Sukuk issuance volumes will be flat at best, stabilising at about $145 billion to $150 billion in 2022, amid lower and more expensive global and regional liquidity as well as reduced financing needs for some core Islamic finance countries, according to a new research report from S&P Global Ratings.

"We assume a period of higher oil prices, together with higher production and tighter spending control, will result in lower financing needs for some core Islamic finance countries," Mohamed Damak, Primary Credit Analyst at S&P Global Ratings, said. 

The global ratings agency expects three rate hikes in 2022, with the first expected in May. This would trigger a similar increase in interest rates from GCC central banks given their currency pegs to the U.S. dollar, the report noted.


In 2021, total sukuk issuance reached $147.4 billion compared with $148.4 billion in 2020.

Last year, the market benefited from increased issuances by the Saudi Arabian public and the private sectors.

Oman also returned to the market after conventional issuances in 2020 and Malaysia and Turkey saw higher sukuk volumes.


In the UAE, sukuk issuance volume dropped 64 percent, in part because of the additional complexity introduced by Standard 59, S&P Global Ratings said.

"Although legal solutions were implemented, the change has negatively affected sukuk issuance appetite from issuers and investors. This, combined with the above mentioned factors, leads us to expect sukuk issuance volume will stabilize at about $145 billion-$150 billion in 2022," Damak said.

Hybrid sukuks are usually structured around a combination of tangible assets and commodities. The Standard 59 altered the requirements for an important transaction feature necessary for Sharia compliance, the tangibility ratio.

"An issuer was required to have a minimum ratio of 51 percent tangible assets and a maximum of 49 percent commodities at transaction inception. The maintenance of this ratio, throughout the lifetime of the transaction, was on a best-effort basis and remedial actions in case of a breach were unclear,” S&P said in the report, adding, “With the adoption of Sharia Standard 59, the maintenance of a 51 percent tangibility ratio became a legal requirement throughout the transaction's lifetime and the remedies for a breach have been clarified."

It has identified a few opportunities that could support the market growth.

"Opportunities created by the energy transition in core Islamic finance countries, higher environmental, social and governance (ESG) awareness from regional issuers, and stronger automation using fintech solutions as likely to support future sukuk market growth," Damak said.

(Reporting by Seban Scaria; editing by Daniel Luiz)

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