Global sukuk issuance is expected to drop by 28% in 2018 due to tighter liquidity, mounting geopolitical risks, and hurdles when it comes to standardisation, according to S&P’s Global Sukuk Market Outlook.

Sukuk refers to a type of bond that follows Islamic law, which prohibits any type of excess rates or interest added on top. Unlike conventional bonds, sukuk assets generate revenue for both the holder and the investor.

Although the number of bonds of this type issued went up by 45% year-on-year in 2017, to $97.9 billion, things look different for the new year. 2017 hit record numbers since 2014, boosted by Saudi Arabia’s $9 billion inaugural sukuk in April and other GCC sovereign issuances.

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However, tighter global liquidity due to US interest rate rises and slowdown of the number of asset purchased by the European Central Bank, alongside geopolitical concern over the Middle East, will bring sukuk issuances to $70-90 billion in 2018.

“Overall, we think that the cost of funding for issuers will rise and that liquidity from developed markets channelled to the sukuk market will reduce or become more expensive,” S&P commented.

The tensions between Qatar and its neighbours, coupled with “the animosity between Iran and the GCC countries” may be deterring factors for US and European investors.

Saudi Arabia alone reduced its debt issuance for 2018 to $31 billion (117 billion riyals), from nearly $36 billion last year (134 billion riyals), as per its released budget, which capped sukuk issuance at 30% of GDP.

by Henry Vilar
Henry is Junior Reporter at IBS Intelligence, follow him on Twitter or contact him at: henryv@ibsintelligence.com
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