Sukuk pipeline building up despite volatilities

Fitch Ratings-Dubai: Global sukuk issuance faces short-term uncertainties amid continued macro volatilities, Fitch Ratings says. However, the pipeline for 2Q23 issuance is building up. OPEC+ members’ oil production cut – by almost 1.2 million barrels per day from May until end-2023 – should support short-term oil prices (2023F oil price: USD85/barrel). High oil prices will reduce new financing needs for many core oil-exporting sovereigns. However, funding diversification is sought. Malaysia, Bahrain, and a number of core oil-importing countries still have funding needs and are expected to have budget deficits in 2023.

Sukuk issuance from core markets (1Q23: USD45.3 billion) is down 18.5% qoq. “Persistent macro volatilities and uncertainties, contraction in global liquidity and investor risk appetite, and monetary tightening is affecting sukuk and bond issuance in regions where Islamic finance is active,” said Bashar Al-Natoor, Global Head of Islamic Finance at Fitch. “However, Islamic investor’s liquidity and investment appetite continues to be supportive of the longer-term sukuk story.” New changes to sukuk documents linked to compliance with AAOIFI sharia standards are still happening.

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