Fitch: Sukuk Market Share to Grow Following Resilient 2016

(The following statement was released by the rating agency) DUBAI/LONDON, January 18 (Fitch) Sukuk issuance in core markets rose by 26% in 2016 and broadly maintained its share of capital markets funding despite large conventional bond issues by Saudi Arabia, Abu Dhabi and Qatar, Fitch Ratings says. We expect sukuk issuance to grow at a similar rate in 2017 and believe market share will rise as more sovereigns issue sukuk alongside conventional bonds. 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 USD40bn in 2016 from about USD32bn a year earlier. This represented 28.5% of total bond and sukuk issuance in these markets in 2016, down marginally from 29% in 2015. We focus on longer-term issuances because frequently rolled-over short-term debt can distort underlying trends. The proportion would have been higher, but for the return of Saudi Arabia, Abu Dhabi and Qatar to the sovereign bond market with combined issuance of USD31.5bn. They probably opted for bond financing to attract international investors. However, 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 our view that the market share of sukuk will gradually rise. Oil exporters in the Middle East are also becoming an important source of the flow of international bond and sukuk issuances, and that trend should continue.