Bashar Al Natoor, Fitch Ratings’ Global Head of Islamic Finance – Managing Director, foresees a continuous increase in global sukuk issuance, reaching $823.4 billion by the end of Q3-23, indicating a robust 9.8% annual growth.
In an interview with the Emirates News Agency (WAM), Al Natoor attributed this surge to various factors such as addressing budget gaps, diversifying funding options, providing flexible financial tools for institutions, expanding liquidity sources for banks, and offering alternatives to traditional loans for corporates and projects.
He categorised nations based on their financing needs and aspirations to enhance and diversify their debt markets. Despite strengthened finances due to higher oil prices, GCC countries actively issue sukuk to achieve strategic objectives like fortifying debt market structures and broadening funding alternatives.
However, Al Natoor highlighted the negative impact of rising interest rates on global sukuk issuance and the market, reducing investor interest in emerging markets and raising concerns about growth rates. Despite this, local investors, especially Islamic banks with healthy liquidity, show increased interest in sukuk investment.
Regarding the UAE’s role in the global sukuk market, Al Natoor emphasised compliance with AAOIFI standards to safeguard investor interests and facilitate UAE institutions’ involvement in sukuk deals. He also mentioned the trend of some entities aiming to list sukuk on the Nasdaq in the Dubai International Financial Centre, a recognised sukuk listing destination.
Sukuk issuances
Sukuk issuances in Q3-2023 reached $51.7 billion in key markets like GCC countries, Malaysia, Indonesia, Turkey, and Pakistan, marking a similar level to the previous quarter but a 12.3% decrease annually. Year-to-date, sukuk issuance declined by 24.7% to $154.6 billion in 2023’s first nine months, a milder drop than the 17% fall in bond issuance.
Al Natoor attributed the slowdown in sukuk issuance to the typical summer lull and reduced financing needs in some GCC countries due to higher oil prices. The global sukuk market composition at the end of Q3-2023 comprised 40% from Malaysia, 28% from Saudi Arabia, 13% from Indonesia, 6% from the United Arab Emirates, and 3% from Türkiye.
Around 75% of global sukuk issuance until Q3-2023 was in local currencies. Fitch Ratings’ data showcased an over $150 billion increase in outstanding sukuk, with 79.8% rated as investment grade, marking a 12.2% year-on-year rise.
