RIYADH: Sukuk issuance in the Middle East and North Africa jumped 48% to $6.2 billion in the first half of 2024, driven by green and social projects, new analysis shows .
Growth in the Islamic bond sector was driven primarily by environmental, social and governance-related issuances as well as sovereign issuances, reflecting efforts to diversify funding bases and capitalize on growing investor interest in Islamic finance portfolios, according to data from Bloomberg’s Capital Markets League Tables.
The sukuk market has seen strong growth, driven by global demand for Sharia-compliant investments. These instruments play a crucial role in financing infrastructure, green projects and social initiatives, attracting ethical investors and reflecting a trend towards sustainable finance.
According to Bloomberg analysis, Saudi Arabia led the growth with five sukuk issuances totaling $3.98 billion, while the United Arab Emirates accounted for the remaining $2.25 billion through three issuances.
Banks in the region dominated the market, with Emirates Islamic Bank completing a significant inaugural issue of $750 million.
This positive trend highlights the Islamic finance sector’s commitment to ESG investments, particularly in light of the UAE’s major climate finance announcements at COP28 last year.
In contrast, although it offers competitive rates and terms compared to conventional loans, the Islamic loan market in the MENA region saw volumes of around $13.35 billion in the first half of 2024, marking a decrease of 21% year-on-year.
This reflects the level of activity seen in the bond market since the pandemic.
During the first half of the year, the sector was mainly driven by global sovereign borrowing. Saudi Arabia led the way with $33.6 billion issued in local and international capital markets, followed by Malaysia with $4.3 billion and the United Arab Emirates with $2.9 billion.
Significant transactions included Saudi Arabia’s issuance of $5 billion sukuk in three-, six- and ten-year tranches and Bahrain’s issuance of a seven-year $1 billion sukuk.
“The continued expansion of MENA Islamic debt issuance aligns with broader trends in the fixed income space, while highlighting increased issuer interest in sustainable debt and a desire to diversify portfolios said Venty Mulani, data specialist for sustainable fixed income at Bloomberg LP.
She added: “In the second half of the year, we can expect continued growth, particularly for ESG-linked sukuk, reflecting a deeper commitment to sustainable finance in the MENA region.”
Fitch Ratings forecast in April that global sukuk issuance would continue to grow through the end of the year, fueled by growing funding and refinancing needs.
The rating agency noted that the steady development of the market will be supported by economic diversification efforts in the Gulf Cooperation Council countries and the maturation of the debt capital market.
However, potential risks to issuances include evolving Sharia requirements impacting credit risk, geopolitical uncertainties and fluctuations in oil prices.
“Companies and projects will likely remain dependent on bank financing, but the government push to develop the debt capital market and reduce reliance on banks could boost sukuk issuance,” Fitch said in the report.
Moreover, the debt capital market in the GCC countries has reached $940 billion in outstanding sukuk and is on track to surpass the $1 trillion mark.
“Approximately 80% of GCC sukuk are now investment grade, and the debt capital market in GCC countries is on track to surpass $1 trillion in assets outstanding. Saudi Arabia, the UAE and Malaysia are likely to remain among the most active sukuk issuers,” said Bashar Al-Natoor, global head of Islamic finance at Fitch Ratings.
Fitch said global sukuk outstanding increased 10% year-on-year to $867 million at the end of the first quarter, with GCC countries accounting for 35% of this amount.
The report highlighted that Malaysia remains the world’s largest market for such Islamic bonds, with around 60% of its ringgit debt capital market in the form of sukuk.
This text is the translation of an article published on Arabnews.com
