Global Halal market
The share of Sukuk issuance in core markets such as Pakistan, Malaysia, Indonesia, Turkey and the Gulf Cooperation Council (GCC) region are expected to keep up their market share in 2017, said Bashar Al Natoor, Global Head of Islamic Finance. On the other hand the global Halal industry is estimated to be worth around USD 4.9 trillion. Growing at an estimated annual rate of 20%, the industry is valued to be around USD 8.4 trillion by 2020.
Thus, making it one of the fastest growing consumer segments in the world with a little over 1.8 billion Muslim consumers. Meanwhile, the new Sukuk issuance with a maturity over 18 months from the core markets of the Gulf Cooperation Council (GCC) region, Malaysia, Indonesia, Turkey and Pakistan rose to $40 billion (Dh147 billion) in 2016 from about $32 billion a year earlier. This represented 28.5 per cent of total bond and Sukuk issuance in these markets in 2016, down marginally from 29 per cent in 2015.
The outlook for Sukuk issuance in 2017 remains positive as GCC economies are expected to return to issuing Sukuks to fund their deficits and tap the increasing demand Islamic investors in the region. Moreover, with stabilising oil prices and austerity measures in place, GCC governments will have the time to standardise policies for Islamic instruments and tap the unfulfilled global demand,” Faisal Hasan, Head — Investment Research at Kamco. Global Sukuk issuance increased marginally by 2.2 per cent in 2016 to reach $77.1 billion as compared to $75.4 billion during 2015.
This increase was much smaller than the 5.5 per cent growth seen in 2015. The deceleration in growth was primarily due to the fall in sukuk issuance by Malaysia ($28.2 billion in 2016 as compared to $4.4 billion in 2015), in addition to the GCC countries that recorded a decline of $2.2 billion in 2016. “The Sukuk market did not play a counter-cyclical role in core Islamic finance markets in 2016, and we forecast a stabilisation of total issuance in 2017 at around $60 billion-$65 billion. We believe the complexity of Sukuk issuance will continue to weigh on issuance volumes, unless counterbalanced by tangible results on standardisation or the establishment of large issuance programs,” said S&P Global Ratings’ Global Head of Islamic Finance, Mohamed Damak. Sukuk issuance for the Mena region declined for the third consecutive year by 25 per cent in 2016, slightly lower than the 27 per cent decline during 2015.
On the other hand, bond issuance jumped from $42 billion in 2015 to $75.8 billion during 2016, a surge of more than 80 per cent. Analysts say the share of Sukuk in total debt issuances from the core Sukuk markets would have been higher last year but for the return of Saudi Arabia, Abu Dhabi and Qatar to the sovereign bond market with combined issuance of $31.5 billion.
Despite such huge surge in conventional issuances seven of 10 key markets did issue sovereign Sukuk in 2016 and other sovereigns in the GCC region have indicated they could issue Sukuk, or a mix, in the future, reinforcing the view that the market share of Sukuk will gradually rise. Malaysian companies continue to be the most active corporate issuers. Several other key markets have introduced or updated Sukuk laws in the past few years, including Saudi Arabia, Oman and Kuwait, which should gradually boost issuance by creating a standardised structure and improving transparency.
The recent sovereign bond issues from the GCC region should also help create a capital market pricing benchmark and lower bank liquidity could reduce the pricing gap between capital market funding and the bank loans on which GCC corporates have traditionally relied. The biggest remaining roadblocks to corporate issuance are the development of debt-management expertise and a change in the corporate culture to increase financial and management transparency.