Arabian Post Staff
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, and further issuance is anticipated this year, since some Gulf issuers are already prepared, just waiting for the best launch window, S&P said in a report.
The agency forecasts that global issuance will total $160 billion-$170 billion this year, which is higher than the initial estimate of $150 billion, but still slightly below the figure in 2022 as local currency sukuk issuance declines.
Although the volume of sustainability-linked sukuk increased by around 50% in 2023, this year’s COP28 in the United Arab Emirates (UAE) will likely shed more light on how Islamic finance and sukuk might help address the challenges of climate transition.
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. To attract interest from non-core jurisdictions, the industry may need to rethink the issuance process and harmonize its Sharia standards.
S&P believes total sukuk issuance will likely be lower this year than in 2022 or 2021, even though additional foreign currency activity in the market may be expected. That said, S&P sees 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 digitalization. It remains to be seen whether the launch of Islamic Coin, expected later this year, will contribute to this trend.
In the first half of this year, total issuance was down by 17.5% to $83.2 billion compared with $100.7 billion in the same period last year (see chart 1). We continue to expect muted issuance activity overall. The agency has revised upward its estimate of sukuk issuance to $174.1 billion from $155.8 billion in 2022 by better capturing the volume of local currency-denominated issuances. However, issuance volumes are still lower than in 2021.
Also published on Medium.