The Kingdom’s strong performance in Saudi sukuk issuance continues, with a sharp 201% rise, highlighting its growing presence in the global Islamic finance sector

Saudi Arabia’s National Debt Management Center (NDMC) raised an impressive SR7.83 billion ($2.09 billion) through its riyal-denominated sukuk issuance in October, marking a substantial 201% increase compared to the previous month. This surge follows the Kingdom’s consistent activity in the sukuk market, having raised SR6.01 billion in August, SR3.21 billion in July, and SR4.4 billion in June. In September, the total issuance stood at SR2.60 billion, highlighting the sharp rise seen in October.

The October issuance was structured into five tranches. The first, valued at SR823 million, is set to mature in 2029. The second tranche, worth SR320 million, has a 2031 maturity date, while the third, the largest of the lot, totalled SR2.18 billion, maturing in 2034. The fourth tranche, amounting to SR1.43 billion, is due in 2036, and the fifth and final tranche, worth SR3.07 billion, is set to mature in 2039.

Sukuk, often referred to as Islamic bonds, are Shariah-compliant financial instruments that give investors partial ownership in the issuer’s assets, making them an attractive option for investors seeking alignment with Islamic principles. As Saudi Arabia continues to position itself as a leader in the sukuk market, this latest issuance aligns with broader trends in the global sukuk market, which has seen robust growth in 2024 despite some slowdown in the second half of the year.

Global Sukuk Trends

Saudi Arabia’s increased sukuk activity reflects a wider trend noted by financial institutions. Moody’s, in a report published in September, forecasted a strong 2024 for the global sukuk market, with issuance volumes expected to surpass those of 2023. This follows several years of increasing demand for Shariah-compliant financial products, driven by both regional and international investors seeking ethical investment options.

S&P Global similarly projected global sukuk issuances to reach between $200 billion and $210 billion in 2024, compared to just under $200 billion the previous year. This upward trajectory underscores the growing appetite for Islamic bonds worldwide and highlights Saudi Arabia’s pivotal role in the market.

This demand for sukuk has been bolstered by improved financing conditions globally. Fitch Ratings noted that the US Federal Reserve’s decision to cut interest rates to 5% in September has created a more favourable environment for sukuk issuances. Fitch further projected that interest rates would fall to 4.5% by the end of 2024 and 3.5% by the end of 2025, paving the way for continued growth in the sukuk market over the short term.

Fitch also reported that global sukuk outstanding reached $900 billion by the end of the third quarter of 2024, representing an 8.5% year-on-year increase. This figure underscores the strength of the sukuk market as a whole, which continues to expand despite some global economic challenges.

Saudi Arabia’s Growing Influence

Saudi Arabia’s strong showing in the sukuk market is part of a broader strategy to diversify its economy and reduce reliance on oil revenues. The Kingdom has been actively pursuing alternative financial instruments, including sukuk, to finance its ambitious Vision 2030 goals, which include massive infrastructure projects and social reforms.

By increasing sukuk issuances, Saudi Arabia not only strengthens its domestic market but also solidifies its reputation as a key player in the global Islamic finance sector. This is particularly important as the Kingdom continues to attract foreign investment and strengthen its ties with international financial institutions.

The success of Saudi Arabia’s sukuk programme also reflects the global shift towards ethical and Shariah-compliant investing. As investors become more interested in sustainable and responsible financial products, sukuk offer an attractive option that adheres to Islamic principles while still providing solid returns.

International Sukuk Markets

While Saudi Arabia’s domestic sukuk market continues to grow, the global sukuk landscape is also seeing notable developments. Fitch’s August report highlighted the United Kingdom as a significant hub for Islamic finance, with the London Stock Exchange ranking as the third-largest venue for US dollar-denominated sukuk listings worldwide. This highlights the increasing internationalisation of the sukuk market, with major financial centres outside the Middle East playing a role in its expansion.

As global sukuk issuances continue to rise, countries like Saudi Arabia are well-positioned to capitalise on this growth. With robust demand for Shariah-compliant financial products and favourable financing conditions, the Kingdom’s sukuk market is likely to see continued success in the coming years.

Saudi Arabia’s October sukuk issuance underscores the Kingdom’s ongoing commitment to strengthening its presence in the global Islamic finance sector. With SR7.83 billion raised in a single month, the Kingdom has demonstrated its ability to meet the growing demand for Shariah-compliant financial instruments. As global sukuk markets continue to expand, Saudi Arabia’s leadership in this space is likely to become even more pronounced, offering a glimpse of the future for both the Kingdom and the broader Islamic finance sector.