Lower Global Liquidity and Increased Complexity Are Likely to Hold Back Sukuk Issuance in 2022

Thursday, January 20, 2022 / 05:26 PM / by S&P Global Ratings / Header Image Credit: ZAWYA

S&P Global Ratings believes that sukuk issuance volumes will be flat at best in 2022 amid lower and more expensive global and regional liquidity, increased complexity, and reduced financing needs for some core Islamic finance countries, according to a new report.

"Notably, we assume a period of higher oil prices, together with higher production and tighter spending control, will result in lower financing needs for some core Islamic finance countries," said S&P Global Ratings credit analyst Mohamed Damak.

Amid a tight job market, accelerated inflation readings over the past few months, and increasingly hawkish forward guidance from the U.S. Federal Reserve, we now expect three rate hikes in 2022, with the first expected in May. This would trigger a similar increase in interest rates from Gulf Cooperation Council central banks given their currency pegs to the U.S. dollar.

Outside of these broader trends, the sukuk market faced a period of dislocation in 2021 due to the implementation of Accounting and Auditing Organization for Islamic Financial Institutions Standard 59. In the United Arab Emirates, for example, sukuk issuance volume dropped 64%, in part because of the additional complexity introduced by this standard. Although legal solutions were implemented, the change has negatively affected sukuk issuance appetite from issuers and investors.

This, combined with the abovementioned factors, leads us to expect sukuk issuance volume will stabilize at about $145 billion-$150 billion in 2022.

"However, on a positive note, we see opportunities created by the energy transition in core Islamic finance countries, higher environmental, social and governance awareness from regional issuers, and stronger automation using fintech solutions as likely to support future sukuk market growth," Mr. Damak concluded.

Related News

1. N250bn Sovereign Sukuk Offer Attracts Massive Subscription of Over N865bn
2. Rental Rate of FGN Series IV Sukuk Issuance Revised to 13.00%
3. N250bn Federal Government of Nigeria Series IV Sukuk Issuance Now Open
4. DMO Unlocks Investment Opportunity for Nigerians as Offer for Fourth Sovereign Sukuk Opens
5. FGN Sukuk Bond Issuance: Building the Road to Development
6. Towards Financing Infrastructure: Debt Management Office to Issue Another Sovereign Sukuk
7. NGX Highlights Opportunities in Green and Sukuk Bonds
8. How Sukuk Can Catalyze Nigeria's Development
9. Sukuk: Nigeria Needs Standardization and Improved Regulation
10. Global Sukuk Market Growth to Continue in 2021 and Beyond
11. Sukuk Risk Profiles Could Be Altered by AAOIFI-Compliance Push
12. Sukuk: DMO Plans to Expand the Investor Base in Nigeria with Future Issuances
13. DMO Requests for EOI for Roles of Parties for the Issuance of Sukuk in the Domestic Capital Market
14. DMO Lists N162.56bn 7-Year Sovereign Sukuk on NSE
15. Nigeria Has an Enabling Environment for Retail Sukuk to Thrive - Mustapha Ishaq-Akinlaso
16. Investors Scramble for Third Sovereign Sukuk - DMO