Sukuk volumes to moderate in 2016, 2017

Dubai—Global sukuk issuance has been moderating since 2015 and is expected to decline further this year as well as in 2017, according to Standard & Poor’s. The Sukuk market experienced a correction in 2015 when Bank Negara Malaysia (the Malaysian central bank) decided to stop issuing short-term Sukuk and switch to other instruments for liquidity management for Islamic financial institutions.
The volume of issuance in the first half of 2016 was not that encouraging, particularly if compared with conventional issuance. The market is slowly accepting the evidence that the process of issuing Sukuk can be painful and it has become more reticent in issuing such instruments. The relative ease of conventional bond issuance has prompted many regional sovereigns to tap the bond markets instead of Sukuk markets. “A government that needs money to pay civil servants or contractors will not ask them to wait for few months until its Sukuk is issued. Rather, it will go to the conventional markets,” said Mohammad Damak, Director, Global Head of Islamic Finance. Contraction in local liquidity and global liquidity are also contributing to the woes of the Sukuk market. Local liquidity, in Islamic finance core markets, depends largely on the oil sector. In 2016, year-to-date Sukuk issuance has reached $39.5 billion (Dh145 billion) compared to $47.3 billion last year.—Agencies

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