Cross-Border Corporate Sukuk Issuance Set to Rise With Malaysian, GCC Firms Accounting For Majority - Moody's

KUALA LUMPUR, May 25 (Bernama) -- Cross-border corporate sukuk issuance is set to rise significantly from 2022 lows, with companies in the Gulf Cooperation Council (GCC) countries and Malaysia (A3 stable) accounting for most of the issuance, according to a new report by Moody’s Investors Service.

Moody’s vice-president and senior analyst Maisam Hasnain said despite challenging market conditions, year-to-date cross-border corporate sukuk issuances as of May 18, 2023 had already doubled from the issuance volume in full-year 2022 to US$5.2 billion.

In a statement today, the rating agency said sukuk programmes that Moody’s had rated this year include a US$3 billion (US$1 = RM4.59) programme under Saudi Electricity Company (SEC, A1 positive) and a US$5 billion programme issued under Malaysia's sovereign wealth fund Khazanah Nasional Bhd (A3 stable).

“The increase was driven by companies that postponed issuance last year because of capital market volatility, companies seeking to refinance near-term sukuk maturities and first-time rated sukuk issuers looking to diversify funding sources,” said its senior vice-president Rehan Akbar.

The rating agency also noted that sukuk structures continued to vary, but their credit quality and the ratings that Moody’s assigns ultimately depend on the senior unsecured credit risk of the underlying corporate.

For example, while the underlying sukuk assets in the SEC and Khazanah programmes differed, sukuk holders were effectively exposed to the senior unsecured credit risk of the respective underlying corporate, it said.

Sukuk dissolution events for both programmes were aligned with events of default provisions that would be present in conventional bond programmes, it opined.

"Unlike their counterparts in the GCC, rated Malaysian corporate sukuk issuers do not have the strict put option clauses in their sukuk documentation that sukuk holders would be able to exercise if the ratio of tangible assets to total sukuk assets falls below a certain threshold.

"But despite such a clause, GCC issuers are not significantly exposed to the risk of put options being exercised because the risk of their tangibility ratio falling below the minimum threshold is remote,” it added.

-- BERNAMA