A. SREENIVASA REDDY (ABU DHABI)
Global sukuk issuance remained resilient in the first half of 2025 despite heightened geopolitical tensions and volatility in international capital markets, according to a new report by S&P Global Ratings.
The total volume of sukuk issued fell by nearly 15% to $101.3 billion in first half of 2025 compared to $119 billion in the same period last year, driven by a notable decline in local currency-denominated issuance. However, foreign currency sukuk gained momentum, rising to $41.4 billion in H1 2025, from $38 billion a year earlier.
S&P forecasts that foreign currency-denominated sukuk issuance will remain strong in the second half of 2025, with full-year volumes expected to reach between $70 billion and $80 billion. "The growth has been supported by significant financing needs in core Islamic finance markets, particularly the UAE, Bahrain, and Kuwait, where issuers tapped favourable market windows amid ongoing economic growth and fiscal deficits,” the S&P Ratings said.
“In the UAE, where we observed a significant increase in the volume of issuances, banks and corporates tapped the market to finance growth amid a still-supportive economy. In Malaysia, the International Islamic Liquidity Management Corp. continued to tap the market, providing the industry with much-needed liquidity management instruments and contributing to the bulk of the country's foreign currency issuances,” the S&P report said.
In contrast, local currency sukuk issuance dropped to $59.8 billion at midyear, down from $81 billion in 2024. This decline was attributed to subdued liquidity conditions and reduced financing needs in several key markets, including the UAE, Saudi Arabia, Malaysia, and Qatar.
The report also highlighted uncertainty surrounding the future of AAOIFI’s Standard 62, a proposed amendment that could impact sukuk structuring. The timeline for implementation remains unclear, and S&P noted that the perceived urgency among issuers to issue before the standard’s adoption has diminished. “Questions linger over whether the standard will mandate effective asset ownership transfer to investors, which could alter the risk profile of sukuk and potentially disadvantage holders of unsecured instruments,” the report said.
Meanwhile, sustainable sukuk experienced robust growth, with issuance volume rising 27% year-on-year to $9.3 billion in the first half of 2025 from $7.4 billion in H1, 2024. Banks, particularly the Islamic Development Bank, contributed nearly half of this activity, with Saudi Arabian issuers accounting for over 60% of the sustainable sukuk market. Driven by strong demand and alignment between Islamic finance and sustainability principles, S&P raised its full-year forecast for sustainable sukuk issuance to between $14 billion and $16 billion.
The outlook for the second half of 2025 remains positive, supported by expectations of a 50-basis-point interest rate cut by the US Federal Reserve and a stable geopolitical scenario that avoids full-scale regional conflict.