Sukuk issuance will reach 2019 levels this year: Fitch Rating

By Rahul Vaimal, Associate Editor
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Islamic Finance
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The Sukuk issuance volumes globally are projected to reach the level of the previous year in 2020, despite the unexpected economic crisis due to the coronavirus pandemic, according to Fitch Ratings.

As the market conditions keep improving, Sukuk issuance is expected to soar with increased funding needs.

“We expect Sukuk supply to increase and continue to be a significant part of the total funding mix in key Islamic finance jurisdictions. Volume in the full year 2020 is expected to be similar to 2019 levels,” Fitch cited in a report.

Sovereign demand

Sovereigns will continue as the main contributors to the Sukuk volumes as they confront deep fiscal deficits which lead to high borrowing needs, due to the pandemic driven economic disruptions and lower oil prices. 

Issuance from financial institutions and corporates are also expected to increase as they face challenging business conditions and take advantage of lower funding costs.

In the third quarter of 2020, the Sukuk issuance with a maturity period above 18 months from the Gulf Cooperation Council (GCC) region, Malaysia, Indonesia, Turkey and Pakistan reached $10.5 billion marking a 14.2 percent decrease from the second quarter. The proportion of Sukuk in the total funding mix in these jurisdictions reached 25 percent.

At the end of the third quarter, the volume of outstanding Fitch-rated Sukuk touched $116.2 billion out of which about 24 percent is projected to mature in 2020-2022. Nearly, 81 percent of issues were investment-grade and 19 percent speculative-grade.

As per Fitch’s calculations, the oil prices will average $41/bbl and $45/bbl in 2020 and 2021 respectively. 

Green & Sustainability Sukuk

The outstanding Fitch-rated Green & Sustainability volume of Sukuk has reached $7.2 billion by the end of the third quarter of 2020, representing 6.2 percent of the total Sukuk portfolio. All of the issues were investment-grade. The first green-Sukuk from Saudi Arabia issued by Saudi Electricity Company was also released in the third quarter.

“Despite the modest growth, the Green & Sustainable Sukuk market is still in its infancy and not likely to become a sizable part of the Sukuk market in the short term,” Fitch report stated.

Libor Impact

The discontinuance of Libor (London interbank offered rate) affects the value of floating-rate Sukuk referencing IBOR (Interbank offered rates) or any other benchmark. Sukuk also faces difficulties in ensuring sharia compliance throughout the conversion process. 

Fixed-rate issues constitute 93 percent of the dollar Sukuk market. Sukuk with floating rates now increasingly includes provisions to assist the changes in the reference rate.


The International Islamic Financial Market (IIFM), a standard-setting body, launched the new Sukuk-Al Ijarah documentation in October. In the third quarter of 2020, the Central Bank of Kuwait set up a Higher Committee of Shariah Supervision and Turkey also initiated a legal infrastructure for participation finance.