Global sukuk issuance to rise in 2024: Fitch Ratings

PHOTO

Sukuk are expected to continue being a sizeable part of the funding mix in core markets, with 2024 issuance likely to rise, Fitch Ratings says.

Global outstanding sukuk expanded by 10.3% yoy to reach $850 billion at end-2023 despite volatilities and geopolitical triggers, with the market expected to cross $1 trillion in the medium term. The credit profile of Fitch-rated sukuk issuers remained stable overall in 2023, with 79.2% investment grade (2022: 78.1%).

Sukuk issuers’ share of Stable Outlooks grew to 93.6% (2022: 69.9%) and Positive Outlooks fell to 3.6% (2022: 20.6%), mainly linked to the sovereign upgrades of Saudi Arabia and Oman. Fitch rates more than 70% of the US dollar sukuk market.

Pockets of growth

“We did not see any major sukuk default or additional credit-related complexities in 2023,” said Bashar Al Natoor, Global Head of Islamic Finance at Fitch Ratings. “We also saw pockets of growth in 2023 despite volatilities. Funding and diversification goals are likely to drive 2024 issuance”. Risks include geopolitical events, monetary tightening, higher oil prices, and sharia-compliance complexities.

In core markets (Gulf Cooperation Council, Malaysia, Indonesia, Turkiye and Pakistan), sukuk had 29% debt capital market issuance share in all currencies (2022: 35%) and 40% share in US dollars (2022: 41.6%). US dollar sukuk issuance in core markets (including multilaterals) rose by 40% yoy to $52 billion, while US dollar bonds were up 53%.

However, sukuk issuance in all currencies in core markets fell by 19% yoy. In the GCC, US dollar sukuk issuance rose 178% yoy. The Philippines and Egypt issued debut sukuk, with a return by South Africa. The UAE federal government began issuing dirham T-sukuk. ESG sukuk was $36.1 billion outstanding.

Fitch forecasts both lower oil prices (2024F: $80/bbl; 2025F: $70/bbl) and interest rates (US policy rate 2024F: 4.75%; 2025F: 3.5%), which could drive issuance. Islamic banks are important sukuk investors and a sizeable part of the GCC and Malaysian banking system, with their intact liquidity expected to continue. A number of funds and indices exclude sukuk if not AAOIFI-compliant.