Global Sukuk Issuance to Rise at Slow Pace in 2023

Global Sukuk Issuance to Rise at Slow Pace in 2023

Global Sukuk issuance is likely to rise at a slow pace in the financial year 2023 amid market volatilities and remains a key funding source in core Islamic finance markets, Fitch Ratings says.

In a report, the global rating firm said Sukuk issuance from the core markets (including multilateral) in 2022 fell 7.9% to USD244.3 billion versus a year ago.

It attributes that to higher oil prices forecast at USD85/barrel, rising rates and geopolitical drivers. However, it outpaced bond issuance in core markets, which fell 22.1% in the same period.

The medium-to-long-term outlook according to Fitch Ratings is positive amid intact Islamic investor demand, issuer refinancing needs, and government support in core markets.

“The high oil prices have buoyed the fiscal profile of oil-exporting sovereigns like the Gulf Cooperation Council and Malaysia with lower funding needs. However, their drive to diversify funding sources can propel Sukuk growth,” said Bashar Al-Natoor, Global Head of Islamic Finance at Fitch.

“On the other hand, funding gaps will remain for oil importers like Indonesia, Turkiye and Pakistan, which Sukuk could help plug.” Challenges could rise from rising rates, lower global investor interest in emerging-market debt, and political risk.

Global outstanding Sukuk reached USD765.3 billion in 2022, 7.6% higher than a year ago. Sovereigns and multilateral remain the main issuers. Defaulted Sukuk was low at 0.21% of all issues.

It is noted that outstanding ESG Sukuk volumes expanded by 62.9% in 2022, mainly due to the low-base effect, reaching USD 24.5 billion (3% of global Sukuk volumes).

Outstanding Fitch-rated Sukuk were USD139 billion in 2022, up 4.9% from a year ago. Of the issuance, 78.1% are investment grade, 20.6% have a positive outlook, and 69.9% have a stable outlook.

Sukuk issuance faces hurdles like higher issuance costs, time-to-market and complexity compared with bonds and bank loans, and standardisation gaps. # Global Sukuk Issuance to Rise at Slow Pace in 2023

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