THE total sukuk issued in 2021 rose to 36.1% year-on-year (YoY) to US$252.3 billion (RM1.06 trillion) as central banks, governments and multilateral institutions dominated sukuk issuances despite Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) standards implementation challenges, Covid-19 disruptions and higher oil prices.
Fitch Ratings Inc stated the local-currency sukuk issuance accounted for 80% of sukuk issuance last year while 41.2% of all sukuk issued in 2021 were in Indonesian rupiah, followed by US dollars (19.4%), Malaysian ringgit (16.4%), Saudi riyals (13.5%) and Turkish lira (5%).
The key sukuk-issuing jurisdictions were the Gulf Cooperation Council (GCC) region, Malaysia, Indonesia, Turkey and Pakistan accounting for US$230.2 billion of sukuk issued in 2021 while noncore market sovereigns such as the UK, Maldives and Nigeria also issued sukuk.
Fitch Ratings stated several sukuk issuers defaulted in 2021, including local oil and gas service provider Serba Dinamik Holdings Bhd and PT Garuda Indonesia with Fitch Ratings noting legal precedent for effective enforcement is lacking in many sukuk-issuing jurisdictions.
The rating form added sharia requirements could add complexities to default resolution. Defaulted sukuk amounted to only 0.25% of all sukuk issued in 2021 it noted.
“In 2021, revised terms and clauses were added to new and existing sukuk documents, driven by market calls for compliance with AAOIFI standards as these revisions could help increase standardisation over the medium term. AAOIFI-linked changes broadly stabilised since the third quarter of 2021 (3Q21) but it is uncertain if there will be changes in 2022,” the Fitch Ratings report yesterday noted.
Environmental, social and corporate governance-linked sukuk, especially green and sustainable sukuk volumes expanded by 17.2% in 2021, reaching US$15 billion or 2.4% of global sukuk volumes and the issuance theme is likely to remain prominent in 2022.
Fitch Ratings expects a positive outlook for the sukuk market in 2022 which is expected to grow and remain a key financial source in core Islamic finance markets.
Fitch Ratings global Islamic finance head Bashar Al-Natoor, stated the growth for 2022 will be anchored by robust Islamic investor appetite, funding diversification goals and Islamic-finance development agendas in several countries.
“The downside risk stems from higher oil prices reducing the number of sovereigns’ funding needs, AAOIFI compliance complexities, traditional risks such as interest rate rise, lower global investor appetite for emerging market debt and political risks,” he said.
The company also stated the outlooks improved with the share of sukuk issuers with Negative Outlooks declining to 8.8% in the 4Q21 compared to the previous quarter at 23.4% as the global outstanding sukuk reached US$711.3 billion, or 12.7% higher YoY.
In 2021, revised terms and clauses were added to new and existing sukuk documents, driven by market calls for compliance with AAOIFI standards.
“These revisions could help increase standardisation over the medium term. Among Fitch Ratings-rated sukuk, the credit impact of the changes has been neutralised by inserting counter-clauses. We have not seen many new AAOIFI-linked changes since the 3Q21, and it is uncertain if there will be changes in 2022,” the Fitch Ratings report stated.