Corporate and infrastructure issuers in the Gulf region may increasingly rely on sukuk, the Islamic equivalent of bonds, as a source of funding in coming quarters, Standard & Poor's has said in a new report.
Sukuk issuance in the GCC - comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE - has reached a record high this year, propelled by positive developments in the region's economy and capital markets.
S&P said 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, the rating agency added.
S&P credit analyst Tommy Trask said in a new report: "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."
"We also expect the project finance sector, including real estate and transport projects, to increasingly rely on sukuk issuance to fund transactions," added S&P credit analyst Karim Nassif.
Overall, rising oil prices have led S&P economists to revise their GDP growth forecast for the GCC for 2012 to five percent, from four percent previously.
However, tough global economic conditions and continued political tension in the region following the Arab Spring should remain key challenges over the coming months, S&P added.
Last month, S&P forecast that the global Islamic finance sector is set to double in size between 2011 and 2015.
The agency said that it expects the $1trn global Islamic Finance industry to grow 20 percent over 2011-2015, doubling in size over the period.