Saudi Arabia: Global sukuk issuance is projected to hit between $190 billion and $200 billion in 2025, driven by increased activity in key markets such as Saudi Arabia and Indonesia, according to a recent analysis from S&P Global.

In its latest report, S&P Global noted that global sukuk issuances totaled $193.4 billion in 2024, a slight decrease from $197.8 billion in 2023. Despite this marginal decline, the market saw a notable 29 percent year-on-year increase in foreign-currency denominated sukuk, which surged to $72.7 billion in 2024.

The report highlighted that Malaysia and Gulf Cooperation Council countries, particularly Saudi Arabia, were the primary drivers of foreign-currency denominated sukuk issuances.

Sukuk, a Shariah-compliant bond, offers investors partial ownership in an issuer’s assets and is structured to adhere to Islamic finance principles.

“We expect foreign currency-denominated issuance to remain strong in 2025,” S&P Global said in its analysis.

The agency also anticipates that monetary easing will persist, albeit at a slower pace than initially expected. This, coupled with substantial financing needs in core Islamic finance nations, particularly due to ongoing economic diversification initiatives, is expected to prompt issuers to capitalize on favorable market conditions.

The S&P report comes at a time of significant activity in Saudi Arabia’s debt and sukuk markets. A December report from Kamco Invest indicated that Saudi Arabia would face the largest share of bond maturities in the GCC region from 2025 to 2029, reaching an estimated $168 billion.

Despite global geopolitical tensions, S&P Global forecasts that these will have little impact on sukuk issuance in 2025.

Mohamed Damak, head of Islamic Finance at S&P Global Ratings, stated: “Our forecasts assume no major shift in global liquidity compared to our base-case expectations and no significant escalation of geopolitical risks in the GCC that could disrupt the economic performance of top sukuk issuers.”

S&P Global also noted that the implementation of the Accounting and Auditing Organization for Islamic Financial Institutions’ Shariah Standard 62 is not expected to affect sukuk volumes until 2026.

This guideline, which was published as an exposure draft in late 2023, aims to standardize various aspects of the sukuk market, including asset backing, ownership transfer, and trading procedures.

“We believe the impact of AAOIFI’s Shariah Standard 62 will only materialize in 2026, at the earliest,” S&P Global said.

“There is uncertainty regarding whether market feedback will lead to any significant revisions to the original proposals, which we view as potentially disruptive for the industry.”

Fitch Ratings echoed similar concerns about the potential impact of these guidelines, suggesting that the final adoption could lead to significant changes in the structure of the sukuk market and may even increase fragmentation.