Gulf nations witness 178% surge in US Dollar sukuk issuance: Fitch Ratings

The Gulf Cooperation Council countries witnessed a surge in US dollar sukuk issuance, registering a 178 percent year-on-year growth in the past year.

According to a report by Fitch Ratings, in core markets like the GCC, Malaysia, Indonesia, Pakistan, and Turkiye, sukuk accounted for a 29 percent share of debt capital market issuances across all currencies in 2023.

This reflects a decrease from 35 percent in 2022, with a 40 percent share in US dollars, showing a 1.6 percent decline compared to the previous year.

US dollar sukuk issuance in key markets, including multilaterals, rose 40 percent year-on-year to $52 billion, while US dollar bonds were up 53 percent. However, sukuk issuance in all currencies in core markets fell by 19 percent year-on-year.

Fitch projects an upward trajectory in global sukuk issuance in 2024 after global outstanding for the financial instrument expanded by 10.3 percent year-on-year to reach $850 billion last year. The market is expected to cross $1 trillion in the medium term despite geopolitical triggers and volatilities.

Bashar Al-Natoor, global head of Islamic Finance at Fitch Ratings, said: “We did not see any major sukuk default or additional credit-related complexities in 2023.”

He added: “We also saw pockets of growth in 2023 despite volatilities. Funding and diversification goals are likely to drive 2024 issuance.”

These risks include geopolitical events, monetary tightening, higher oil prices, and Shariah-compliance complexities.

The report noted that the credit profile of Fitch-rated sukuk issuers remained stable overall in 2023, with a 79.2 percent investment grade, up from 78.1 percent in 2022.

The bond issuers’ share of stable outlooks grew to 93.6 percent in the same year, up from 69.9 percent in 2022.

However, the positive outlooks fell to 3.6 percent from 20.6 percent in 2022, mainly linked to the sovereign upgrades of Saudi Arabia and Oman.

Fitch Ratings expects that sukuk will “continue being a sizeable part of the funding mix in core markets, with 2024 issuance likely to rise.”

It forecasts both lower oil prices and interest rates could drive issuance in 2024.