Global outstanding sukuk grew 8.5 percent year-on-year to $900 billion by the end of the third quarter of 2024, stated Fitch Ratings in its latest release. Sukuk held a large 30 percent share of the global debt capital market outstanding in core markets. In the GCC, the debt capital market is about $1 trillion outstanding, with sukuk holding a 37 percent share.
Fed rate cut improves financing conditions
Following the U.S. Federal Reserve’s 50-basis-point rate cut in September, markets witnessed a rise a global sukuk issuances due to an improvement in financing conditions.
Fitch expects rates to reach 4.5 percent at the end of 2024 and 3.5 percent at the end of 2025, from the current 5 percent, boosting Q4 and 2025’s issuance activity. A further decline in interest rates will also support refinancing upcoming maturities and funding and diversification goals.
The liquidity of the Gulf Cooperation Council (GCC) and other regional sukuk investors, mainly banks, is intact, added Fitch.
Risks to sukuk pipeline remain
“We are seeing a build-up of sukuk pipeline partially supported by the recent Fed cut. However, downside risks include sharia-related complexities, rising geopolitical risks, and oil volatilities that could affect market growth.” said Bashar Al Natoor, global head of Islamic finance at Fitch Ratings.
Al Natoor also noted that the global sukuk market credit conditions are sound, with 81.5 percent of Fitch-rated sukuk being investment-grade, 95 percent of sukuk issuers on stable outlooks, and no defaults.
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U.S. dollar debt issuance demand to rise
Fitch also expects international investor demand for emerging market U.S. dollar debt issuance to rise, of which sukuk are above 10 percent. “While sukuk are not their main funding source, Islamic banks and corporates will continue to be opportunistic sukuk issuers,” added the report.
Beyond core players, the inaugural sukuk by Ireland-based AerCap Holdings N.V. and Kuwait’s first sustainable sukuk by Warba Bank are making the sukuk market more diverse. In September 2024, Fitch also upgraded Turkiye to ‘BB-’, and also upgraded its sukuk.
No sovereign sukuk has defaulted to date. In August 2024, Fitch downgraded the Maldives to ‘CC’, and is monitoring its sukuk. On October 7, the Maldives’ ministry of finance reported that it has settled its latest coupon payment but external financing pressures will remain high.
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