Sukuk issuance is expected to continue growing through the remainder of 2024, though at a slower pace compared to the first quarter of 2024. The GCC debt capital market (DCM) is well on its way to surpassing $1 trillion in outstanding sukuk, according to a Fitch Ratings report.
The report cites the ratings upgrades of Qatar and Türkiye as being positive for sukuk in those countries. Fitch Ratings currently rates around $185 billion in outstanding sukuk, with approximately 80 percent being investment-grade.
The share of sukuk issuers with a Positive Outlook expanded to 8 percent in the first quarter of 2024, up from 3.6 percent in the fourth quarter of 2023. Additionally, there were no notable sukuk defaults during this period.
Read more: UAE’s latest T-sukuk auction oversubscribed 7.1 times with $2.13 billion in bids
The growth in sukuk issuance is attributed to funding and refinancing needs, diversification efforts, and development goals in the debt capital markets, as well as lower interest rates. However, risks include potential new Sharia requirements that could alter sukuk credit risk, geopolitical uncertainties, and high oil prices.
Top sukuk issuers
“Around 80 percent of GCC sukuk is now investment-grade, and the GCC DCM is well on its way to crossing $1 trillion outstanding,” said Bashar Al Natoor, global head of Islamic Finance at Fitch Ratings. “Saudi Arabia, UAE and Malaysia will likely stay among the most active sukuk issuers.”
Malaysia remains the largest sukuk market globally, with around 60 percent of its ringgit DCM in sukuk. GCC countries account for 35 percent of the global outstanding sukuk, and the GCC DCM reached $940 billion outstanding (with a 37 percent sukuk share) at the end of the first quarter of 2024.
In the first quarter of 2024, GCC banks issued more US dollar-denominated debt, with a 51 percent sukuk share, than they did in the full year of 2023. Corporates and projects are expected to continue relying on bank funding, but the government’s push to develop the DCM and reduce bank reliance could drive further sukuk issuance.
Global expansion
Globally, outstanding sukuk expanded by 10 percent year-over-year to $867 billion at the end of the first quarter of 2024. The GCC, Malaysia, Indonesia, Türkiye, and Pakistan (including multilaterals) issued similar levels of sukuk during this period, totaling $56.8 billion across all currencies. In contrast, bond issuance fell by 24.3 percent.
The report also mentions that the AAOIFI draft Sharia Standard No. 62 may lead to changes in the credit profile of sukuk, potentially altering them from asset-based to asset-backed. Fitch Ratings stated that it generally assesses the impact of AAOIFI standards on a case-by-case basis, as the actual adoption, implementation, and interpretation can vary significantly between regulators and institutions.
For more news on markets, click here.
