Global sukuk shows pockets of opportunity: S&P

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Issuance of sukuk denominated in foreign currency was up about 9% in the first half of 2023, thanks to Saudi Arabia and a few new issuers.

In a report "The Global Sukuk Market Is Showing Pockets of Opportunity," S&P Global Ratings says it expects global sukuk issuance will total $160 billion-$170 billion this year. This figure is higher than S&P’s initial estimate of $150 billion, but still slightly below the figure in 2022 as local currency sukuk issuance declines.

The recent rise in foreign currency-denominated sukuk issuance was mainly due to features specific to certain core Islamic finance markets. In Saudi Arabia, for example, reduced banking system liquidity and lower oil prices meant a decline in sovereign local currency sukuk but higher foreign currency-denominated issuances.

Mixed activity

"The mixed activity levels highlight the sukuk market's geographic concentration," said S&P Global Ratings credit analyst Dr Mohamed Damak. "To attract interest from non-core jurisdictions, the industry may need to rethink the issuance process and harmonise its Sharia standards."

S&P still believes total sukuk issuance will likely be lower this year than in 2022 or 2021, even though it anticipates additional foreign currency activity in the market. That said, S&P sees continued growth of sustainability-linked sukuk, albeit from a low base, amid rising awareness of environmental, social, and governance considerations among issuers.

"In the medium term, the sukuk market is set to benefit from increased automation and digitalisation," Dr Damak added. "We also see continued growth of sustainability-linked sukuk and expect this year's COP28 in the UAE will likely shed more light on how Islamic finance and sukuk might help address the challenges of climate transition."