Rise and fall of the global Sukuk market
The global Sukuk market this year will be down and its performance will be dampened this year. The downfall is because of the high geopolitical risks in the Middle East, the challenges that are inherent to the Sukuk issuance, and the tightening liquidity conditions worldwide are the reasons for the dampening of performance. The UAE and almost all of the GCC countries are in this fire together. However, the will keep the issuances growing and going on. Why and how you ask? This is all thanks to the huge funding that was demanded in the context of the lower oil prices and expansionary economic bearing. In the face of the emerging challenges, UAE and GCC countries have accepted and answered this rising.
In a report and interview with the new the global head of Islamic finance, the Mohammad Damak who is at the Standard & Poor’s (S&P) gave some insights to us. He told that they are expecting the higher demand for the finding. If not for all then for most of the GCC countries they are expecting it. Given the fact that recently they have reduced the oil prices and because of the reduced oil price assumptions compared with the last year the out-turn of $71 for bent is possible, added Mohammad Damak the head of Islamic finance at the Standard & Poor’s (S&P).
Following is the representation of the regional Sukuk issuance that is contacted this year, in 2019. Here you can clearly see the rise in almost all of the regions with the exception of Qatar and Oman.
S&P is responsible and in charge of anticipating the total issuances between the prices of $105 billion and $115 billion, internationally. This amount sums up and converted to the local currency there makes Dh385.67 billion and Dh422.4 billion. Constituting the $28 billion to $32 billion in foreign currency issuances and $85 billion to $95 billion in local currency issuances. Have a look at these home appliances.
The issuance volume was maintained last year to 48.5 billion dollars. This year the GCC region is expected to uphold the issuance volume to 48 billion dollars. The UAE is expected and predicted to issue over and above 8 billion dollars in the Sukuk. This issue last year was up to 8.5 billion dollars in 2018.
Sukuk issuances last year summed up to a total of 91.4 billion dollars. Mainly in the United States dollars and especially for the foreign currency the Sukuk issuances were more visible. They were more noticeable when at the reduced amount that was at 15.1 percent.
Drop in the Sukuk issuances
There have been reports of a major drop in the issuances and this drop is from Saudi Arabia and Qatar, according to the reports and resources. But this issuance drop was fairly counterbalanced with issuances from Central Bank of Kuwait and there was also a hike in private sector issuances in the UAE. Malaysia is continuing to support the market and Indonesia is in this with others too but to a less significant degree. In Turkey, their issuances have also been stepped up by the issuers. This rise is to branch out their investor bases amid substantial reliance on external debt and reduced access to global capital markets in the second half of the year.
Damak added that issuances of Sukuk from Kuwait, United Arab Emirates, and last but not least Turkey has proven to help the market escape a sudden and dangerous drop during the past year. He added that this is not some line on the rock this is what we think of the situation. The growth of the UAE is expected to rise, read the complete article.
To clear things out, for instance, the central bank of Kuwait has put forth the offer of domestic Islamic banks the sukuks as a liquidity management instruments for. On the other side of the picture, the private sector’s issuers react in the anticipation of less supportive market conditions have front-loaded some of their issuances in the UAE to fight and get through the future maturities.
The effects of drop in the Sukuk issuances
Global liquidity constriction circumstances have been expected by the S&P to reduce total worldwide issuances this year. One quarter to one-third of Sukuk holders is the range of that the European and US-based investors are by and large taken for. It is expected that the key and main central banks have been predicted that they will be closed to the liquidity and continue to do so during this year. This situation will leave the investors with a smaller amount of capital with which they are able to invest in Sukuk and bring about the more advanced and higher cost of funding for issuers.
Last year the liquidity conditions were enhanced and made better, here we are talking about the GCC countries only. The lower oil prices this year has played an important role in making the liquidity uncertain this year. S&P suppose oil prices will remain flat at 55 dollars to be the case in 2019 and further the years too. Other than this the native and regional issues like geopolitical pressure and other new processes are the reason and can be causing many more new tasks for the new issuance. The political pressure is being currently applied at.
As we do not have any defined ways and process of making these challenges to lie down at some standards is another reason that we are facing new ones. Damak added to his stance that there is more one-third of the Sukuk venture capitalist that are from Europe and the United States of America. The reason for dampening the demand in fixed income investors that is typical could be other too but the Dana Gas case is likely to reduce the national geopolitical tensions and litigations.
Standard setting body for the Sukuk
There is a standard setting body for the Sukuk and that body agreed to be working together. This is in order to form an approach and form an issuance process that is smooth. The agreement was settled in the last quarter of 2018. The progress made is significant and well but the goal to be achieved is still far.
In the report issued by the A&P, the Dana Gas case is an important one in these circumstances. Dana Gas actions did the work of fuel on the fire and resulted in a wake-up call for investors. This ended up putting the standardization dispute on the top of the program for standard setters and policymakers again. While Dana Gas supposedly was a default on Sukuk, was clearly showing lack of Sharia compliance and in result activated cases. These lawsuits were in the UK and in Sharjah. The court ruling was however in favor of the Sukuk owners.
This case was going very long so at the end this case was decided to be settled with Dana Gas instead of making the UK judgment in Sharjah to force what they want. Here Damak further added, along with all the other things the case also demonstrates the possible issues that will be rising when they will be enforcing the reefing judgments. The sharia is known to be the only and final source of the law these cases will be happening. The standard setters will know it now as they will move towards more and better standardization. Low on the budget? No worries, buy products at cheap prices at plugnpoint.