KUALA LUMPUR – Global long-term sovereign sukuk issuance is expected to decline slightly this year as higher oil prices and recovering economic activity support government revenue growth while pandemic-related spending is expected to fall, Moody’s Investors Service said.
In a research report, the credit rating agency forecast overall sukuk issuance to reach US$96 billion (RM387 billion) this year, a 12% decline from the record levels witnessed in 2020.
“The main driver behind the decline in projected sukuk issuance will be the impact of higher oil prices on issuance by Saudi Arabia where we expect to see both a decline in the size of the government’s fiscal deficit from 11.8% of GDP in 2020 to 6.2% in 2021 and a fall in the share of sukuk issued relative to gross financing requirements due to an exceptional refinancing last year, which we do not expect will be repeated,” it said.
Moody’s said in 2020, the Covid-19 pandemic drove fiscal deficits sharply wider across major sukuk-issuing sovereigns, leading to a sharp spike in issuance in the second half of the year as market conditions improved.
The rating agency said long-term global sovereign sukuk issuance surged by 49%, reaching US$109 billion in 2020 compared with US$73 billion in 2019.
Moody’s said Malaysia's fiscal deficit should remain wide in 2021 despite the rebound in real GDP growth at around 5.6% of GDP, narrowing only very slightly from 6.2% of GDP in part due to the extension of another round of coronavirus-related support measures amounting to around 1% of GDP.
“However, we expect that with better market conditions in the first half of this year compared with 2020, the overall share of sukuk issuance will rise relative to Malaysia’s gross funding needs.
“As a result, we expect sovereign sukuk issuance from Malaysia to increase in 2021.”
For 2022, Moody’s expected that long-term sovereign sukuk issuance to increase to US$99 billion.
“While higher oil prices and recovering economic activity will continue to narrow the fiscal deficits of major sukuk-issuing sovereigns, gross issuance will be supported by more than US$41 billion in maturing sukuk that will need to be refinanced, mainly by Saudi Arabia, Malaysia and Indonesia,” it said.
Meanwhile, in a separate report titled “Moody's Asian Liquidity Stress Indicator”, Moody's said its Asian Liquidity Stress Indicator (ALSI) continued to improve in January, dropping to 31.9% from 32.6% in December last year.
It said the improvement primarily reflected the improving sub-indicator for South and Southeast Asia and the addition of more companies to the indicator.
The ALSI measures the percentage of high-yield companies with Moody's weakest speculative-grade liquidity score (SGL-4) as a proportion of the total number of corporate family ratings. The indicator decreases when liquidity across the portfolio broadly improves. – Bernama, February 25, 2021
