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.