Islamic Finance

Only 1.6 pct of green bonds issued in Q1 2019 were Shariah-compliant sukuk – Moody’s

$47.2 billion of green bonds were sold in the first quarter of 2019, a 40 percent surge over the same period last year, but only 1.6 percent, an issuance worth $750 million, was sukuk, Moody’s Investor Service said in a study released on Thursday.

The total global issuance for Q1 2019 was a record for first-quarter green bond issuance, and trails only the fourth quarters of 2017 and 2018 for the largest quarterly issuance to date, said the study.

European issuers accounted for half of all green papers issued in the first quarter. Overall, corporates were strong contributors: $15.9 billion from non-financials and $8.1 billion from financials, representing 34 percent and 17 percent of total volume, respectively. 

The only green sukuk sold during Q1 this year was a $750 million issuance from the government of Indonesia in February, which follows only four earlier green sukuk.

“While the global green bond market reaches new annual highs, the green sukuk market is still in its infancy, with only a handful of issuances to date following the world’s first green sukuk in 2017 issued by Tadau Energy (Edra Power), a corporate based in Malaysia,” said Moody’s.

“As of March 2019, green sukuk’s share of overall issuances (green bonds and sukuk) remained very small, at less than 1 percent,” it added.

This low level of green sukuk can be explained by the fact that the sukuk market is relatively small compared with global bond issuance volumes, despite growing by 5 percent in 2018 to around $119 billion, said the study.

Moody’s expects the “strong growth” in the Islamic finance sector over the past 10 years to continue, and translate into “stronger prospects” for green sukuk issuance, primarily by sovereigns and financial institutions.

Corporate and asset-backed sukuk activity has been relatively muted recently because of “more attractive conventional market opportunities”, said Moody’s, but it expects these sectors to be a source of growth underpinning the industry’s long-term potential.

“The green sukuk market will benefit from buoyant demand for green paper in general as institutional investors seek to integrate sustainability into their asset allocation and risk management practices,” the report said.

First-quarter issuance puts the market roughly in line to hit Moody's 2019 forecast of $200 billion of total green bond issuance.

Green bonds and sukuk bear the same structures and characteristics of standard bonds and sukuk except that their proceeds are dedicated to "green initiatives" including climate or environmental projects.


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