‘Malaysia still largest sukuk market globally’

The sukuk market will grow for the rest of this year due to funding and refinancing demands, diversification, development of the debt capital market (DCM) and reduced rates, according to Fitch Ratings.

The rating agency said sukuk continued to be an important financing mechanism in markets like Malaysia, Indonesia, Turkiye, Pakistan and the Gulf Cooperation Council (GCC) region, albeit with slowed growth from the first quarter of this year.

Its global head of Islamic Finance, Bashar Al Natoor, said around 80 per cent of GCC sukuk was now investment-grade, and the GCC DCM was well on its way to crossing US$1 trillion outstanding.

Bashar said Malaysia was still the largest sukuk market globally, with around 60 per cent of its ringgit DCM in sukuk.

“Saudi Arabia, the United Arab Emirates and Malaysia will likely stay among the most active sukuk issuers,” he said in a statement.

Fitch Ratings rates about US$185 billion of global sukuk outstanding, around 80 per cent of which are investment-grade.

The share of sukuk issuers with a positive outlook expanded to eight per cent in the first quarter and there were no notable sukuk defaults.

GCC countries account for 35 per cent of the global outstanding sukuk. GCC DCM reached US$940 billion outstanding (sukuk share: 37 per cent) at the end of the first quarter.

GCC banks issued more US dollar debt (sukuk share: 51 per cent) in the first quarter of 2024 than the whole of last year.

“Corporates and projects will likely stay reliant on bank funding, but the government push to develop the DCM and reduce bank reliance could drive sukuk issuance,” said Fitch Ratings.

Meanwhile, it said global outstanding sukuk expanded 10 per cent year on year to US$867 billion at the end of the first quarter.

The GCC, Malaysia, Indonesia, Turkiye and Pakistan (including multilaterals) issued similar levels of sukuk over the first quarter, totalling US$56.8 billion (all currencies).

Bond issuance fell by 24.3 per cent, it added.