S&P expects strong global sukuk market

THE global sukuk market, which suffered a slowdown last year, will resume a strong growth, exceeding US$100 billion (RM333 billion) in issuance this year, says international rating agency Standard and Poor's Rating Services (SandP).

Malaysia, a dominant sukuk issuer, will also enjoy growth, driven by its public investment programme.

SandP's economists are also projecting relatively strong economic growth in key sukuk issuing countries this year, including Malaysia (5.2 per cent), Saudi Arabia and the United Arab Emirates (UAE).

According to SandP, global sukuk issuance declined by 13 per cent last year, impacted by the tapering of the United States Federal Reserve's quantitative easing (QE) programme.

Malaysia experienced a 25 per cent decline last year, in the context of slower investment growth, after a decade-long strong issuance supported by a large public investment programme.

"We believe non-sovereign issuance could accelerate in 2014-2015, continuing the trend witnessed at a global level last year."

Sovereign and sovereign-related issuance, including corporate and government-related entities (sukuk from non-Muslim sovereigns), will continue to dominate the sukuk market this year, it added.

Sovereign and quasi-sovereign sukuk, which accounted for 75 per cent of the total last year, was primarily issued in Malaysia.

SandP said external issuance, out of Malaysia, slowed in the second half of last year, reflecting the country's investment cutbacks.

"That said, we expect Malaysia's public investment programme, as illustrated by the US$2 billion dual tranche in 2011, will continue to influence sukuk issuance in 2014-2015. Looking ahead, favourable economic environment in Asia and the Gulf Cooperation Council (GCC) member states, embracing China's economic soft landing and the still-strong investment pipeline in Malaysia, provide good prospects in terms of sukuk volumes."

Petronas Global Sukuk Ltd and Axiata SPV2 Bhd, the two US$1.5 billion sukuk issued by Petronas and Axiata, will mature this year.

SandP expects the UAE and Saudi Arabia to continue to lead sukuk issuance as it expects relatively strong investment, and gross domestic product growth to be maintained this year.

"We believe that global growth in sukuk issuance could be further supported through stabilising or improving investment projections in key markets such as Malaysia, and meeting the high demand for infrastructure spending across the GCC."

Sukuk issuance in the GCC is expected to continue climbing at a double-digit pace in the next two years.

SandP believes the long-term prospects remain promising as regulators strengthen their frameworks to minimise barriers in the market and deepen liquidity.

"The increased interest from issuers, notably in the Middle East and Asia, in tapping the Malaysian ringgit and US dollar market, should in our view, continue over the next few years as Malaysia cements its leading position in the industry."