Islamic sukuk emissions to grow at an accelerated rate in 2024
Since the beginning of this year, an acceleration in the pace of issuance of Islamic Sukuk - Islamic bonds - has been observed, as many government agencies and the private sector rely on these tools to provide liquidity to meet their plans.
Statistics released by credit rating agency Standard & Poor's (S&P) recently show that total global sukuk issuance amounted to 91.9 billion dollars during the first half of this year.
Although the value of sukuks increased slightly compared to the same period last year, when the value of issuance reached 91.3 billion dollars, experts believe they will witness a further increase in the remainder of the year.
S&P indicated in a report carried by the official Emirates News Agency a significant 23.8% increase in foreign currency issuance. These issues reached 32.7 billion dollars at the end of the first half of this year, up from 26.4 billion dollars in the same period of 2023.
According to the rating agency, the main contributors to this increase were issuers in Saudi Arabia, the United Arab Emirates, Oman, Malaysia and Kuwait.
Data released by Fitch Ratings in early 2024 shows that the value of Sukuk issuance - which is an important financing tool in the major markets of the Gulf Arab states, Malaysia, Indonesia, Turkey and Pakistan - amounted to about 850 billion dollars last year.
‘The agency maintains its forecast for global sukuk issuance in 2024 at 160 to 170 billion dollars, including foreign currency-denominated issuance of 45 to 50 billion dollars," says Mohammed Damak, global head of Islamic finance at S&P, as quoted by Al-Arab.
The agency believes the improved view on the medium-term interest trajectory helps support sukuk issuance as it expects the US Federal Reserve to begin cutting interest rates in December 2024. S&P explained that elevated funding needs in Islamic finance countries contribute to further unwinding.
Financial market experts and economic analysts unanimously agree that sovereign sukuks have become the best funding option as Arab governments face difficult economic conditions caused by slowing global growth.
However, the impact of the financial crises varies from country to country in the Middle East and North Africa. While Gulf countries enjoy credit strength that helps them attract financing through sukuk issuance, countries that have experienced political instability, such as Tunisia and Lebanon, find it difficult to move in this direction.
As for Egypt and Morocco, due to their political stability, they have the possibility to take advantage of this option, which could be one of their main tools in the coming years.
On the other hand, S&P experts addressed the adoption of the guidelines for Standard 62 issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOFI), as it will not affect 2024 issuance.
The agency's report also referred to sustainable sukuk, as the total volume of such sukuk issuance reached 5.2 billion dollars during the January-June period, while the volume of sustainable sukuk is expected to range between 10 billion and 12 billion dollars this year.
The agency noted that "80% of sustainable issuance in the first six months of 2024 came from banks in the Gulf countries, as part of their climate change journey".