(MENAFN- Khaleej Times)Bank Negara Malaysias pullback triggers downward projection
Dubai -Warning that the global sukuk market is heading toward a correction in 2015 Standard & Poor’s Rating Services (S&P) on Tuesday halved its forecast for global sukuk issuance in 2015 as major issuerBank Negara Malaysia (BNM)switches to other instruments to finance the government’s spending.
The global ratings agency said it was revising its forecast for total sukuk issuance in 2015 to about $50 billion to $60 billion from $100 billion to $115 billion assuming there will be no issuance from BNM Malaysia’s central bank in 2015.
In a statement S&P said the move by BNM one of the largest issuers of sukuk worldwide to stop issuance leaves the door open to issuers such as the International Islamic Liquidity Management Corp (IILM) and the Islamic Development Bank (IDB) to step up their issuance and provide the industry with liquidity thereby contributing to the development of an Islamic yield curve.
“In the first half of 2015 BNM’s pullback saw total sukuk issuance drop by 42.5 per cent compared with the same period a year earlier” said Mohamed Damak S&P global head of Islamic finance.
“In 2014 BNM alone issued about $45 billion of sukuk out of a total issuance of $116.4 billion. We understand part of the reason behind BNM’s decision was that its sukuks were subscribed to by a broad array of investors preventing them from reaching their intended end-users (primarily Malaysian Islamic banks for liquidity management purposes). As a result BNM decided to switch to other instruments restricted to banks” said Damak.
Excluding the BNM effect the worldwide volume of sukuk issuance performed in line with S&P’s expectations total issuance dropping by only 10.7 per cent confirming that the impact of falling oil prices on recurring government spending and investment projects in core markets of GCC and Malaysia was limited in the first half of 2015.
S&P’s revised downward projection of sukuk issuance is far dismal compared with the forecasts of other industry watchers.
A study ‘Sukuk Perceptions and Forecast’ released by Thomson Reuters at the 21stAnnual World Islamic Banking Conferencein Bahrain said global Islamic bond issuance is expected to surge to $175 billion in 2015 up from $110 in 2014 and is projected to hit $250 billion by 2020. The total global outstanding sukuk which is currently at $241 billion is also expected to grow to $907 billion by 2020 the study said.
Panelists at a global conference in London predicted that they expect global sukuk issuances to reach $145 billion in 2015.
“While we expect this trend to continue in the second half of 2015 the effect of lower oil prices on sukuk issuance in 2016 remains uncertain. Such an effect will depend on whether there is a recovery in oil prices or whether governments in core markets decide to reprioritise their spending and avoid continuing using their reserves and tap the capital markets more aggressively to finance their spending” S&P said.
Sukuk market performance in the first half of this year was also aided by returning sovereign issuers (from core and noncore markets) and large albeit sporadic issuances from banks and a few non-financial companies (corporates) in the Gulf states and Malaysia.
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