on to cash during the heights of the pandemic and deferred capital expenditure,” they said. “A portion of these investments are expected to be executed in 2021 and will necessitate access to capital markets.”
The market will also be driven by about $20 billion of maturing sukuk in second-half 2021, some of which will be refinanced.
Foreign-currency denominated sukuk issuance jumped 41.6 percent in the first half of 2021.
“We attribute this growth to jumbo issuances but also favorable market conditions, which we expect will continue in second-half 2021,” S&P said.