Sukuk issuances in GCC soar 138% to $69.2bn in first half

DUBAI: The Gulf Cooperation Council (GCC) experienced a remarkable surge in sukuk issuance in the first half of 2024, witnessing a staggering 138 per cent year-on-year increase to $69.2 billion.

The impressive growth, as reported by Moody’s Ratings, underscores the GCC’s resilience and strategic shift towards diversification beyond oil-dependent economies. With Saudi Arabia leading the charge, accounting for 37 per cent of the total sukuk issuance, the trend reflects a broader regional commitment to sustainable financing and economic diversification.

A closer examination of the individual member states reveals significant contributions from both the United Arab Emirates (UAE) and Qatar. Issuance in the UAE doubled to $8.6 billion, illustrating an increased engagement with sukuk as a preferred financial instrument.

Qatar′s sukuk issuance soared by 258 per cent to $4.57 billion, illustrating an increased engagement with sukuk as a preferred financial instrument.

Moody’s forecasts suggest a robust outlook for global sukuk issuance, projecting volumes in 2024 to exceed those of 2023, potentially ranging between $200 and $210 billion, a slight increase from just under $200 billion in the previous year.

Slowdown in issuance activity

While there may be a slowdown in issuance activity during the latter half of 2024, the resilience demonstrated by GCC countries indicates that financing efforts will remain strong. Regional governments are increasingly prioritising diversification strategies as they seek to mitigate the risks associated with fluctuating oil prices.

The pivot towards sustainable economic models has positioned sukuk as a vital tool in financing developmental projects and enhancing liquidity in the market.

Furthermore, the corporate and bank sukuk issuance within the GCC also saw significant growth, rising to a combined total of $19.6 billion in the first half of 2024, compared to $11.6 billion a year earlier. Notably, corporate sukuk issuance rose to $9.6 billion, up from $6.9 billion in 2023, indicating a healthy appetite for corporate financing through sukuk instruments.

The enthusiasm is fueled by high demand and a scarcity of dollar-denominated corporate sukuk, which has allowed GCC companies to capitalise on favorable market conditions.

Strong investor demand

A noteworthy development in the sukuk landscape is the Saudi government’s strategic refinancing of upcoming maturities through the issuance of $17 billion in new longer-dated sukuk. Moody’s anticipates that this trend of prefinancing will persist, further supporting liquidity and investor confidence in the sukuk market.

An emerging and vital facet of the sukuk market is the burgeoning Environmental, Social, and Governance (ESG) segment. Having reached a record $10.6 billion in 2023, ESG sukuk volumes in the first half of 2024 amounted to $6 billion, primarily driven by issuances from the UAE, Saudi Arabia, and Indonesia.

The growth is indicative of a broader trend towards sustainable finance and reflects strong investor demand for socially responsible investment products.

Moody’s predicts continued growth in the ESG sukuk market, spurred by an increasing interest from nations keen to diversify their funding sources while adhering to sustainable development goals.