Global outstanding sukuk volume breaks $800bn barrier

The total volume of outstanding sukuk volumes exceeded $800bn for the first time in Q2 2023, Fitch Ratings said, while issuance is expected to slow in the third quarter coinciding with summer vacations in many countries.

Issuance in core Islamic finance markets across the Middle East, Africa and South Asia region jumped by 10 per cent quarter-on-quarter (QoQ) to $49.1bn while bond issuance dropped by 4.8 per cent.

“H1 2023 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 at Fitch Ratings.

Furthermore, global sukuk markets engaged with a diverse range of issuers, currencies and geographies in addition to greater issuance volumes.

Global Islamic bond issuance is expected to plunge in Q3 2023 before picking up pace in the last quarter of the year.

The majority of Fitch-rated outstanding sukuk were investment grade at 79 per cent, with 12.6 per cent of issuers having a positive outlook and 77.5 per cent having a stable outlook. Similarly, outstanding sustainability-linked sukuk reached $30.5bn, up 22.5 per cent.

Global sukuk issuance

The UAE issued its debut dirham-denominated treasury Sukuk, which supports funding diversification initiatives and the local Islamic finance ecosystem, in May. The treasury bond was oversubscribed by 7.6 times and attracted bids totalling $2.26bn (Dhs8.3bn).

The debut Kazakhstani tenge Islamic bond (A+) was issued by Jeddah-based Islamic Corporation for the Development of the Private Sector in the second quarter of the year. Mexico is also considering sukuk issuance.

Meanwhile, Dubai-based Sobha Realty became the latest corporate issuer after raising $300m from its debut sale of Islamic bonds earlier in July amid a strong rebound in the city’s real estate sector.

Real estate developer DAMAC sold a three-year $400m sukuk in April. The Shariah-compliant bond was priced at 7.75 per cent, tighter than the guidance of around 7.875 per cent that the company had released earlier.

Abu Dhabi Islamic Bank  (ADIB) also sold a $750m dollar-denominated additional tier-one (AT1) perpetual Islamic bond in July. ADIB, which priced the perpetual non-call, five and half-year sukuk at a profit rate of 7.25 per cent per annum, said it would be listed and traded on London Stock Exchange.

Regulatory environment

Favourable regulations are being implemented in some core Islamic finance countries in the GCC and South Asia region.

Saudi Arabia’s Capital Market Authority announced the cancellation of its share in the sukuk and bonds trading commission starting May 2023. In April, the UAE’s Securities and Commodities Authority said companies would be exempt from listing fees on the local market this year for green or sustainability-linked bonds or sukuk.

UAE authorities have been encouraging issuers to raise green debt ahead of the COP28 climate conference starting November 30 in Dubai. S&P Global said though the volume of sustainability-linked Islamic bonds increased by around 50 per cent in 2023, this year’s COP28 will likely shed more light on how Islamic finance might help address the challenges of climate transition.

Read: UAE’s debut Islamic treasury bonds attracts bids worth Dhs8.3bn