Global Sukuk Issuance May Touch $170 Billion in 2024

The total Sukuk issuance reached $91.9 billion over the first six months of this year, up slightly from last year’s $91.3 billion, the US-headquartered credit agency S&P Global Ratings said.

In its latest report entitled “Sukuk Market: The Calm Before the Storm?”  S&P Global Ratings forecast global Sukuk issuance at about $160 billion-$170 billion following the market’s good performance over the first half of 2024.

But a notable difference is the 23.8% increase in foreign currency issuances, which reached $32.7 billion by 30 June 2024, up from $26.4 billion a year earlier. The main contributors to this increase were issuers from Saudi Arabia, United Arab Emirates (UAE), Oman, Malaysia, and Kuwait, the report noted.

“Improved visibility on the medium-term trajectory of interest rates has benefited foreign currency-denominated Sukuk issuance – we expect the US Federal Reserve to start cutting rates in December 2024. Simultaneously, high financing needs in core Islamic finance countries explain the increased issuance, which is notably funding an ongoing economic transformation program in Saudi Arabia and strong growth in the UAE’s non-oil economy,” the report explained.

Adopting Accounting and Auditing Organization for Islamic Financial Institutions’ (AAOIFI) 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. The standard will transition the industry toward asset-backed Sukuk by requiring the real transfer of underlying assets to investors.

Local currency-denominated Sukuk issuance has dropped by 8.8% year-on-year, primarily due to lower issuances in Turkiye, Pakistan, the UAE, and Malaysia and the largest drop was in Turkiye, where monetary tightening combined with better fiscal policy coordination continues to help rebalance the economy.

Since June 2023, the Central Bank of Turkiye has adopted a host of measures to tighten credit conditions. Among them, it has increased its policy rate to 50% from 8.5% in just 11 months.

In the UAE, the decline can be explained by lower local-currency denominated issuance by the federal government and other authorities. For Pakistan, the issue might be related to a lack of data on issuances in the first half of 2024. In addition, the fall in local currency issuance in Malaysia was marginal due to the country’s strong Sukuk issuance footprint while local currency issuance in Saudi Arabia has resumed its growing trend. The government has tapped the market with jumbo issuances and has also started to issue retail Sukuk.

Foreign Currency Issuances

High financing needs in core Islamic finance countries, stable rates, and improved clarity on the future path of rate cuts explain the continued increase in foreign currency-denominated issuances. There was a high issuance volume in Saudi where the government and banks continue to tap into the market to finance various projects related to the economic transformation plan.

S&P Global Ratings now expects the Saudi banking system to shift to a moderate net external debt position in the next few months. Even in the UAE, real estate developers and banks have been accessing the Sukuk market.

The real estate sector has sustained its strong performance, prompting developers to rush into launching new projects while real estate prices remain high and other countries were also contributing to higher foreign currency issuances as three transactions settling in July total an additional $3.6 billion.