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Sukuk issuances in Saudi continue to rise: Local and global currency sukuk issuances out of Saudi Arabia grew in 1H 2024, as the country looks to finance the Saudi Vision 2030 economic transformation plan, S&P Global said in a report. The upwards trend comes as Saudi “tapped the market with jumbo issuances and has also started to issue retail sukuk,” S&P said.
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SAR-denominated sukuk issuances in Saudi more than tripled y-o-y in 1H 2024, hitting USD 10 bn during the first six months of the year. This growth comes despite local currency sukuk declining 8.8% y-o-y on a global scale, driven largely by Turkey, Pakistan, the UAE, and Malaysia taking lower issuances to market, according to S&P.
Meanwhile, foreign currency-denominated sukuk grew some 38% y-o-y to USD 18 bn in 1H 2024. By way of comparison, global FCY-denominated sukuk issuances grew 24% y-o-y during the six-month period to hit USD 32.7 bn. The growth in Saudi’s FCY sukuk issuances means the Saudi banking system is likely to “shift to a moderate net external debt position in the next few months,” S&P Global said.
The bird’s eye view: Total global sukuk issuances hit USD 91.9 bn at the mid-year mark, up slightly from USD 91.3 bn during the same period last year. The rise in sukuk issuances comes on the back of improved visibility on medium-term interest rates and high financing needs in core Islamic countries (including Saudi).
Sustainable sukuks dipped 8.8% y-o-y to USD 5.2 bn in 1H 2024. The total issuance value is expected to remain around USD 10-12 bn annually barring significant policy changes. The UAE’s approval of a regulatory framework for stablecoins could encourage digital sukuk development, although it may take some time to become popularized.
New accounting + auditing standards are coming down the pipeline: The Accounting and Auditing Organization for Islamic Financial Institutions recently issued new standards for sukuk — known as Sharia Standard 62 — which will require the real transfer of underlying assets to investors. This transition to asset-backed sukuks changes the nature and risk of the market could mean higher costs, asset-related risks, and legal issues, potentially leading to fragmentation, issuance delays, or reduced issuance volumes until a middle ground is found. Feedback on the standard is due by 31 July, with the new standard expected to impact the market in 2025.
Despite potential disruptions from the new standards for sukuk, along with geopolitical risks, S&P maintains a positive outlook on the sukuk market citing its stability through high foreign currency issuance and specific areas of growth in sustainable and digital sukuk. The intelligence firm expects global sukuk issuance to reach USD 160-170 bn by the end of 2024.
