Page 81 - KLIFF2022eBook

KLIFF 2022 PROGRAMME BOOK

GLOBAL SUKUK ISSUANCE 2022:

HOW LOW CAN IT GO?

Dr. Mohamad Damak
Global Head of Islamic Finance,
Standard & Poor’s Global Ratings, Dubai UAE

This report does not constitute a rating action.

Key Takeaways

• Total sukuk issuance dropped to $74.5 billion in first-half 2022 compared with $93.3 billion during the same period
in 2021, both in local and foreign currency.
• We believe shrinking global liquidity, increasing complexity related to regulatory standards, and lower financing
needs in some core Islamic finance markets will hold back issuance for the remainder of the year.
• Consequently, and even though we expect governments’ local currency issuances will continue to support the
development of domestic capital markets, we now forecast total issuance of about $130 billion in 2022 versus
$147.4 billion in 2021.

S&P Global Ratings believes that sukuk issuance volumes will decline in 2022 as lower, more expensive global and regional
liquidity, increased complexity, and reduced financing needs for issuers in some core Islamic finance countries, thanks to higher
oil prices, deter the market. Corporate entities’ cautious capital expenditure growth also supports our view. The market has
overcome hurdles related to the implementation of the Accounting and Auditing Organization for Islamic Financial Institutions
(AAOIFI)’s Standard 59. Yet, future standards developments and certain Sharia scholars’ preference for a higher proportion
of profit and loss sharing in sukuk could pose additional legal challenges. What’s more, we believe that if sukuk become an
equity-like instrument, investor and issuer appetite will likely diminish. Therefore, standardizing sukuk structures and satisfying
the needs of all stakeholders could be a plausible way for the market to maintain its appeal. The market is also being supported
by the energy transition and increased awareness of environmental, social, and governance considerations among regional
issuers in key Islamic finance countries. Moreover, the spread of automation using fintech solutions will likely foster sukuk
market growth in the future.

Issuance Numbers Won’t Recover This Year

In first-half 2022, total sukuk issuance reached $74.5 billion compared with $93.3 billion for the same period a year earlier (see
chart 1). Most core Islamic finance countries saw declines, with only a few exceptions--such as Turkey, Bahrain, and the United
Arab Emirates (UAE)--presenting marginally higher numbers (see chart 2). Issuance in foreign currency also plummeted (see
chart 3).

 TABLE OF CONTENT | PAGE 81 |