Islamic finance continues to foster steady growth amid a volatile global market environment as it provides issuers and borrowers another liquid pool of funds to raise capital. It’s a funding avenue that offers size and tenor, appealing to investors seeking Shariah-compliant options and exposure to fixed income instruments beyond conventional bonds.

While reviewing the outstanding deals for the Triple A Islamic Finance Awards 2025, The Asset board of editors also noted that the Islamic finance market has become a launch pad for new and innovative deal structures that further broaden its reach and deepen its significance. It has emerged as an important source for raising sustainable capital as demonstrated in several sukuk transactions in 2024 from Malaysia, Indonesia, and the GCC (Gulf Cooperation Council) region. Malaysia Rail Link issued in April 2024 the first-ever sustainable development goals (SDG) sukuk guaranteed by the Government of Malaysia and the first for the Malaysian transport sector. The proceeds from the 1.5 billion ringgit (US$354.60 million) issuance were used for the East Coast Rail Link (ECRL) project, which meets the eligibility criteria, including those for clean transportation, energy efficiency, pollution prevention, and affordable basic transport infrastructure. As an economic catalyst, ECRL is poised to stimulate commercial activities, attract investments, generate job opportunities, and promote tourism along its rail network.

In September 2024, palm oil and palm kernel producer Johor Plantations Group (JPG) raised 1.3 billion ringgit in the first sustainability-linked sukuk by a plantation company globally. The successful offering is described as a huge leap and a milestone for both the company and the plantation industry. It supports JPG’s aspirations to act as the industry’s champion of ESG practices from seed to crude palm oil and palm kernel, while promoting the growth of sustainable debt in the Malaysian capital markets. It is the first rated SRI (socially responsible investment)-linked sukuk issuance since the publication of the Securities Commission Malaysia’s SRI-linked sukuk framework in June 2022.

In another first, Paramount Corporation launched a 150 million ringgit sustainability-linked sukuk, becoming the first Malaysian real estate developer to use the asset class. The deal was referenced to key performance indicators and sustainability performance targets related to the percentage of cumulative gross floor area assigned with green certification, percentage of cumulative construction sites certified via Construction Industry Development Board Malaysia’s safety and health assessment system in construction, and the reduction of its Scope 1 and 2 greenhouse gas (GHG) emissions. Paramount aims to reduce the intensity of its Scope 1 and 2 GHG emissions by 25% by 2030 and by 30% or more by 2031.

Another first of its kind from the Malaysian real estate sector saw LBS Bina Group printing in January 2024 a 200 million ringgit Asean social SRI sukuk with the proceeds earmarked for the construction of affordable housing. The deal marked the company’s debut in rated debt capital markets, garnering a final order book of 1.28 billion ringgit, primarily driven by institutional demand led by asset managers and financial institutions.

In October 2024, Bank Kerjasama Rakyat Malaysia issued its inaugural Asean sustainability SRI sukuk, which generated a strong market response with the order book peaking at 2.49 billion ringgit. It attracted robust participation from high-quality accounts, including asset managers, insurers, government agencies, and financial institutions.

Pelaburan Hartanah, a property investment company mandated by the government to increase bumiputera (Malays) participation in the ownership of commercial real estate assets in Malaysia, priced its first sustainability sukuk in September 2024 amounting to 1.4 billion ringgit. The proceeds were allocated to refinance eligible projects that yield climate and broader environmental benefits, or measurable social improvements and impacts. 

The Islamic finance market has emerged as an important source for raising sustainable capital as demonstrated in several sukuk transactions in 2024 from Malaysia, Indonesia, and the GCC region

Financing flexibility

The Malaysian sukuk market also saw new and innovative structures in 2024, such as the first securitization backed by Islamic motorcycle hire purchase receivables for the deal originator Parkson Credit, amounting to 273.8 million ringgit. Aimed at diversifying the company’s funding sources, the transaction consisted of a senior tranche amounting to 205.3 million ringgit and a junior tranche amounting to 68.4 million ringgit. It was structured in warehouse format to allow for new issuance, revolving and repayment of the sukuk, providing Parkson with financing flexibility to cater for its business requirements.

Real estate developer Tropicana Corporation, in November 2024, embarked on an innovative composite debt exchange and new sukuk issuance initiative concurrently via a debt exchange offer as part of a liability management exercise to manage its financing expenses and liability profile. This involved exchanging the existing perpetual securities into the new senior sukuk (which raised 250.32 million ringgit) through voluntary acceptance of exchange offer, and placement of the new senior sukuk to new investors who are not existing holders of the perpetual securities.

A number of Indonesian issuers also raised a sustainable type of financing in 2024, led by the sovereign with its usual green sukuk launched in June amounting to US$600 million for 30 years. Bank Syariah Indonesia issued the country’s first sustainability sukuk in May 2024 amounting to 3 trillion rupiah (US$184 million). The proceeds from the three-tranche offering were earmarked to finance new and existing environmentally-friendly projects and social business activities.

Bank Syariah Indonesia issued the country’s first sustainability sukuk in May 2024 amounting to 3 trillion rupiah (US$184 million)

The state-owned secondary housing financing company PT Sarana Multigriya Finansial issued a social sukuk, also amounting to 3 trillion rupiah, in 2024 to finance affordable housing projects for Indonesian low-income earners to increase home ownership. The issuance followed the company’s debut social sukuk offering in late December 2023 amounting to 200 billion rupiah, which was supported by the Asian Development Bank.

PT Pegadaian (Persero), an Indonesian state-owned pawnbroker and subsidiary of Bank Rakyat Indonesia (BRI), printed in August 2024 its inaugural social sukuk with the proceeds used to support small and medium-sized enterprises as well as micro businesses.

From Pakistan, Al Karam Textile Mills (Private) Limited raised 4 billion rupees (US$14.14 million) in sustainability-linked sukuk via short-term notes to support the working capital requirements of its newly- established spinning mill designed to meet 90% of its yarn requirement, thus reducing reliance on imports. The funds were also allocated to make timely payments to cotton growers.

JDW Sugar Mill priced 5 billion rupees in sustainability sukuk, the first-ever unsecured short-term sukuk from the Pakistan sugar industry, with the proceeds used to address the company’s working capital requirements and facilitate the timely procurement of sugarcane from farmers. The transaction set a new precedent for corporate funding in the sugar industry and created a pathway for future instruments tailored for the industry’s financing requirements.

GCC banking sector

Sustainable fundraising was also prevalent among the GCC banks last year. In July 2024, Warba Bank issued the first sustainability sukuk in Kuwait, amounting to US$500 million. The proceeds were earmarked to finance or refinance projects consistent with the bank’s sustainability framework, which includes initiatives focused on renewable energy, sustainable water management, and community development that meet the standards supporting environmental, social and institutional governance. The issuance also supported the bank’s Basel III liquidity requirements.

Qatar International Islamic Bank printed in January 2024 the first sustainability sukuk from a Qatari bank amounting to US$500 million. The final pricing of 120bp over the US treasuries represented a tightening of 40bp from the initial price thought – a great pricing outcome that was also well within fair value, exceeding the issuer’s pricing expectations. The deal was very well received by investors, with the order book peaking at over US$4 billion, or an oversubscription rate of 8x.

Emirates Islamic Bank also issued in May 2024 its inaugural sustainability sukuk amounting to US$750 million. The deal attracted robust demand from investors across different regions, enabling the tightening of the profit rate. The issuance exemplified the bank’s ongoing commitment to introducing tailored and innovative ESG-linked financial solutions.

The sustainability theme also resonated in bank capital sukuk transactions from Saudi Arabia. One of the deals that stood out in 2024 was the US$1 billion additional tier 1 (AT1) sustainability capital certificates for Al Rajhi Banking and Investment Corporation, representing the bank’s first-ever US dollar-denominated AT1 sustainability sukuk offering. It was issued under the first-ever public AT1 sukuk programme, a highly innovative framework when compared to previous AT1 capital issuances by GCC banks, which all used the standalone format.

The programme structure provided Al Rajhi with the unique flexibility to quickly issue AT1 sukuk under the programme, including through ad-hoc private placements. The use of this format required discussions with the Saudi Central Bank, and a significant amount of drafting work was necessary to establish the first of its kind.

The programme structure provided Al Rajhi with the unique flexibility to quickly issue AT1 sukuk under the programme, including through ad-hoc private placements

The issuance, priced in May, achieved the tightest reset spread – 188.8bp over the US treasuries – on a US dollar AT1 deal globally. It garnered a high-quality order book that peaked at US$3.5 billion, enabling the arrangers to tighten the final pricing by 50bp to 6.375% from the initial price guidance of 6.875%.

Saudi Investment Bank followed suit in November with its own US$750 million sustainability AT1 sukuk, which likewise represented its debut in the international capital markets. The funds raised were used to enhance the bank’s liquidity and support the growth of its balance sheet. They were allocated to finance and refinance eligible projects under the bank’s sustainable finance framework and in line with Saudi Arabia’s Vision 2030. The deal also reinforces the bank’s commitment to responsible banking and represents a strategic step in strengthening its financial framework.

Another AT1 transaction from Saudi Arabia was printed by Alinma Bank, which also raised US$1 billion in February 2024, marking its debut issuance in the international capital markets. In view of the strong demand, the perpetual non-call five-year deal was increased from the initial size expectation of US$750 million to over US$4.5 billion, enabling the arrangers to also tighten the final pricing by 50bp from the initial guidance.

Fast ESG sukuk growth

According to a Fitch Ratings report, global ESG sukuk expanded by 23% year-on-year to US$45.2 billion outstanding, with 68% in hard currencies. It outpaced the global ESG bonds, which rose by 16%. It also surpassed the global sukuk growth of 10%, but represented only 5% of global sukuk outstanding involving all currencies.

ESG sukuk issuance in 2024 reached US$11.1 billion, according to Fitch, up 3.8% year-on-year, mostly driven by Saudi Arabia (39%), Malaysia (22%), United Arab Emirates (20%), and Indonesia (8%). Among the GCC countries, the ESG debt capital market reached US$46.3 billion outstanding, with sukuk accounting for 44%.

Meanwhile, new ESG sukuk documentation is increasingly making it clear that failure to comply with green project commitments or any green criteria does not trigger a dissolution event. While a number of issuers intend to fund and report on eligible green projects, Fitch notes that there is generally no contractual obligation to do so, although it could affect the value of green certificates and affect investors with specific mandates. Some of the new ESG sukuk are starting to provide more clarity on the use of proceeds in the documentation.

The GCC sukuk market also saw unique structures in 2024. Oman Telecommunications accessed the offshore sukuk market for the first time in January, raising US$500 million. The deal featured a novel sukuk structure based on fixed line and mobile data services (measured in gigabytes) that did not require any fixed assets for sukuk structuring purposes but still qualified as a 100% tangible structure. The issuance provides a template for other issuers using the “services” structure in industries such as aviation and logistics. It achieved the tightest yield for an Omani government-related entity in the past five years on the back of a high-quality and diversified order book that peaked at over US$3.5 billion.

The deal featured a novel sukuk structure based on fixed line and mobile data services that did not require any fixed assets for sukuk structuring purposes but still qualified as a 100% tangible structure

Another first-time issuer in the international sukuk capital markets in 2024 is Mamoura Diversified Global Holding (Mubadala) of the UAE, which raised US$1 billion in March. The deal also introduced an innovative structure that provides a useful solution for entities that do not have physical tangible assets but whose key assets comprised of equity holdings. Extensive consideration was given to the sukuk structuring to ensure compliance with AAOIFI’s (Accounting and Auditing Organization for Islamic Financial Institutions) Shariah standards to allow the widest possible investor participation.

Additionally, extensive legal and regulatory analysis was undertaken to ascertain the enforceability of the transfer of the shares in listed UAE companies from a UAE law perspective and to confirm that no disclosure to the stock exchange or the market will be required by virtue of the transfer. Accordingly, the issuance is expected to pave the way for holding companies and sovereign wealth funds to access the international sukuk market.

With an order book that peaked in excess of US$7 billion, the offering achieved one of the tightest spreads in the international sukuk markets and the tightest among the US dollar-denominated sukuk in the past three years, excluding those of supranational issuances. The deal was priced 15bp inside Mubadala’s conventional bond curve.

In Bahrain, Gulf Financial Group launched its first-ever new sukuk issuance combined with a parallel liability management exercise with the tender offer. The transaction gave priority allocation for tendering investors in the new issue, enabling existing holders to clearly roll their current exposures into the new sukuk without any credit limit constraints, thereby supporting the order book and pricing momentum. It also allowed Gulf Financial to minimize the cost of carry by repaying 82% of the existing bond ahead of scheduled maturity and proactively manage its upcoming redemption. The new sukuk also represented the issuer’s return to the international capital markets after an absence of over four years.

The Dublin-based AerCap Holdings, a global leader in aircraft leasing, is another newcomer to the sukuk market, pricing in October 2024 a US$500 million trade for five years. The underlying assets comprised solely of tangible aircraft assets in order to make the structure as robust as possible from a Shariah perspective. The particular nature of the underlying assets was unique as it entailed the outright sale of ownership of certain aircraft (including the airframe and engines) subject of third-party leases with airline operators (instead of the sale of a mere beneficial interest in a trust created over the aircraft).

The transaction from a rare European-based sukuk issuer was also innovative because of the guarantee structure and its covenant package structure. The proceeds were used for general corporate purposes, including to acquire, invest in, finance or refinance aircraft assets and repay indebtedness.

For the complete list of best deals, by country, please click here

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