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Regulatory developments to boost sukuk issuance

MANAMA: Global issuance of sukuk is set to benefit from a number of legislative and regulatory developments over the next few years, according to a new report by Moody's Investors Service.

Issuance this year looks likely to be in line with volumes last year, with most issuance expected to take place in the second half of the year.

For the first half, supranational, sovereign and government-related issuers will continue to dominate the sukuk market, it says.

"A key factor behind the recent and ongoing dominance by sovereign and government-related issuers was their need to launch a variety of funding programmes to combat declining economic activity, fiscal deficits and lower energy and commodity prices," said Moody's Rating Services business development manager Faisal Hijazi.

"By contrast, given the weak economic conditions, corporate entities have proved to be less able and willing to be major issuers of new sukuk, although a small number of highly rated corporate issuers did tap the sukuk market in large issuances."

The potential emergence of sukuk issuances from such new jurisdictions, including new markets in Asia, notably Japan, Korea and Thailand and Europe, most likely the UK, would be a key driver of increased global issuance, he said.

"Such moves could also prompt other jurisdictions with similar regulatory frameworks to pursue similar efforts in this direction," he said.

"In addition, the more established sukuk markets, including those in the GCC, are also likely to undergo further legislative and regulatory developments, with beneficial implications for their sukuk issuance," he added.

Moody's believes that the diversification of issuance, secured versus unsecured, and investors' appetite for risk aversion to investing in local and international issuances will be key determining factors going forward.



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