Manama: Mahmood Rafique, Editor: Sukuk volumes in 2022 are expected to grow and remain a key financing source in core Islamic finance markets, Fitch Ratings says.
“Growth will be anchored by robust Islamic investor appetite, funding diversification goals, and Islamic-finance development agendas in a number of countries,” Bashar Al-Natoor, Global Head of Islamic Finance at Fitch, said.
“Downside risk stems from higher oil prices reducing a number of sovereigns’ funding needs, AAOIFI-compliance complexities, traditional risks such as interest-rate rise, lower global investor appetite for emerging-market debt, and political risk.”
Total sukuk issued in 2021 grew a strong 36.1% yoy to reach USD252.3 billion. Central banks, governments and multilateral institutions dominated issuance. This was despite Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards implementation challenges, Covid-19 disruptions, and higher oil prices. Local-currency sukuk amounted to 80% of issuance.
The key jurisdictions of the GCC, Malaysia, Indonesia, Turkey and Pakistan issued USD230.2 billion of sukuk in 2021. Non-core market sovereigns such as the UK, Maldives and Nigeria also issued sukuk. Fitch-rated sukuk reached USD132.4 billion in 2021, 80.1% of which were investment-grade. Outlooks improved with the share of sukuk issuers with Negative Outlooks falling to 8.8% in 4Q21 from 23.4% in 4Q20.
Global outstanding sukuk reached USD711.3 billion in 2021, 12.7% higher than a year ago. Green & sustainable sukuk volumes expanded 17.2% yoy in 2021 to USD15 billion, with the theme likely to remain prominent in 2022. A number of sukuk issuers defaulted in 2021, including Serba Dinamik Holdings Berhad (Fitch: RD) and PT Garuda Indonesia. Legal precedent for effective enforcement is lacking in many sukuk-issuing jurisdictions.
In 2021, revised terms and clauses were added to new and existing sukuk documents to comply with AAOIFI standards. AAOIFI-linked changes broadly stabilised since 3Q21 but it is uncertain if there will be changes in 2022.
