Sukuk issuance is beating conventional bonds in GCC countries, according to Standard & Poor’s Ratings Services.

“We expect both bond and sukuk issuance to continue rising in the GCC corporate and infrastructure segment, supported by the GCC financial system’s  sound liquidity, local investors’ strong appetite for debt, and accommodative  monetary policies around the world,” said a statement from S&P.

Rising oil prices lifted our GDP growth forecast for the GCC to 5 percent and  created fertile ground for credit growth,” said S&P.

“We have ve taken only positive rating actions across our GCC corporate and  infrastructure portfolio over the past six months, reflecting among other  things, successful debt refinancing,” the statement added.

Corporate and infrastructure issuers in the Gulf region may increasingly rely on sukuk as a source of funding in coming quarters says a report titled ‘Sukuk Are Surpassing Conventional Bond Issuance In The Gulf Countries As Yields  Tighten,” published by Standard & Poor’s Ratings Services.

Sukuk issuance in Gulf Cooperation Council countries (GCC) has  reached a record high this year, propelled by positive developments in the  region’s economy and capital markets.  

Yields have fallen dramatically on both conventional and sukuk capital market  issuance in the past year. This trend was supported by the GCC financial  system’s sound liquidity, local investors’ strong appetite for debt, and  accommodative monetary policies around the world, according to S&P.

“As access to capital markets widened, several corporate issuers in the region  were able to successfully refinance large amounts of debt falling due, notably  by tapping the sukuk market,” said Standard & Poor’s credit analyst Tommy  Trask.

“We also expect the project finance sector, including real estate and  transport projects, to increasingly rely on sukuk issuance to fund  transactions,” said Standard & Poor’s credit analyst Karim Nassif.

Overall, rising oil prices have led Standard & Poor’s Ratings Services’  economists to revise their GDP growth forecast for the GCC for 2012 to 5 percent, from 4 percent previously, and created a fertile environment for credit growth,  particularly in the Gulf’s oil-exporting economies.

However, tough global  economic conditions and continued political tension in the region following  the Arab Spring should remain key challenges over the coming months.