Outstanding sukuk volumes exceeded USD800 billion for the first time in 2Q23, Fitch Ratings says. However, issuance is expected to slow in 3Q23 coinciding with summer vacations in many countries, before picking up pace in 4Q23.
Sukuk issuance in core markets reached USD49.1 billion in 2Q23, up 10% qoq while bond issuance fell by 4.8%.
“As expected, 1H23 was a busy period for sukuk issuance on the back of issuers’ funding needs and diversification attempts as well as initiatives to develop the local debt capital markets,” said Bashar Al-Natoor, Global Head of Islamic Finance, Fitch Ratings. In addition to greater volumes, global sukuk markets engaged with a diverse range of issuers, currencies and geographies.
Fitch expects 3Q23 to be cooler for the global sukuk market before picking up pace in 4Q23.
The majority of Fitch-rated outstanding sukuk were investment grade at 79%, with 12.6% of issuers having a Positive Outlook, and 77.5% having a Stable Outlook. Outstanding ESG-sukuk reached USD30.5 billion; up 22.5% qoq.
The UAE issued the first Emirati dirham-denominated Treasury sukuk, which supports funding diversification initiatives and the local Islamic finance ecosystem. The first Kazakhstani tenge sukuk (A+) was issued by the Islamic Corporation for the Development of the Private Sector in 2Q23. Mexican officials are in exploratory talks to issue sukuk.
Favourable regulations were witnessed. Saudi Arabia’s Capital Market Authority announced a cancellation of its share in sukuk and bonds trading commission starting from May 2023. In the UAE, the Securities and Commodities Authority issued regulations exempting companies wishing to list their green or sustainability-linked sukuk or bonds in a local market from registration fees for 2023.
Only 0.21% of all issued sukuk have defaulted. Sukuk recovery is still untested in most Islamic finance markets.