The global sukuk market is seeing unprecedented developments as Sharia-compliant financial structures adapt to new regulations and growing investor interest. Proposals for Sharia reforms could lead to a major shift in the sukuk landscape, potentially driving innovation and expanding the market further into long-term investments.
Issuers are increasingly adopting longer tenors in sukuk, reflecting growing confidence among regional investors. Notably, both Aldar Investment Properties, a key real estate player in Abu Dhabi, and Nogaholding, a state-owned Bahraini oil company, launched 10-year sukuk transactions this week, both of which were heavily oversubscribed. This marks a significant departure from the historical preference for shorter maturities, such as five and seven-year sukuk offerings. The success of these issuances suggests a deeper and more resilient market, as demand for sukuk with longer maturities continues to grow. This trend is being mirrored in Saudi Arabia, where a $6 billion dual-tranche sukuk offering included a 10-year tenor, in addition to a six-year tranche.
Such changes are occurring alongside the potential for new Sharia reforms that could profoundly affect the structure of sukuk, encouraging the creation of financial products that cater to longer-term investment needs. These reforms are seen as a step toward modernizing the market and making Islamic finance more competitive on a global scale. Market experts anticipate that these shifts could open the sukuk market to a broader range of issuers and investors, thereby increasing liquidity and market depth.
At the same time, the market is embracing the global shift toward sustainability. Aldar’s issuance also marked its debut in the green sukuk format, a move that aligns with the growing demand for sustainability-linked investment products in the GCC. Green sukuk are designed to finance environmentally friendly projects, and Aldar’s issuance, in particular, was a notable example of how issuers are integrating ESG (Environmental, Social, and Governance) principles into Islamic finance. The development of green sukuk is being encouraged by both governmental and private entities, as countries in the region, especially in the Gulf, seek to diversify their economies and focus on sustainability goals.
The appeal of longer sukuk tenors is being driven by several factors. First, global Treasury markets are relatively flat between five and 10 years, making it an opportune time for issuers to extend their debt maturities. This trend is likely to continue as more regional governments and corporate entities look to raise capital for infrastructure projects and long-term development initiatives, particularly as oil-dependent economies seek to diversify.
The sukuk market’s capacity to innovate is closely tied to the broader push for regulatory reforms. These proposals are aimed at enhancing the flexibility of Sharia-compliant financial instruments, particularly in how sukuk are structured. One area of focus is the need for clarity on compliance with Sharia principles, which has sometimes acted as a constraint on market growth. By streamlining these processes and allowing for greater innovation within Islamic finance, market analysts believe the sukuk market could see a substantial boost in both issuance volumes and investor participation.
Global demand for sukuk is also being driven by rising interest from both Islamic and non-Islamic investors, particularly as the market offers relatively stable returns. The resilience of the sukuk market has been demonstrated throughout periods of economic volatility, with issuances remaining strong in key markets such as Malaysia, the GCC, and parts of Southeast Asia. This stability is seen as one of the key advantages of Islamic finance, with its emphasis on ethical investment and risk-sharing principles.