Today's Edition
A. SREENIVASA REDDY (ABU DHABI)
Local-currency issuance is set to sustain growth in the global sukuk market in 2026, with Islamic bond sales on track to reach between $270 billion and $280 billion this year, S&P Global Ratings said in an assessment.
Global sukuk issuance reached $129 billion in the first half of 2026, up from $112.3 billion in the same period last year. The increase of $16.7 billion, or about 15%, was driven primarily by local-currency markets, which helped offset a contraction in foreign-currency issuance.
“We expect local markets will remain the engine of growth amid ongoing geopolitical tensions and a more restrictive interest rate environment than previously anticipated, which will temper foreign-currency-denominated issuance,” S&P Global Ratings said.
Local-currency sukuk issuance increased by $18.6 billion to $87.6 billion in the first half, accounting for more than two-thirds of total issuance. In contrast, foreign-currency-denominated issuance fell by $1.9 billion to $41.4 billion.
Malaysia was the largest contributor to the increase, adding $14.8 billion to global issuance compared with the first half of 2025. Türkiye contributed an additional $5.6 billion, Qatar $4.3 billion and Saudi Arabia $2.4 billion.
These increases more than offset an $8 billion decline in issuance from the UAE and a combined $2.4 billion contraction in other markets, taking the global first-half total to $129 billion.
S&P said local-currency markets in Malaysia, Qatar, Saudi Arabia, and Türkiye underpinned the expansion. Malaysia’s performance was particularly significant as strong demand for short-term, Sharia-compliant liquid instruments supported issuance by the International Islamic Liquidity Management Corporation.
Malaysian foreign-currency issuance alone increased by $7.3 billion, helping to offset a cumulative $11.3 billion decline in GCC issuance volumes. Overall GCC sukuk issuance fell 9% in the first half amid the regional conflict and more challenging economic and market conditions.
The rating agency said the decline in GCC activity reflected reduced hydrocarbon output, slower non-oil economic activity and a shift by some issuers towards conventional private placements, which offered ample liquidity, simpler structures and faster execution during a period of uncertainty.
In the UAE, the decline in foreign-currency sukuk issuance was linked mainly to reduced corporate activity, particularly among real estate developers. However, S&P observed an increase in monthly issuance volumes after the ceasefire in April, indicating that issuers began returning to the market as conditions improved.
The ceasefire, followed by a memorandum of understanding between the US and Iran in June, created an issuance window for borrowers that had been preparing to enter the market before the outbreak of the conflict in late February. Although several GCC issuers took advantage of the opportunity, foreign-currency issuance remained below 2025 levels.
S&P expects foreign-currency issuance to continue recovering, although volumes are likely to remain below last year’s levels.
S&P said the market would remain exposed to near-term volatility arising from geopolitical developments, changes in oil prices and unexpected shifts in US monetary policy.
However, the agency maintained a positive medium-term outlook for the sukuk market, supported by the expansion of sustainable finance, new regulatory frameworks, tokenisation, and other financial-technology developments that could improve market efficiency.
S&P currently rates more than $180 billion of sukuk, including programmes and standalone issuances, with more than 50% located in the GCC. About 3% of its rated sukuk have industrial or commercial properties, including shopping malls, as underlying assets.
The agency said many sovereign and real estate sukuk were backed by land parcels, for which the risk of a total or partial loss event remained extremely remote. The geographical spread and diversity of assets used in many sukuk transactions also reduced such risks, it added.
