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Islamic Finance

Sukuk 2021 expected to exceed 2020 on refinancing, deficit-plugging and capex needs, say analysts

Global sukuk issuances are set to be higher in 2021 than 2020, thanks to low U.S. interest rates and yield-chasing investors, say analysts. At the same time, levels are set to be higher this year as issuers seek to refinance existing sukuk maturities, and new debts are sold to fill budget deficits or for capital expenditure.


Refinitiv records sukuk issuances in 2020 as $172.1 billion and forecasts them to “pick up further momentum” this year.

S&P Global Ratings in its recent outlook said sukuk issuances in 2020 reached  $139.8 billion. It estimates 2021 issuances to reach $140 billion to $155 billion.

The difference for these numbers is that each company has its own methodology of recording sukuk data. S&P draws upon Refinitiv, among other sources, for raw data, and then applies its own analysis. A key difference is that S&P credits drawdowns in the year of issuance of sukuk programmes while Refinitiv allocates the drawdowns in the year each sukuk is actually issued.


MORE IN 2021

Both Refinitiv and S&P expect 2021 issuances to be higher than last year.

One of the factors for the expected rise is the end of the Gulf Cooperation Council rift that brought Qatar back into the fold and reopened the country’s access to GCC-based Islamic financial institutions, wrote Refinitiv analysts Jinan AlTaitoon and Abdulaziz Goni on Jan 21.

Mohmad Damak, Global Head of Islamic finance at S&P Global Ratings said there will be a global increase under the assumptions that widespread COVID-19 vaccinations for certain countries are achieved by mid-year and global oil prices average $50 per barrel. The rating agency also attributes its expected increase to an issuance recovery in Malaysia, Indonesia, and GCC countries.

“Sovereign [issuers] will continue to dominate [the market],” said Damak. “We might see a lower issuance volume from banks, as last year they stepped up their issuances significantly. For corporates, we might see more this year as they execute part of their capex that was deferred from last year and as there are some maturities coming in 2021.”

He said the market structure is unlikely to change with around 40% of sales coming equally from the GCC and Malaysia each and 10% from other Asian countries like Indonesia and Bangladesh, and 10% for the remaining, dominated by Turkey.


Angad Rajpal, Head of Fixed Income at Emirates NBD Asset Management believes it will remain an issuer-friendly market due to the confluence of strong fund flows into hard currency emerging market debt, including those into Islamic strategies, and a dearth of new sukuk issuances.

“[However], with tighter valuations coming into 2021, any concession would be predicated on each issuer’s credit profile,” he said. “While the overall backdrop remains sanguine, tail risks primarily relate to exogenous factors such as vaccine roll-outs and violent sell-off in [U.S.] rates, which is not our base case.”

One KL-based sukuk portfolio manager said that despite the favourable market conditions, he doesn’t anticipate significantly higher issuance. “I don’t see more issuances per se but maybe more debut issuers,” he said. “Saudi and broader GCC will see new issuers come and tap largely on the assumption that rates won’t stay low forever now that we are moving out of COVID-induced recession.”

He added that it would be a big boost to the sukuk market if issuers like Saudi Aramco were to tap, although they are usually agnostic.


Among the major issues already this year are the National Commercial Bank (NCB). The Saudi Arabian lender sold a $1.25 billion 3.50% Additional Tier 1 sukuk early January. Similarly, First Abu Dhabi Bank, the UAE’s largest lender sold a $500 million 1.411% 2026 sukuk at the beginning of this month.

Several Gulf sovereigns including Saudi Arabia and Oman and their government-related entities are also lining up potential sukuk deals. In the conventional market, Saudi Arabia this week issued a $5 billion two-part dollar bond, after Bahrain and Oman both went to market with their own non-Islamic papers this month.

“This year so far has been fantastic for Gulf bond and sukuk issuers,” according to a Dubai-based DCM banker.  “I expect that to continue well into the second quarter unless there is a significant market event. There are plenty of maturities coming up and issuers will be looking to take advantage of yield-chasing investors.”

He said Gulf Islamic banks and investors are flushed with liquidity and they will continue to be looking at sukuk opportunities.


Meanwhile, Malaysia, which has an active domestic scene, is likely to see limited activity in the international sukuk market.

“Malaysia in general hasn’t really been an active player in the global sukuk market,” said a KL-based DCM banker. “This is because they have a deep local currency sukuk market and most of the issuers can rely on it. You would only see the large government-linked companies tap U.S. dollar sukuk or bonds.”

He did however note that there are some hard currency sukuk maturities this year, which he expects the debt holders to tap the market for refinancing.

“Malaysia primarily resorted to its deep, domestic liquid market to manage budgetary funding in 2020,” said Angad Rajpal. “We would expect them to consider external sukuk market to refinance July 2021 maturity.”


The KL DCM banker said that Indonesian issuers could prove to be interesting this year.

“They have more U.S. dollar funding needs than Malaysia,” he explained. “Many of the government-linked companies offer good yield. The likes of PERTAMINA, utility companies and a few others. In addition, the sovereign is a regular issuer, so it’s not very difficult to assess the credit.”

Salaam Gateway recently reported that the Indonesian sovereign is looking to sell an international sukuk towards the end of January or the beginning of February depending on market conditions. The sukuk will follow the $3 billion and €1 billion conventional bonds that the sovereign issued on January 5.

Investors remain intrigued as to what kind of offering Indonesian authorities offer.

“Indonesia remains a solid story and a potential 2031s would price off the curve,” said ENBD’s Rajpal. “We’d be interested in the long end and see where it comes and how it performs.”


There could be some activity from the Turkish sovereign which has international sukuk maturity later this year and will likely refinance them.

There could also be some activity from Turkish participation banks.

However, one Istanbul-based debt banker dampened expectations of a flurry of international sukuk from Turkish issuers. He said activity would be limited to the sovereign and some of the participation banks.

“It is highly unlikely that Turkish corporates would issue international sukuk anytime soon,” he said. “There are no pricing benefits with the cost and time involved. As long as it has no pricing advantage, it is never going to get common. There is still more than adequate demand for bond issuances.”


Oher Muslim-majority nations have signalled their intentions to issue international sukuk this year.  

Pakistan is set to issue its first sovereign international sukuk since 2017 by March, an official told Salaam Gateway last week.

Egypt also plans to issue its first-ever sovereign sukuk sometime this year. There have been some local currency sukuk issuances.

Late last month, Bangladesh issued local currency sukuk as a litmus test of local investor demand.

Other countries like Uzbekistan and Algeria are also working on capital market regulations to facilitate local sukuk issuances.

The UK is set to return to the global sukuk market with its sophomore issue, according to Treasury officials. The timing and details have yet to be communicated.

Elsewhere, South Africa is working on a rand-denominated sukuk during its 2020/21 financial year to support local investors and market.


Issuers like the Islamic Development Bank, Indonesia, Saudi Electricity Company, Etihad Airways, and Majid Al Futtaim issued either green or ESG-linked sukuk last year.

Mohamed Damak said that whilst Green and social sukuk instruments have been tested by issuers, he was cool on his forecast for green or social sukuk this year.

“The opportunity could come from the pandemic or the energy transition but the overall contribution will remain limited at least in 2021 due to higher complexity of issuing these instruments and lack of standards,” he said.

This could also be related to challenges in issuing green sukuk, like the lack of a pricing incentive or internal ESG strategy, as highlighted by practitioners.


Among the legal developments this year includes the Dubai Islamic Economy Development Centre (DIEDC) that is readying the code for a global legislative framework for Islamic finance. It is working with various stakeholders including the UAE’s Ministry of Finance and the Islamic Development Bank to develop a unified global legal and legislative framework for the Islamic finance sector.

DIEDC told Salaam Gateway in July last year that it hoped to get the legislation ready by the second quarter of 2021.

A more defined standard of sukuk could make it easier for issuers to sell sukuk.

“Depending on the outcome and the implementation, this could make the sukuk easier to issue and restore their attractiveness,” said S&P’s Mohamed Damak.

(Reporting by Hassan Jivraj; Editing by Emmy Abdul Alim

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