The volume of global sukuk issuance this year will drop by about 12 per cent on an annual basis as the cost of borrowing continues to rise amid global interest rate increases and financing needs of issuers decline, according to S&P Global Ratings.
Total issuances this year are expected to reach about $130 billion, down from the $147.4bn recorded in 2021, the agency said in a report on Monday.
“We have revised down our sukuk issuance forecasts for 2022 to about $130bn from our initial projection of $145bn to $150bn, and we see further risks building,” Mohamed Damak, global head of Islamic finance at S&P, said.
Historically high inflation and subsequent rate increases have also “reduced global liquidity and made it more expensive”, he said.
Benchmark interest rates around the world are rising as policymakers attempt to keep inflation in check, with consumer prices in the US, the world’s biggest economy, climbing to a 40-year high in May.
The US Federal Reserve, which kept rates near zero during the coronavirus pandemic, reacted last month with a larger-than-expected three quarters of a percentage point interest rate increase, its third in three months and the biggest since 1994, as part of efforts to control inflation.
The Fed has indicated there are more rate increases to come this year and next, and most central banks around the world are expected to follow suit to bring energy and food prices driven by inflation under control.
For 2022, inflation globally has been forecast at 5.7 per cent in advanced economies and 8.7 per cent in emerging market and developing economies, according to the International Monetary Fund.
Inflation, however, is relatively lower in the hydrocarbons-rich economic bloc of the GCC. Consumer price rises are expected to remain in low single digits this year in Saudi Arabia and the UAE.
Investors' risk aversion has also increased, with major segments of the capital markets experiencing “significantly lower activity” in the first half of 2022 compared with last year, according to S&P.
“The sukuk market, as a component of the global capital market, is not immune to global trends,” Mr Damak said.
Sukuk issuances, both local and foreign currency denominated deals, dropped to $74.5bn in the first half of 2022, compared with $93.3bn reported in the first six months of the 2021.
Most core Islamic financing markets recorded lower sukuk issuance activity, with a few exceptions including Turkey, Bahrain and the UAE that reported “marginally higher numbers”.
We have revised down our sukuk issuance forecasts for 2022 to about $130bn from our initial projection of $145bn-$150bn, and we see further risks building
Mohamed Damak,
global head of Islamic finance, S&P Global Ratings
Saudi Arabia, Opec’s biggest oil exporter, said there was an increase in local currency issuance volumes, as the government focused on developing its local capital market.
“The rise in oil prices since 2021 has boosted the balance sheets of several issuers in core Islamic finance countries. We were, therefore, not surprised to see a decrease in issuance in first-half 2022,” Mr Damak said.
Corporate issuers also remained cautious about tapping sukuk markets to finance their capital expenditure plans in the first half of this year.
“The scars of the pandemic and uncertainty related to the financing environment have led many to rein in growth investments, turn to banks for funding, or start deleveraging,” he added.
Types of policy
Term life insurance: this is the cheapest and most-popular form of life cover. You pay a regular monthly premium for a pre-agreed period, typically anything between five and 25 years, or possibly longer. If you die within that time, the policy will pay a cash lump sum, which is typically tax-free even outside the UAE. If you die after the policy ends, you do not get anything in return. There is no cash-in value at any time. Once you stop paying premiums, cover stops.
Whole-of-life insurance: as its name suggests, this type of life cover is designed to run for the rest of your life. You pay regular monthly premiums and in return, get a guaranteed cash lump sum whenever you die. As a result, premiums are typically much higher than one term life insurance, although they do not usually increase with age. In some cases, you have to keep up premiums for as long as you live, although there may be a cut-off period, say, at age 80 but it can go as high as 95. There are penalties if you don’t last the course and you may get a lot less than you paid in.
Critical illness cover: this pays a cash lump sum if you suffer from a serious illness such as cancer, heart disease or stroke. Some policies cover as many as 50 different illnesses, although cancer triggers by far the most claims. The payout is designed to cover major financial responsibilities such as a mortgage or children’s education fees if you fall ill and are unable to work. It is cost effective to combine it with life insurance, with the policy paying out once if you either die or suffer a serious illness.
Income protection: this pays a replacement income if you fall ill and are unable to continue working. On the best policies, this will continue either until you recover, or reach retirement age. Unlike critical illness cover, policies will typically pay out for stress and musculoskeletal problems such as back trouble.
UAE currency: the story behind the money in your pockets
Ziina users can donate to relief efforts in Beirut
Ziina users will be able to use the app to help relief efforts in Beirut, which has been left reeling after an August blast caused an estimated $15 billion in damage and left thousands homeless. Ziina has partnered with the United Nations High Commissioner for Refugees to raise money for the Lebanese capital, co-founder Faisal Toukan says. “As of October 1, the UNHCR has the first certified badge on Ziina and is automatically part of user's top friends' list during this campaign. Users can now donate any amount to the Beirut relief with two clicks. The money raised will go towards rebuilding houses for the families that were impacted by the explosion.”
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Labour dispute
The insured employee may still file an ILOE claim even if a labour dispute is ongoing post termination, but the insurer may suspend or reject payment, until the courts resolve the dispute, especially if the reason for termination is contested. The outcome of the labour court proceedings can directly affect eligibility.
- Abdullah Ishnaneh, Partner, BSA Law
Global state-owned investor ranking by size
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United States
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China
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UAE
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Japan
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Norway
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Canada
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Singapore
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Australia
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Saudi Arabia
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South Korea
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Which honey takes your fancy?
Al Ghaf Honey
The Al Ghaf tree is a local desert tree which bears the harsh summers with drought and high temperatures. From the rich flowers, bees that pollinate this tree can produce delicious red colour honey in June and July each year
Sidr Honey
The Sidr tree is an evergreen tree with long and strong forked branches. The blossom from this tree is called Yabyab, which provides rich food for bees to produce honey in October and November. This honey is the most expensive, but tastiest
Samar Honey
The Samar tree trunk, leaves and blossom contains Barm which is the secret of healing. You can enjoy the best types of honey from this tree every year in May and June. It is an historical witness to the life of the Emirati nation which represents the harsh desert and mountain environments
UAE currency: the story behind the money in your pockets
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