Arab News, Thu, Oct 10, 2024 | Rabi al-Thani 7, 1446
Outstanding global sukuk hit $900bn by Q3: Fitch Ratings
Saudi Arabia:
Global sukuk outstanding reached $900 billion by
the third quarter of the year, marking an 8.5 percent year-on-year increase,
driven by improved financing conditions after the US Fed rate cut, according to
Fitch Ratings.
The US Federal Reserve’s recent decision to lower
rates to 5 percent in September is expected to lead to further declines, with
Fitch projecting rates of 4.5 percent and 3.5 percent by the end of 2024 and
2025, respectively. This environment is anticipated to stimulate sukuk issuances
in the near term.
The analysis said that several factors, including
the refinancing of upcoming maturities and the funding and diversification goals
of Islamic countries, will drive the growth of sukuk issuances in the fourth
quarter of this year and into 2025.
Sukuk, which is also called an Islamic bond, is a
Shariah-compliant debt product, through which investors gain partial ownership
of an issuer’s assets until maturity.
The analysis from Fitch follows Saudi energy giant
Aramco’s recent completion of a $3 billion international sukuk issuance, with
demand exceeding expectations and reaching six times oversubscription.
“We are seeing a build-up of sukuk pipeline
partially supported by the recent Fed cut. However, downside risks include
shariah-related complexities, rising geopolitical risks, and oil volatilities
that could affect market growth,” said Bashar Al-Natoor, global head of Islamic
finance at Fitch Ratings.
He added: “In general, sukuk market credit
conditions are sound, with 81.5 percent of Fitch-rated sukuk being
investment-grade, 95 percent of sukuk issuers on Stable Outlooks, and no
defaults.”
In the Gulf Cooperation Council region, the debt
capital market is about $1 trillion outstanding, with sukuk accounting for 37
percent.
According to the analysis, international demand
for emerging market US dollar debt issuance is likely to rise, with sukuk
comprising more than 10 percent.
The report also said that the sukuk market has
become more diverse following the inaugural sukuk issuance by Ireland-based
AerCap Holdings and Kuwait’s first sustainable sukuk from Warba Bank.
In August, another report released by Fitch
Ratings said that the UK is a Western hub for Islamic finance, with the London
Stock Exchange being the third-largest listing venue for US dollar sukuk
globally.
According to that report, the LSE currently holds
a 35 percent global share of US dollar sukuk, valued at around $80 billion
outstanding at the end of the first half of this year.