Rates are expected to be 4.5% at end-2024 and 3.5% at end-2025, boosting 4Q24-2025 issuance activity, along with drivers such as refinancing upcoming maturities, funding and diversification goals. The liquidity of the Gulf Cooperation Council (GCC) and other regional sukuk investors, mainly banks, is intact.

“We are seeing a build-up of sukuk pipeline partially supported by the recent Fed cut. However, downside risks include sharia-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. “In general, sukuk market credit conditions are sound, with 81.5% of Fitch-rated sukuk being investment-grade, 95% of sukuk issuers on Stable Outlooks, and no defaults.”

International investors’ demand for emerging market US dollar debt issuance is likely to rise, of which sukuk are above 10% (excluding China). While sukuk are not their main funding source, Islamic banks and corporates will continue to be opportunistic sukuk issuers. Beyond core players, the inaugural sukuk by Ireland-based AerCap Holdings N.V. (BBB/Positive) and Kuwait’s first sustainable sukuk by Warba Bank (A/Stable) are making the sukuk market more diverse.

Global sukuk were about USD900 billion outstanding at end-3Q24, up 8.5% yoy. Sukuk held a large 30% of the debt capital market (DCM) outstanding in core markets. In the GCC, the DCM is about USD1 trillion outstanding, with sukuk at 37%. In September 2024, Fitch upgraded Turkiye to ‘BB-’, and also upgraded its sukuk.

No sovereign sukuk have defaulted to date. In August 2024, Fitch downgraded the Maldives to ‘CC’, and is monitoring its sukuk (unrated). On 7th October, the Maldives’ Ministry of Finance reported that it has settled its latest coupon payment. External financing pressures will remain high.