KUALA LUMPUR: US dollar sukuk issuance for 2023 is on course to outpace 2022 due to funding needs and diversification strategies, according to Fitch Ratings
However, sukuk issuance in all currencies (US$51.7 billion equivalent) issued in core markets in the third quarter of 2023 (3Q23) was 12.3 per cent lower year-on-year (YoY), while bond issuance fell by 17 per cent.
"While we expect the last quarter to have a busier issuance window than 3Q23, there is a risk of a fall in investor sentiment and appetite towards sukuk and bonds in emerging markets and the Middle East, amid elevated geopolitical volatilities.
"As expected, the global sukuk market was cooler during the 3Q23 summer break. We expect issuance to inch up in 4Q23," said Bashar Al-Natoor, global head of Islamic finance at Fitch.
"In addition to various sovereigns pursing funding diversification and developing their debt-capital markets, GCC banks and corporates are also likely to tap into the segment as the sukuk supply and demand imbalances continue. However, heightened geopolitical volatilities, which could impact sentiment and appetite, should be monitored."
Fitch expects near-term sukuk issuance to be supported by budget deficits in countries like Malaysia, Indonesia, Turkiye, Bahrain, Kuwait and Pakistan.
It also expects sukuk issuance to be supported by funding diversification goals and initiatives that aim to develop the Islamic-finance ecosystem and the local debt capital markets, even in countries where short-term budget surplus is expected such as the UAE, Qatar and Oman.
"Sukuk demand is generally intact. However, differences in sharia opinions could limit sukuk liquidity and its acceptability for certain Islamic investors," the firm said.
Global outstanding sukuk expanded 9.8 per cent YoY to US$823.4 billion at end-3Q23, with the largest shares in Malaysia (40 per cent), Saudi Arabia (28 per cent), Indonesia (13 per cent), the UAE (6.0 per cent), and Turkiye (3.0 per cent).
Outstanding Fitch-rated sukuk crossed US$150 billion, of which 78.5 per cent is investment-grade.