Sukuk supply is expected to witness a surge in the second half (2H) of 2021 after experiencing strong growth during 2Q of 2021, backed by strong investor appetite and issuers’ refinancing and funding diversification needs, according to Fitch Ratings

In its commentary titled ‘Global Sukuk Market Growth to Continue in 2021 and Beyond Global’, Fitch said that seasonal patterns will affect quarterly sukuk issuance which, following the summer break, is expected to inch up in the remainder of 2021 and beyond.

The sukuk market experienced robust activity in 2Q of 2021 after a slowdown in 1Q of 2021, driven by the significant issuances from the Saudi Arabian Oil Company (the largest corporate sukuk issued to date) and the Indonesian, Turkish, and Omani sovereigns, according to Fitch.

“The growth was driven by issuers aiming to diversify their funding and taking advantage of the low interest-rate environment amid continued fiscal deficits and still-challenging economic conditions. Investor demand remains intact due to new sukuk supply scarcity and the global hunt for yield,” Fitch explained.

On global outstanding sukuk, Fitch revealed that it reached $754.1 billion in 2Q of 2021 — representing 5 percent higher than 1Q of 2021.

Moreover, sukuk issuance with maturities of more than 18 months from the Gulf Cooperation Council region, Malaysia, Indonesia, Turkey, and Pakistan went up by 136 percent (Q-o-Q) to reach $23.4 billion in 2Q of 2021, with sukuk shares in the total funding mix leaping to 36 percent, according to Fitch.

It also pointed out the volume of outstanding Fitch-rated sukuk, which posted $131 billion, with 80 percent of issues being investment-grade.

Meanwhile, defaulted sukuk volumes remain small at 0.27 percent of gross sukuk issued to date, and include the 2021 sukuk default by PT Garuda Indonesia, according to Fitch.

“A number of recent international sukuk issuances contained new clauses and revised terms in the documents to comply with the sharia standards of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). The changes aim to address the globally sizeable UAE-based sukuk investors, issuers, and arrangers that are subject to AAOIFI compliance rules. These changes have credit implications that could affect issuers’ liquidity, credit profile and ratings. Further changes may be made in the future to comply with AAOIFI standards, which Fitch will assess,” Fitch illustrated.

Egypt is gearing up for issuing its first of its kind Islamic sukuk (bonds) after its related bill secured parliament approval in July.

Previously, Minister of Finance Mohamed Maait said that Egypt is expected to issue $2 billion in the first issuance.

In an exclusive interview published on Ahram Online during June, the global head of Islamic finance at Fitch Ratings Bashar Al-Natoor said that while Islamic finance represents about 82 percent of the total financing operation in Saudi Arabia, 42 percent in Kuwait, and 37 percent in Bahrain, the portion in Egypt doesn’t exceed six percent.

He added that the value of Islamic finance ranges between $2.5 trillion and $2.7 trillion globally, covering five key grounds, including Islamic banking — representing 70 to 75 percent of Islamic finance — and Islamic bonds that account for around 15 percent.