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20 June 2018 | 11:30 |Dubai – Global S&P Ratings report says, following strong performance in 2017, the global sukuk market experienced a significant slowdown in issuance in the first half of 2018. In the second half of 2018, sukuk issuance volumes will remain subdued. Sukuk issuance reached $44.2 billion in the first half of 2018, compared with $52.2 billion in the first half of 2017. This drop was even more pronounced for foreign currency sukuk issuance at 45%.
“We believe that this is due to the absence of major issuances from the Gulf Cooperation Council (GCC) countries seen in 2017,” said S&P Global Ratings Head of Islamic Finance, Mohamed Damak. “We expect issuance volumes will continue to be slowed by the global tightening of liquidity conditions as well as by lower financing needs of some GCC countries as a result of oil prices stabilizing at higher levels,” added Mr. Damak. The sharp increase in geopolitical risks in the Middle East will also likely weigh on investors’ appetite. Meanwhile, inherent challenges related to the sukuk market continue to drag on expansion of this market.
Overall, we think that the liquidity channeled to the sukuk market from developed markets will reduce and become more expensive. We consider that GCC countries need for financing is reducing as liquidity conditions improve. This is thanks to higher oil prices, which we now expect to remain about $65 per barrel in 2018, and continued expenditure reduction by GCC countries since 2015. Further, the gross commercial long-term debt issuance of GCC countries will decline by 15% in 2018 from 2017.