The global sukuk market in 2021 continued to chart progressive milestones across the different sukuk markets, with sustainability driving the momentum, a theme that we expect to see continue into 2022. Several firsts, including the largest sustainability and ESG sukuk issued and the first USD sovereign sustainability sukuk were among the milestones recorded during the year.
Advancing Islamic finance agenda in a number of new markets such as Maldives, Bangladesh and a welcome return by non-core market issuers like the UK also helped sustain market growth. Overall, new sukuk issuance grew a commendable 13.2% to USD162.9 bil. Core sukuk markets like Malaysia and Saudi Arabia anchored the global sukuk market, commanding more than 65% of global sukuk issuances, with these two countries making up half of local currency sukuk market activity.
Sovereign issuances made up nearly 60% of global sukuk issuances and remained the dominant segment of the market, particularly from Gulf region (24.5%) to bridge pandemic-fueled funding gaps and replace lost earnings from weaker oil prices in the first two quarters of the year. This is notwithstanding the transition challenges from the AAOIFI new standard implementation that had held back growth for that region.
Outstanding global sukuk reached USD660.7 bil in 2021, increasing 21.7% from a year ago, was again dominated by sovereign sukuk which contributed to more half of the outstanding amount. Outstanding corporate sukuk also advanced by 22.3% y-o-y, in part contributed by Saudi Aramco’s debut dollar Sukuk, the world’s largest USD corporate sukuk at USD6 bil.
The sukuk market however was not left unscathed by the pandemic with the defaults of PT Garuda Indonesia, a dominant airline carrier and Malaysian oil and gas service provider, Serba Dinamik Holdings Bhd. Although the amount in default only made a quarter of a percent of total sukuk issued in 2021, the resolution of these defaults will be monitored closely, particularly given the added challenges of Shariah contract restructuring and Shariah-compliance complexities in addition to jurisdictional enforcement.
Malaysia’s sukuk market also saw the ratings of two sukuk issuances downgraded to reflect imminent defaults toward the end of the year. Earlier in February, it reported its first sukuk default for 2021 when a structured transaction securitised against a salary-deductible loan portfolio default on its RM10 mil senior sukuk outstanding.
