SUKUK 

SAUDI POISED FOR DOMINANCE IN GLOBAL SUKUK

Sukuk issuance is set to maintain momentum in 2025, with total volumes expected to range between USD 190 billion and USD 200 billion, according to S&P Global Ratings. The Shariah-compliant bond market has shown resilience despite a slight decline in overall issuance from USD 197.8 billion in 2023 to USD 193.4 billion in 2024. A key driver has been the sharp rise in foreign currency sukuk issuance, which climbed 29% to reach USD 72.7 billion, led by Saudi Arabian issuers alongside corporations in Malaysia and Indonesia. 

With global liquidity improving and major central banks gradually shifting towards monetary easing, issuers have been taking advantage of favourable conditions. While the pace of rate cuts may slow in 2025, Saudi Arabia’s financing needs remain elevated as the kingdom presses ahead with its Vision 2030 economic diversification agenda. This will likely sustain issuance levels, particularly as Saudi banks, corporations, and the government look to tap into foreign capital. 

A DOMINANT FORCE

Saudi Arabian issuers have emerged as a dominant force in the foreign currency sukuk market, alongside Malaysia and Indonesia. In 2024, the kingdom’s banks and corporates stepped up their activity, contributing significantly to the region’s issuance surge. Kuwait, Qatar, and Oman also saw increased issuance, though the UAE recorded a slight decline.

With sukuk offering an important avenue for Saudi borrowers to access liquidity while diversifying their funding base, foreign-currency issuance is expected to remain high in 2025. Saudi Arabia’s growing presence in the global sukuk landscape underscores its ambitions to cement its position as a leading Islamic finance hub. 

“In 2025, not only do we expect monetary easing to continue, but we also think financing needs in core Islamic finance countries will remain high and lead issuers to take any opportunity the market has to offer,” said S&P. “We therefore forecast that the volume of foreign currency-denominated sukuk issuance will reach USD 70 billion to USD 80 billion in 2025. It is worth noting that we did not see significant activity by non-traditional issuers in this area in 2024 and we expect such activity to remain sporadic in 2025.” 

REGULATORY UNCERTAINTY LOOMS

Despite strong issuance levels, the sukuk market faces potential disruption from evolving regulatory standards. The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has proposed Standard 62, which could significantly alter the structural foundation of sukuk. If implemented as drafted, it would shift the focus from contractual obligations to asset-based structures, raising concerns about credit risk and legal complexities.

The standard, currently under industry consultation, could make sukuk costlier to structure, particularly in jurisdictions where asset registration fees are high. Additionally, the requirement to adhere to Shariah law as the governing framework could challenge the existing practice of using English law in international sukuk transactions. While any material impact is unlikely before 2026, the uncertainty surrounding the reforms may affect investor confidence in the near term. 

SAUDI CORPORATES TAKE THE LEAD

Sustainable sukuk issuance remained steady in 2024, totalling USD 11.9 billion, with Saudi Arabia accounting for 38% of the total. This was largely driven by Saudi banks, underscoring the kingdom’s growing role in financing green and socially responsible projects. Indonesia followed as the second-largest issuer, while the UAE saw a sharp drop following COP28-related activity in 2023.

Looking ahead, sustainable sukuk issuance is projected to hover around USD 10 billion to USD 12 billion in 2025. While regulatory frameworks such as the International Capital Market Association’s Islamic finance guidelines are expected to support demand, broader issuance growth will depend on the pace of net-zero commitments in the GCC and regulatory incentives.

Several Saudi entities continue to issue sukuks. In January, the National Debt Management Center (NDMC) announced the closure of February 2025 issuance under the Saudi Arabian Government SAR-denominated Sukuk Program. The total amount allocated was set at SAR 3.724 billion across four tranches. This was followed by a SAR 3.724 billion sukuk issuance across four tranches. 

In February, the Saudi Real Estate Refinance Company, which is fully owned by the Public Investment Fund (PIF), successfully completed the pricing of its first government-guaranteed international sukuk valued at USD 2 billion. The issuance, structured in two tranches with maturities of three and 10 years, was oversubscribed six times, reflecting strong demand from more than 300 institutional investors. 

With sustained issuance levels, strong Saudi participation, and ongoing regulatory developments, 2025 is shaping up to be another pivotal year for the sukuk market.