Complexity main reason for muted sukuk issuance

Business Reporter –

Lower liquidity in Gulf Cooperation Council (GCC) banking systems is not the main driver of muted sukuk issuance in recent years, says S&P Global Ratings in a report published today entitled “Is Sukuk Issuance Suffering From The Liquidity Drop In Gulf Countries?”.
“Some market participants believe that the liquidity drop in Gulf countries, where the majority of sukuk investors are based, explains the lower issuances volumes,” says S&P Global Ratings’ Dr. Mohamed Damak, Global Head of Islamic Finance.
“We see liquidity in GCC as adequate in a global comparison, though, and believe that the less supportive economic environment is translating into fewer growth opportunities, which could actually encourage banks to reallocate liquidity in the bond and sukuk market, ultimately leading to an uptick in issuance volumes.”
The decision to issue sukuk or bonds ultimately lies with the issuer and depends on many factors.
These include the cost of issuance, the capacity of the market to absorb the transaction, the issuer’s target investor base, how ready the
issuer’s regulatory and legal environment are for sukuk issuance, and the complexity of structuring sukuk.
“We think that the latter factor is one of the main reasons behind muted sukuk issuance in 2016 and believe it will continue to weigh on volumes in 2017,” said Dr Damak.