Fitch Ratings-Dubai: The size of the UAE debt capital market (DCM) rose by 10% year on year (yoy) to USD270 billion outstanding at end-2023 and is forecast to cross USD300 billion in 2024-2025, Fitch Rating says. Among countries of the Gulf Cooperation Council (GCC), the UAE has the largest US dollar DCM. Nasdaq Dubai will likely continue being one of the top listing centres for US dollar sukuk globally.

“UAE sukuk issuers’ credit profiles are predominantly stable, with 96.5% of the sukuk being investment grade and 92% on Stable Outlook, with the balance on Positive Outlook,” said Bashar Al Natoor, Global Head of Islamic Finance at Fitch Ratings. “We expect the UAE DCM to continue its growth momentum on the back of capital market developments and diversification of funding. However, risks for DCM growth include rising rates and oil prices, and additionally for sukuk, AAOIFI-sharia standards adoption could add challenges.”

The share of sukuk and dirham issuances in the UAE’s DCM mix is also projected to rise on the government’s implementation of the Dirham Monetary Framework, issuers seeking to diversify funding, and strong investor demand, including from UAE banks that have solid liquidity. The share of dirham in the outstanding DCM mix rose to 20.5% at end-2023 from 0.5% in 2020, with the balance mostly in US dollars.

The federal government started issuing dirham T-bonds in 2022, and only T-sukuk were issued in dirham after 2Q23. In 2023, sukuk issuance in all currencies expanded by 115% yoy, while bond issuance rose more slowly, by 23.6%. Among US dollar DCM issuances in 2023, sukuk had a sizeable 35% share, up from 24% in 2022.

Outstanding ESG debt rose 165% yoy to USD17.1 billion, with 40.2% in sukuk. The Higher Sharia Authority directed Islamic banks to include sustainable sukuk and financing as part of business lines.

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“UAE Debt Capital Markets Dashboard: 2024” is available via the link above or at www.fitchratings.com

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