The global sukuk market is set to grow in 2018, driven by increased issuance by sovereigns as a number of governments seek to diversify their financing and meet the liquidity needs of Islamic retail banks, Moody's said in a report.
Global sukuk issuance continued to rebound in 2017 from a sharp drop in 2015. It is expected to increase to about $95 billion by the end of 2017 from more than $85 billion in 2016.
Sukuk issuance by sovereigns increased by more than 50% in the first eight months of the year and will comprise more than half of total sukuk issuance in 2017.
"A number of factors will support sovereign sukuk issuance, including high borrowing needs for [Gulf Cooperation Council] sovereigns, which Moody's expects to reach around $148 billion in 2018," the rating agency said.
Rising demand from domestic banks and the need for product innovation to address the lack of physical assets for structuring sukuk and the prohibition from transferring asset ownership to special purpose vehicles in some jurisdictions would also contribute to higher sukuk issuance by sovereigns.
Niger, Kenya, Ghana, Morocco, Tunisia and Algeria plan to take advantage of the asset-based nature of sukuk financing to fund infrastructure development, Moody's said.
Saudi Arabia raised the largest amount of long-term sovereign sukuk with a total of $17 billion in the first eight months of the year. Malaysia's share of sukuk issuance is falling, but it continues to be the largest sukuk market with an estimated 43% of total sukuk outstanding in 2016. Indonesia's share has increased to 30% in 2016 and is projected to continue growing due to the government's efforts to develop the Islamic finance sector.
