Global sukuk market: A window of opportunity is opening – Saudi Gazette

Global sukuk market: A window of opportunity is opening – Saudi Gazette

DUBAI “” S&P Global Ratings believes that investors' risk aversion is subsiding, thanks among other factors to strong global liquidity. Over the past few weeks, issuers with good credit quality have approached the market, either by reopening sukuk or tapping established programs.

Debut issuance remains rare. Despite this glimmer of optimism, total issuance volume for the full year 2020 will be lower than in 2019 since corporates are holding on to cash, cutting capital expenditure, and using bank financing.

Central banks have already taken measures to boost banks' liquidity in core Islamic finance countries, so they are unlikely to issue sukuk as liquidity management instruments this year.

They want banks' increased liquidity to reach corporates, thereby minimizing the risk of a long-lasting economic downturn resulting from COVID-19 and low oil prices.

The difficult economic environment has led to higher financing needs for sovereigns, but most of them are turning to conventional markets due to the complexity of issuing sukuk.

Sukuk issuance volume fell 27% in the first six months of this year but we still expect it will total around $100 billion for 2020, about 40% lower than in 2019.

In the current environment, the number of defaults among sukuk issuers with low credit quality will