What’s fueling the sukuk issuance in 2016

Global sukuk issuance in 2016 is larger than expected with a volume amounting to US$72 billion as at end of November. This already exceeded the projection of between US$55 billion and US$65 billion by the Malaysian rating agency RAM Ratings.

Malaysia remained the leading sukuk issuer during the period as it accounted for a 41.7% market share, followed by Republic of Indonesia (RoI) with 16.4%, the United Arab Emirates (11%), Turkey (7.1%) and Pakistan 6.7%.

In pricing a dual-tranche US$1.5 billion global sukuk in April 2016, Malaysia became the first sovereign to utilize 100% non-physical underlying assets and the first ever sukuk to utilize entitlements to travel on public transportation, also as an underlying asset.

The RoI priced in March this year its largest sukuk offering ever totaling US$2.5 billion in two tranches as it continued to front load in funding requirements for 2016. Pakistan, on the other hand, returned to the sukuk market after a two-year absence in October with a US$1 billion offering.

A RAM Ratings review of the sukuk market showed a 35.5% year-on-year increase in global issuance in the corporate sector in the third quarter of 2016 up to US$30.6 billion as at end-September 2016, compared with US$22.6 billion in the corresponding period a year ago.

Local currency-denominated sukuk remained dominant as they accounted for 59.6% of the global issuance, while foreign currency-denominated sukuk also gained traction as they posted a year-on-year increase of 2.6%. The ringgit led the other currencies with 35.8% of the total global issuance in the third quarter of 2016.

Overall, the outstanding global sukuk augmented to US$361.1 billion as at end-September 2016, compared with US$289 billion a year earlier.

The size of the Malaysian sukuk market swelled to 661.3 billion ringgit as at end-September 2016 – from 583.4 billion ringgit the year before – and continued to dominate the domestic bond market with a 56.2% share.

The financial services sector contributed the most in the domestic sukuk issuance in September with 4.5 billion ringgit, bringing the year-to-date volume to 17.5 billion ringgit. This was followed by infrastructure and utilities with 17.1% or 17 billion ringgit

In October, Malaysia’s largest utility company Tenaga Nasional priced the largest ever 10-year corporate sukuk from Asia amounting to US$750 million, and achieved the lowest ever coupon on a 10-year corporate sukuk, with an innovative wakala structure utilizing rights of services. This was also Tenaga’s first ever US dollar-denominated sukuk and the company’s first US dollar-denominated bond since 2005.

Earlier in March, Axiata printed the first 10-year sukuk issuance from a telco company amounting to US$500 million. 

 

 

Date

20 Dec 2016

Channel

Capital Markets

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