The United Arab Emirates and Qatar rank highest among Organization of Islamic Cooperation countries for expected recoveries after default, Fitch Ratings said, as most OIC members remain in the lowest recovery category.
In an update to its Country-Specific Treatment of Recovery Ratings Criteria, Fitch said more than two-thirds of the 22 reported OIC countries — 68% — fall into Group D, where recoveries after default range from average to poor. That marks only a slight improvement from about 70% a year earlier.
Under Fitch’s Corporate Country Group Scoring Summary, Group D classifications cap ratings of secured or enhanced debt at the level of the Issuer Default Rating in both investment-grade and speculative-grade categories, with no additional credit given for security or creditor-friendly structures.
The UAE and Qatar are classified in Group B, the highest among reported OIC countries, where recoveries given default range from superior to poor. In Group B, secured or enhanced debt may be rated one notch above the Issuer Default Rating when investment-grade and two notches above when speculative-grade.
Saudi Arabia, Malaysia, Bahrain, Kuwait and Oman are in Group C, where recoveries range from good to poor, and ratings of secured or enhanced debt may be capped at one notch above the Issuer Default Rating in both rating categories. None of the reported OIC countries is in Group A, the highest category.
Fitch said the monitor was expanded in May to include Mauritania and Senegal, both classified in Group D, and Kuwait in Group C. The addition only slightly improved the overall classification.
Sukuk ratings unchanged
Fitch’s October update to its Sukuk Rating Criteria incorporated loss severity considerations into long-term sovereign debt ratings. Under its Sovereign Rating Criteria, senior unsecured sovereign instruments rated from ‘AAA’ to ‘BB’ are typically aligned with the Issuer Default Rating. For sovereigns rated ‘B+’ or below, Fitch assigns a Recovery Rating and may notch senior obligations up or down from the corresponding Issuer Default Rating based on expected recoveries.
Despite the criteria update in September, no sovereign sukuk were upgraded or downgraded, as loss severity assessments and recovery-based notching did not result in adjustments to outstanding ratings.
Sukuk defaults remain rare. Fitch said there have been no rated defaults over the past four years, and no sovereign sukuk has ever defaulted. In core sukuk markets — including the GCC, Malaysia, Indonesia, Turkiye and Pakistan — about 0.5% of U.S. dollar sukuk had defaulted by the end of 2025, compared with a 1% default rate for U.S. dollar bonds.
Fitch is monitoring the Maldives, rated CC, where repayment of an unrated sukuk due in April 2026 remains uncertain.
Less than 1% of Fitch-rated secured and unsecured sukuk are notched above the applicable Issuer Default Ratings.
Legal complexities and recovery risks
Fitch noted that many GCC sukuk issuers are adding terms allowing trustees to register title to sukuk assets in the event of an obligor default, where legally possible, which could support recoveries if enforced.
However, the agency said it does not consider this sufficient to treat unsecured sukuk as secured or to rank them above existing debt, citing a lack of precedents and uncertainties in legal frameworks and enforcement. Resolution uncertainty remains, although ratings may be assigned above the cap in cases of distress or default where recoveries are expected to exceed implied limits.
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