Issuance of sukuk denominated in foreign currency was up about 9% in the first half of 2023, thanks to Saudi Arabia and a few new issuers, according to a recent report S&P Global Ratings published, ‘The Global Sukuk Market is Showing Pockets of Opportunity’.
The report expected that global sukuk issuance will total $160bn-$170bn this year. This figure is higher than the ratings agency’s initial estimate of $150bn but still slightly below the figure in 2022 as local currency sukuk issuance declines.
The recent rise in foreign currency-denominated sukuk issuance was mainly due to features specific to certain core Islamic finance markets. In Saudi Arabia, for example, reduced banking system liquidity and lower oil prices meant a decline in sovereign local currency sukuk but higher foreign currency-denominated issuances.
“The mixed activity levels highlight the sukuk market’s geographic concentration,” said S&P Global Ratings credit analyst Mohamed Damak.
“To attract interest from non-core jurisdictions, the industry may need to rethink the issuance process and harmonise its sharia standards,” he said.
The report projected that total sukuk issuance will likely be lower this year than in 2022 or 2021, even though additional foreign currency activity in the market is anticipated. Therefore, it has foreseen a continued growth of sustainability-linked sukuk, albeit from a low base, amid rising awareness of environmental, social, and governance considerations among issuers.
“In the medium term, the sukuk market is set to benefit from increased automation and digitalisation,” Dr Damak said.
“We also see continued growth of sustainability-linked sukuk and expect this year’s COP28 in the United Arab Emirates will likely shed more light on how Islamic finance and sukuk might help address the challenges of climate transition,” he said. M