In an article titled `Will Sukuk Issuance Volumes Beat The Forecasts This Year?, S&P Global Ratings said it believes the sukuk market will remain subdued in 2017, since the issuance process is still quite complex.
When oil prices started falling in 2014, several market observers predicted an issuance boom from 2015, arguing that governments in oil-exporting countries would tap the sukuk market to maintain their spending levels.
However, as anticipated, this did not happen. Issuance of sukuk increased only marginally in 2016 compared with 2015 and was even much lower than that of conventional bonds in some core Islamic finance markets.
No countercyclical role
“The sukuk market did not play a countercyclical role in core Islamic finance markets in 2016 and we forecast a stabilization of total issuance in 2017 at around $60 billion-$65 bn,” said S&P Global Ratings’ global head of Islamic finance, Dr Mohamed Damak.
He stated: “We believe the complexity of sukuk issuance will continue to weigh on issuance volumes, unless counterbalanced by tangible results on standardization or the establishment of large issuance programs. Returning issuers, new entrants and regulatory developments can stimulate activity, but more likely in the medium term.”
A substantial increase in sukuk issuance in the GCC is not foreseen this year. Rather, some member countries might take the Islamic finance route alongside a conventional one. Bahrain will most likely remain a prominent player after issuing $3.2 bn of sukuk in 2016. Other GCC members will probably tap the market in 2017.