Sukuk Issuance in MENA Rises 48% in H1 2024 Driven by Green and Social Projects
In the first half of 2024, sukuk issuance in the Middle East and North Africa (MENA) surged by 48%, reaching $6.2 billion, according to a new analysis. This growth is attributed to a significant focus on green and social projects.
Sukuk Issuance
Bloomberg’s Capital Markets League Tables data reveals that the expansion in the Islamic bonds sector has been fueled primarily by issuances related to environmental, social, and governance (ESG) criteria and sovereign issuances. These efforts reflect a strategy to diversify funding sources and leverage the growing investor interest in Islamic finance portfolios.
The global demand for Shariah-compliant investments has propelled the sukuk market. These instruments are essential for funding infrastructure, green projects, and social initiatives, which appeal to ethical investors and align with the trend towards sustainable finance.
Saudi Arabia led the region’s growth with five sukuk issuances totaling $3.98 billion, while the UAE followed with $2.25 billion from three issuances. Regional banks played a significant role in driving the market, with Emirates Islamic Bank making a notable debut issuance of $750 million.
This positive trend highlights the Islamic financial sector’s dedication to ESG investing, especially following the UAE’s significant climate finance announcements at COP28 last year.
However, despite offering competitive rates and terms compared to conventional loans, the Islamic loan market in the MENA region saw a 21% year-on-year decline, with volumes around $13.35 billion in the first half of 2024. This decrease mirrors the bond market activity since the pandemic.
In the first half of the year, global sovereign issuances primarily propelled the sector. Saudi Arabia led with $33.6 billion issued in both local and international capital markets, followed by Malaysia with $4.3 billion and the UAE with $2.9 billion. Notable transactions included Saudi Arabia’s $5 billion sukuk split into three, six, and 10-year tranches and Bahrain’s issuance of a $1 billion seven-year sukuk.
Venty Mulani, a data specialist for sustainable fixed income at Bloomberg LP, stated, “The continued expansion of MENA Islamic debt issuances aligns with broader trends in the fixed income space while pointing to increased issuer interest in sustainable debt and an appetite to diversify portfolios. In the second half of the year, we can expect to see continued growth, particularly for ESG-related sukuk, reflecting a deepening commitment to sustainable finance in the MENA region.”
Fitch Ratings projected in April that global sukuk issuance will sustain growth throughout the remainder of the year, driven by increasing funding and refinancing needs. The credit rating agency noted that the market’s steady development would be bolstered by economic diversification efforts across Gulf Cooperation Council (GCC) countries and the maturation of the debt capital market.
However, potential risks to issuance include evolving Shariah requirements impacting credit risk, geopolitical uncertainties, and fluctuations in oil prices. Fitch stated, “Corporates and projects will likely stay reliant on bank funding, but the government push to develop the debt capital market (DCM) and reduce bank reliance could drive sukuk issuance.”
The GCC DCM reached $940 billion in outstanding sukuk and is on track to surpass the $1 trillion mark. Bashar Al-Natoor, global head of Islamic Finance at Fitch Ratings, said, “Around 80 percent of GCC sukuk is now investment-grade, and the GCC DCM is well on its way to crossing $1 trillion outstanding. Saudi Arabia, UAE, and Malaysia will likely stay among the most active sukuk issuers.”
Fitch reported that global outstanding sukuk grew by 10% year-on-year to $867 million at the end of the first quarter, with GCC countries accounting for 35% of this amount. The report also noted that Malaysia remains the largest market globally for these Islamic bonds, with approximately 60% of its ringgit DCM in sukuk.
This comprehensive analysis underscores the robust growth and increasing importance of sukuk issuances in the MENA region, driven by a commitment to ESG principles and sustainable finance.
