Fitch Ratings: IBOR transition a challenge for small portion of sukuk market
Fitch Ratings-Dubai/London-20 November 2019: The transition to new risk-free rates (RFRs) creates challenges for the small portion of the sukuk market that reference legacy IBORs, Fitch Ratings says. These sukuk will face the same uncertainties as conventional bonds, with the added complexity of how transition to RFRs can be accommodated in underlying sukuk structures.
The bulk of the sukuk market is fixed-rate and so is unaffected by the IBOR transitions planned for major currencies by end-2021. Among the major currencies, the planned shift to the Secured Overnight Financing Rate (SOFR) from LIBOR in the US dollar market by end-2021 is the most relevant as dollar-denominated sukuk constitute just over one quarter of all outstanding sukuk. But of these, over 90% are fixed-rate sukuk.
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