The UAE was among several countries leading sukuk issuances in 1H 2024, alongside Saudi Arabia, Oman, Malaysia, and Kuwait, according to an S&P Global report. The surge in issuances was driven by high financing demands in core Islamic finance markets, including the UAE’s focus on expanding the non-oil sector and an increase in demand as investors anticipate US Federal Reserve’s rate cuts later this year.

Foreign currency-denominated issuances grew to nearly USD 6 bn during the six-month period, up from below USD 4 bn in 1H 2023, according to the report. These issuances are rising on the back of more real estate developers and banks tapping the market, the report noted.

ICYMI- Real estate developer Arada took a USD 400 mn sukuk to market in June, while Binghatti launched its debut USD 300 mn sukuk in February and Aldar Properties issued a USD 500 mn sukuk in May. Several banks also issued sukuk, including Emirates Islamic, Sharjah Islamic Bank, Dubai Islamic Bank, and First Abu Dhabi Bank. Also issuing sukuk for the first time was Mubadala, with a USD 1 bn issuance, while Emirates Strategic Investments issued a USD 700 mn sukuk.

Local currency-denominated issuances inched down slightly on the back of fewer government issuances, the report 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, with 80% of issuances taken to market by GCC banks. The total issuance value is expected to remain around USD 10-12 bn annually barring significant policy changes.

Digital sukuks incoming? The UAE’s approval of a regulatory framework for stablecoins could encourage digital sukuk development, although it may take some time to become popularized, S&P Global said.

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 stable high foreign currency issuances and areas of growth in sustainable and digital sukuk. The intelligence firm affirmed its forecast for global sukuk issuances to reach USD 160-170 bn by the end of 2024.

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