Global Sukuk Market Grows to $823 Billion in Q3-23: Fitch

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Bashar Al-Natoor, Global Head of Islamic Finance – Managing Director, Fitch Ratings, predicted a sustained upward trend in global sukuk issuance, with the market soaring to $823.4 billion at the end of Q3-23, reflecting a strong 9.8% year-on-year. grow.

In an interview with the Emirates News Agency (WAM), Al-Natoor attributed the increase to several key factors that led to the adoption of sukuk: a) filling budget gaps, especially in non-oil-rich countries; b) diversification of financing options; c) creation of flexible financial instruments for institutions; d) expansion of sources of liquidity for banks; and ae) offer companies and projects alternatives to traditional bank loans.

It also categorized countries based on their financing and refinancing needs or their aspirations to strengthen and diversify their debt markets.

While higher oil prices have strengthened their finances, GCC countries are proactively issuing sukuk not just for immediate needs but to achieve strategic goals such as building robust debt market structures and diversifying their financing options, he added.

Al Natoor pointed out that the rise in interest rates has a negative impact on global sukuk issuance and therefore the global sukuk market. It reduces the appetite of global investors to enter emerging markets and raises concerns about growth rates as interest rates rise. As for the impact on issuers, some of them are often forced to adjust to high interest rates due to existing obligations they have to meet.

He explained that the impact of rising interest rates on local investors is different, especially since many local investors are Islamic banks that have healthy liquidity and the desire to invest that liquidity. This category of investors is active and their desire to invest in sukuk is growing.

Regarding the UAE as an important issuer and investor in the global sukuk market, Al-Natoor pointed to two dimensions at the global level. The first is compliance with Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards, in particular Shariah Standard No. 59, which helps avoid the possibility of loss for UAE investors and loss of entry for UAE institutions in arranging deals. This is because the UAE obligates banks to adhere to these standards, whether as a sukuk investor, lead arranger or issuing manager. The second dimension is related to the intention of some entities to list sukuk on the Nasdaq exchange in the Dubai International Financial Centre, which is considered a global listing destination for sukuk.

As for recent sukuk issuances, Al-Natoor said they reached $51.7 billion in the third quarter of this year in major markets that include the Gulf Cooperation Council, Malaysia, Indonesia, Turkey and Pakistan. This is the same level of emissions as in the previous quarter, but represents a year-on-year decrease of 12.3%.

He noted that sukuk issuance fell 24.7% year-on-year to $154.6 billion in the first nine months of 2023. “The decline was less severe than the 17% decline in bond issuance, which rose 1.2% quarter-on-quarter. “

Natoor attributed the slowdown in sukuk issuance to the usual summer lull and rising oil prices, which have reduced funding needs for some GCC countries.

At the end of the third quarter of 2023, the global sukuk market reached $823.4 billion, of which 40% was issued by Malaysia, 28% by Saudi Arabia, 13% by Indonesia, 6% by the United Arab Emirates and 3% by Turkey.

About 75% of these global sukuk were issued in local currencies by the end of the third quarter of 2023. Outstanding sukuk rated by Fitch exceeded USD 150 billion, up 12.2% year-on-year, and 79.8% of sukuk rated by the agency are investment grade.

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