Global sukuk issuances reached $91.9 billion during the first six months of 2024, up slightly from last year’s $91.3 billion, stated S&P Global in its latest report. The agency stated that it is also maintaining its global sukuk issuance forecast at about $160 billion-$170 billion following the market’s good performance during the first half (H1) of 2024.
However, the agency reported a notable difference during H1, which is the 23.8 percent increase in foreign currency issuances that reached $32.7 billion by June 30, 2024, up from $26.4 billion a year earlier. The main contributors to this increase were issuers from Saudi Arabia, the UAE, Oman, Malaysia and Kuwait.
Rate cut trajectory benefits foreign currency issuances
S&P Global states that improved visibility on the medium-term trajectory of interest rates has benefited foreign currency-denominated sukuk issuances. “We expect the U.S. Federal Reserve to start cutting rates in December 2024,” the report added.
Concurrently, high financing needs in core Islamic finance countries explain the rise in sukuk issuances, which are notably funding an ongoing economic transformation program in Saudi Arabia and strong growth in the UAE’s non-oil economy.
“Adopting AAOIFI’s Standard 62 guidelines, as they have been presented, could disrupt the market. This will not affect 2024 issuance but will likely be a consideration from next year,” S&P added. Hence, the standard will transition the industry toward asset-backed sukuk by requiring the real transfer of underlying assets to investors.
However, it is difficult to anticipate the appetite for such instruments from both investors and issuers, as well as the legality of moving assets off their balance sheets, given the current market structure. “This could either lead to further market fragmentation or worse, issuance could be put on hold until sukuk structurers figure out a middle ground” added the report.
S&P says that a more conservative interpretation of Sharia is already affecting some market structures. However, if markets adopt Standard 62, it is unlikely to disrupt existing sukuk since any changes in contractual obligations are subject to investors’ consent.
Local currency issuances
Local currency-denominated sukuk issuance declined 8.8 percent year-on-year, primarily due to lower issuances in Türkiye, Pakistan, UAE, and Malaysia. S&P states that the largest drop in local currency sukuk issuances was in Türkiye, where monetary tightening and better fiscal policy coordination continue to help rebalance the economy.
Read | GCC companies raise $3.6 billion from 23 IPOs in H1 of 2024: Report
Sustainable sukuk issuances
The total volume of sustainable sukuk issuances reached $5.2 billion during H1 of 2024, down from $5.7 billion during the same period last year. However, a frequent sustainable sukuk issuer settled a large transaction over the past few days.
“We expect the issuance volume of sustainable sukuk to hover at approximately $10 billion-$12 billion in the absence of any major acceleration in the implementation of net zero policies by core Islamic finance countries or regulatory action,” said S&P.
Notably, 80 percent of sustainability sukuk issuances in the first six months of 2024 came from Gulf Cooperation Council banks as they began their climate transition journey.
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