Fitch Ratings-Jakarta/Dubai/Toronto:   Fitch Ratings classifies most Organisation of Islamic Cooperation (OIC) countries in the lowest category for recoveries after default. Fitch’s recent update of its Country-Specific Treatment of Recovery Ratings Criteria and the addition of three OIC countries to the monitor last May have only slightly improved the overall OIC country classification. Furthermore, no sovereign sukuk were upgraded following the September 2025 Sovereign Rating Criteria update, as the application of loss severity assessments and recovery-based notching for lower-rated sovereigns did not result in any adjustments to outstanding ratings.

Under the Corporate Country Group Scoring Summary, over two thirds of the 22 reported OIC countries are in Group D (68%), where recoveries after default range from average to poor. This is a slight improvement from the previous classification around a year ago, when about 70% were in this group. In group D, ratings of secured or enhanced debt are capped at the level of the Issuer Default Rating (IDR). The monitor was expanded in May to include Mauritania and Senegal (both Group D) and Kuwait (Group C).

In group D, ratings of secured or enhanced debt are capped at the level of the IDR in both investment-grade and speculative-grade rating categories – that is, with no credit given for security, or for creditor-friendly balance sheet structure or asset quality.

The UAE and Qatar are classified in Group B, the highest among the reported OIC countries, where recoveries given default range from superior to poor. In Group B, ratings of secured or enhanced debt may be capped at one notch above the IDR when investment-grade, and two notches above the IDR when speculative-grade. Group C includes Saudi Arabia, Malaysia, Bahrain, Kuwait and Oman, where the recoveries given default ranges from good to poor, and where ratings of secured or enhanced debt may be capped at one notch above the IDR in both investment-grade and speculative grade rating categories.

None of the reported OIC countries is in Group A, where recoveries given default range from outstanding to poor, and where the debt ratings of secured or enhanced debt may be capped above the IDR.

Fitch’s Sukuk Rating Criteria, updated in October, now incorporates loss severity considerations in the ratings of long-term sovereign debt instruments. Under the Sovereign Rating Criteria, long-term senior unsecured instruments of sovereigns with IDRs from the ‘AAA’ to ‘BB’ categories typically will be rated the same as the applicable IDR. For sovereigns with IDRs of ‘B+’ or below, Fitch will assign a Recovery Rating to the sovereign’s long-term debt instruments and may notch senior obligations up or down from the corresponding IDR based on this assessment. No sovereign sukuk were upgraded or downgraded following the publication of the updated Criteria.

Sukuk default is rare. There have been no rated defaults over the past four years, and no sovereign sukuk has ever defaulted. In the GCC, Malaysia, Indonesia, Turkiye, and Pakistan, which are core sukuk-issuing markets, only about 0.5% of US dollar sukuk had defaulted by end-2025 – US dollar bonds had a higher default rate of 1%. Fitch is monitoring the Maldives (CC), whose April 2026 sukuk repayment (unrated) remains uncertain. Less than 1% of Fitch-rated secured and unsecured sukuk are notched higher than the applicable IDRs.

Many GCC sukuk issuers are adding terms that allow the trustee to register the title for sukuk assets in their name following an obligor default if legally possible. This could support recoveries if enforced. However, Fitch does not view this as sufficient to treat an unsecured sukuk as secured, or as ranking above existing debt, due to the lack of precedents, uncertainties and complexities related to legal framework and regulations, and the obligor’s willingness and ability to register. Resolution uncertainty remains. Ratings may also be assigned above the cap when an issuer is in distress, or in default, and recoveries are expected to be higher than implied by the cap.

Contact:
Bashar Al Natoor
Managing Director – Global Head of Islamic Finance
bashar.alnatoor@fitchratings.com
Fitch Ratings – Dubai Branch
Maze Tower, 18th Floor
Sheikh Zayed Road, P.O. Box 215584, Dubai, U.A.E.

Mohammad Alkhaja
Associate Analyst – Islamic Finance
mohammad.alkhaja@fitchratings.com

Saif Shawqi, CFA, FRM
Director – Islamic Finance
saif.shawqi@fitchratings.com

Muhammad Luthfi Bagja Aulia
Senior Analyst – Islamic Finance
muhammad.aulia@fitchratings.com

Omar Almaazmi
Associate Analyst – Islamic Finance
omar.almaazmi@fitchratings.com

Media Relations: Shahd Alsheikh, Riyadh, Email: shahd.alsheikh@thefitchgroup.com
Matthew Pearson, London
Email: matthew.pearson@thefitchgroup.com

Additional information is available on www.fitchratings.com

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