Global sukuk issuances are rising following the US Fed's rate cut to 5% in September 2024, with financing conditions improving, Fitch Ratings says.
Rates are expected to be 4.5% at end-2024 and 3.5% at end-2025, boosting 4Q2024-2025 issuance activity, along with drivers such as refinancing upcoming maturities, funding, and diversification goals. The liquidity of the Gulf Cooperation Council (GCC) and other regional sukuk investors, mainly banks, is intact.
“We are seeing a build-up of sukuk pipeline partially supported by the recent Fed cut. However, downside risks include sharia-related complexities, rising geopolitical risks, and oil volatilities that could affect market growth,” said Mr Bashar Al Natoor, global head of Islamic Finance at Fitch Ratings. “In general, sukuk market credit conditions are sound, with 81.5% of Fitch-rated sukuk being investment-grade, 95% of sukuk issuers on ‘Stable’ outlooks, and no defaults.”
International investors’ demand for emerging market US dollar debt issuance is likely to rise, of which sukuk are above 10% (excluding China).
While sukuk are not their main funding source, Islamic banks and corporates will continue to be opportunistic sukuk issuers. Beyond core players, the inaugural sukuk by Ireland-based AerCap Holdings and Kuwait’s first sustainable sukuk by Warba Bank are making the sukuk market more diverse.
Global sukuk were about $900bn outstanding at end-3Q2024, up 8.5% yoy. Sukuk held a large 30% of the debt capital market (DCM) outstanding in core markets. In the GCC, the DCM is about $1tn outstanding, with sukuk at 37%.
No sovereign sukuk have defaulted to date. External financing pressures will stay high.