Foreign currency-denominated sukuk issuance rose by around 9% in H1 2023, thanks to Saudi Arabia and some new issuers.
Standard & Poor’s Global Ratings said in a report “The Global Sukuk Market Is Showing Opportunity” that it expects global Sukuk issuance to total US$160 billion to US$170 billion this year. The figure was higher than S&P’s original estimate of $150 billion, but still slightly below the 2022 figure due to lower local currency sukuk issuance.
The recent increase in foreign currency-denominated Sukuk issuance is largely due to specific characteristics of certain core Islamic finance markets. In Saudi Arabia, for example, reduced liquidity in the banking system and lower oil prices have meant fewer sovereign local currency Sukuk but higher foreign currency-denominated issuance.
“The mixed level of activity underscores the geographic concentration of the Sukuk market,” said Dr Mohammad Damak, a credit analyst at S&P Global Ratings. “To attract interest from non-core jurisdictions, the industry may need to rethink the issuance process and coordinate its Shariah standards.”
S&P still believes total sukuk issuance this year is likely to be lower than in 2022 or 2021, although it expects more foreign currency activity in the market. Nonetheless, S&P expects continued growth in sustainability-linked Sukuk, albeit from a low base, as issuers become more aware of ESG considerations.
“In the medium term, the sukuk market will benefit from increased automation and digitization,” added Dr Damak. “We also see continued growth in sustainability-linked Sukuk and anticipate that this year’s COP28 in the UAE may shed more light on how Islamic finance and Sukuk can help address the challenges of climate transition.” – trade arab news agency