Exploring the impact of oil price on Sukuk issuance

Abstract

Major share of the revenue for most of the GCC economies depends on the export of oil. Past decade has witnessed a steep changes in the oil prices. On one side, the oil price hit US$ 150 per barrel mark while on the other side it touched US$ 28 per barrel recently. Most of the corporate GCC also depends on the change in oil prices. During the rising trends, corporation may need to borrow to fund the expansion while during the contraction, corporations may borrow to survive the contraction phase. This study examins the impact of change in oil prices on sovereign and corporate Sukuk issuance in the GCC region for the period from 2005 to 2015. The choice of Sukuk as a debt instrument is relevant for the region as majority of the population in the region is Muslim thus makes Sukuk as an intrument of first choice for issuer. By using univariate and multiple regression analysis, this study finds that total Sukuk issuance is not affected significantly by change in oil prices during the sample period. Nonetheless, it has been observed that GDP is a factor to influence the Sukuk issuance in all three categories, whereas interest rates have significant impact on sovereign Sukuk, issuance and firm size have a significant impact on corporate Sukuk issuance.