GCC companies lead early sukuk moves in 2024

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• Bond from Saudi German Health parent
• Offering size to be determined later
• $170bn issuance forecast for 2024

Saudi Arabia’s largest healthcare provider has announced plans to issue a riyal-denominated sukuk as analysts predict that $170 billion of the sharia-compliant bonds will be issued this year.

Middle East Healthcare Company, the parent of Saudi German Health, said in a filing to the Saudi Stock Exchange that the offering size would be determined later, subject to market conditions.

On Monday the company published a prospectus for a sukuk sale worth SAR1.5 billion ($400 million) after gaining approval from regulators last month.

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Fitch Ratings predicts that the global value of the sukuk market will surpass $1 trillion in the medium term, having reached $850 billion at the end of 2023 despite “geopolitical triggers”.

S&P Global Ratings is forecasting issuance of $170 billion this year. The 2023 total was $168.4 billion, down from $179.4 billion in 2022.

Higher financing needs in some core Islamic finance markets will drive demand, according to S&P, with global liquidity conditions potentially easing. 

Mohamed Damak, S&P’s primary credit analyst, said tighter liquidity in Saudi Arabia’s banking system was one reason for the 2023 drop.

Fitch expects sukuk to remain a large part of the funding mix in the core markets of the GCC, Malaysia, Indonesia, Turkey and Pakistan.

Bashar Al Natoor, global head of Islamic finance at Fitch, said: “We saw pockets of growth in 2023 despite volatilities. Funding and diversification goals are likely to drive 2024 issuance.”

First Abu Dhabi Bank issued a five-year, $800 million sukuk last week – the first of 2024. The order book, which was 1.9 times oversubscribed, included international fund managers and banks. 

State-owned Oman Telecommunications Company (Omantel) is also planning to issue seven-year US dollar-denominated debut sukuk after delaying issuance last October when it received bridge loan to settle its outstanding bonds.

Sukuk were developed as an alternative to conventional bonds that are not considered permissible by many Muslims as they pay interest and may finance businesses involved in activities not allowed under sharia.

Fitch said the credit profile of rated sukuk issuers remained stable in 2023, with 79.2 percent at investment grade.

“We did not see any major sukuk default or additional credit-related complexities,” Al Natoor said.

Dollar sukuk issuance in core markets rose by 40 percent year on year to $52 billion, according to Fitch. However, issuance in all currencies in core markets was down 19 percent.

The Philippines and Egypt released their debut sukuk last year, while the UAE government began issuing dirham-denominated treasury sukuk. 

Sustainable sukuk are another growth area, according to S&P.

On Monday Qatar International Islamic Bank said it had appointed Standard Chartered Bank as global coordinator for the issue of a dollar-denominated sustainable sukuk. 

Damak said: “We expect higher volumes as issuers meet investors’ demands and core Islamic finance countries seek to reduce their carbon footprints. Cop28 shed more light on the opportunities of Islamic finance in general and sukuk in particular to tackle climate change.”