DUBAI: Global sukuk issuance will be flat or slightly lower this year after five straight years of strong growth as higher crude prices have reduced oil-rich Gulf governments' financing needs, Moody's said on Tuesday.

       The expected volume is despite issuance increasing in the first half of the year by 3% to $102 billion, driven by sales from Malaysia and Indonesia. Issuance volume in Southeast Asia, which made up more than half of total issuance in the first half, increased 22% while in the Gulf it declined 19%.

       "Reduced issuance from GCC (Gulf Cooperation Council) governments was partly offset by stronger activity in the corporate sector," Moody's said.

       Moody's sees total sukuk issuance this year between $190 billion and $200 billion from a record $205 billion last year, as continued large financing needs in Malaysia and Indonesia will drive strong issuance from that region.

       Issuance will also be helped by continued economic recovery, better liquidity in the debt markets and strong investor demand, which has long outstripped the supply of sukuk.

       The economies of the heavily hydrocarbon-dependent Gulf were battered by the double shock of last year's historic oil price crash and the COVID-19 pandemic.

       Brent crude is now trading at around $72, roughly double lows reached in March last year, while activity in non-oil sectors in the Gulf has also begun to recover.

       Sources have told Reuters the adoption by the United Arab Emirates of certain sharia compliance standards has slowed issuance of sukuk from the Gulf.

       Moody's said issuance in the UAE and Bahrain declined 65% to $4 billion in the first half.

       The sukuk market is expected to continue its growth trajectory long-term, Moody's said. Volumes will be bolstered by an acceleration in issuance of instruments like green sukuk, low penetration and new issuers. This year, Saudi Arabia's oil giant Aramco and the Maldives debuted in the market.- Reuters