PETALING JAYA: In the wake of global equity market meltdown driven by the uncertainties from the Covid-19 pandemic, the debt and sukuk markets will serve as a bulwark to shore up a country’s financial standing, according to RAM Ratings.
It noted that going further into 2020, it is clear that the pandemic has wreaked havoc on every aspect of life with no clear end in sight.
“Undoubtedly markets have been in turmoil and this will likely pose uncertainties with regard to future fund-raising activity. With governments worldwide still weighing the economic implications of Covid-19, various forms of financial aid through economic stimulus packages and interest rate cuts have been announced,” said the ratings agency in a report.
It opined that the coronavirus crisis will provide a window of opportunity for sovereigns to raise funds to finance aid packages, and for corporates to lock in more attractive funding rates while taking stock of their financing maturity profiles.
“In such highly uncertain times, investors will seek safer havens by moving into bonds and sukuk, thereby benefiting some key economies in the sukuk market,” said RAM Ratings.
It added governments that can effectively use monetary and fiscal tools to steer their economies in the right direction will stand a fighting chance of emerging less battered by Covid-19.
Meanwhile, for 2019, the ratings agency highlighted that the global sukuk market delivered a noteworthy performance with a gross issuance of US$130.2 billion, a 41.6% jump from US$91.9 billion recorded for the previous year.
It stated that the top five countries by incremental value were Turkey (+320.4%), Qatar (+62.2%), Malaysia (+57.7%), Bahrain (+45.1%) and Indonesia (+26.2%).
“Even though issuance by non-core markets surged 138% to US$13.3 billion last year (2018: US%5.6 billion), the global sukuk market remained dominated by the Gulf Cooperation Council (GCC, 40%), Malaysia (34%) and Indonesia (15%),” reported RAM Ratings.
It noted that in terms of sovereigns, Saudi Arabia maintained its lead in the global sovereign sukuk market with a 28.9% share, followed by Indonesia (25.3%) , Malaysia (18.5%) and Turkey (9.5%).
The ratings agency pointed out that the primary fund-raising purpose was to support the respective countries’ budget deficits.
In terms of corporate sukuk issuance, the top position was retained by Malaysia with US$31.2 billion or a 55.3% share, followed by the UAE with 17.3%, followed by Saudi Arabia (16.2%) and Qatar (3.6%).
Overall, RAM Rating’s sukuk snapshot report indicated that Malaysia retained its lead with a 34.5% share of the global sukuk market, followed by Saudi Arabia (23.4%), Indonesia (15.0%), the UAE (7.5%) and Turkey (6.8%).
As at end-2019, it highlighted that the value of outstanding global sukuk had spiked up to US$574.1 bil, from US$454.5 billion at end-2018, a positive indication of sukuk’s relevance as an alternative form of financing in the mainstream global financial sector.
