Sukuk Issuance Hits $91.9 billion in H1-2024 – S&P
S&P Global Ratings is maintaining its global sukuk issuance forecast at about $160 billion-$170 billion following the market’s good performance over the first half of 2024.
Total issuance reached $91.9 billion over the first six months of this year, up slightly from last year’s $91.3 billion. But a notable difference is the 23.8% increase in foreign currency issuances, which reached $32.7 billion by June 30, 2024, up from $26.4 billion a year earlier.
Still, core Islamic nations in Africa is missing in the drive. The main contributors to this increase were issuers from Saudi Arabia, United Arab Emirates (UAE), Oman, Malaysia, and Kuwait.
Improved visibility on the medium-term trajectory of interest rates has benefited foreign currency-denominated sukuk issuance–we expect the U.S. 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.
Adopting Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Standard 62 guidelines–as they have been presented–could disrupt the market, S&P said.
The global rating firm added that this will not affect 2024 issuance but will likely be a consideration from next year.
It said the standard will transition the industry toward asset-backed sukuk by requiring the real transfer of underlying assets to investors.
S&P said it is difficult to anticipate the appetite for such instruments from both investors and issuers, as well as the legality of moving assets off their balance sheets, given the current market structure.
This could either lead to further market fragmentation, or worse, issuance could be put on hold until sukuk structurers figure out a middle ground, the report said.
S&P Global noted that a more conservative interpretation of Sharia is already affecting some market structures. But, even if Standard 62 is adopted, it is unlikely to disrupt existing sukuk, since analysts understand that any changes in contractual obligations are subject to investors’ consent.
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.
“We have seen 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.
“We now expect the Saudi banking system to shift to a moderate net external debt position in the next few months. We have also observed UAE real estate developers and banks 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.
“We have noted that other countries are also contributing to higher foreign currency issuances”.
In fact, three transactions settling in July total an additional $3.6 billion. S&P said it did not see issuers outside core Islamic finance countries coming into the market in the first half of 2024. 3 Sectors Poised for Boost as Odds of Trump Victory Rise
