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GCC drives sukuk issuances near record high

Analysts expect the sukuk market will continue to hold significant growth potential

Published: Mon 9 Sep 2024, 4:14 PM

By
Issac John

Supported by strong sovereign issuance across the GCC and Southeast Asia, global sukuk issuance this year to reach between $200 billion and $210 billion, beating 2023’s total of just under $200 billion, Moody’s Ratings said.

Analysts at Moody’s expect the sukuk market will continue to hold significant growth potential in the coming years, supported by the entrance of new issuers that will meet the increasing demand for sukuk instruments.

“We expect GCC issuance to remain strong as the region’s governments continue to pursue strategies to diversify their economies away from oil. GCC first-half issuance rose 138 per cent on a year earlier to $69.2 billion,” they said.

While sukuk activity in the UAE doubled to $8.6 billion year on year as a result of higher overall volumes, the GCC’s strong first-half issuance was in large part driven by Saudi Arabia accounting for 37 per cent of total issuance, with Malaysia issuing nearly 30 per cent of all sukuk in the first half.

Issuance out of Qatar rose 258 per cent to $4.57 billion in the first half. Higher financing needs in Oman and Bahrain also fuelled issuance.

‘’Issuance will slow in the second half of the year to be around $80 to $90 billion but will remain strong in GCC countries, as the region’s governments continue to pursue strategies to diversify their economies away from oil. Issuance by companies and financial institutions will be driven by those returning to the market after delaying issuance, those looking to diversify funding sources and investors, or looking to issue sustainable sukuk.’’ said Abdulla AlHammadi, assistant vice president, analyst at Moody’s Ratings

GCC corporate and bank issuance volumes rose to $19.6 billion in the first half of 2024, up from $11.6 billion a year earlier. Corporate issuance rose to $9.6 billion compared with $6.9 billion last year and we expect it to remain strong in the second half of the year. GCC companies dominated early 2024 dollar-denominated corporate sukuk issuance, driven by high demand and market scarcity

“The pool of investors will continue to grow, thanks to the growing popularity of Islamic products beyond core Islamic markets, the rising demand for green and sustainable sukuk, and the increasing sophistication and diversity of Islamic instruments,” said AlHammadi.

Analysts said higher demand for sukuk also reflects the increasing appeal of the GCC region and growing investor confidence in the Gulf economies’ prospects, which coincide with the growing maturity of regional debt markets.

Green sukuk issuance will accelerate in the coming years, and it will be supported by both government and private-sector issuers. This is because sustainability is becoming a key theme in public policy agendas, as well as investors’ strategies.