The GCC sukuk market continued its upward trajectory in the first quarter of this year, spurred by increased investor demand and growing funding needs from government-related entities.

The UAE was the largest contributor, with Dubai Electricity & Water Authority (Dewa), Emirates airline and Dubai Islamic Bank each issuing sukuks worth $1bn, according to professional services firm PriceWaterhouseCoopers. The country also led when it came to sovereign sukuk issuances, the most prominent being the government of Dubai’s 10-year, $750m sukuk issued in January.

A hybrid perpetual sukuk issuance by Dubai Islamic Bank, similar in structure to that issued by Abu Dhabi Islamic Bank at the end of last year, indicates the growing popularity of raising Tier 1 debt capital through public sale in the GCC.

In addition, sukuk issuers’ increasing use of the US dollar as the currency of issuance is “an interesting trend”, said Karim Nassif, associate director, infrastructure finance for Standard & Poor’s (S&P).

“Increasingly, rather than establishing multi-billion US dollar medium term notes [which usually mature in 5 – 10 years] programs, many GCC issuers are opting for bespoke issuance in the Islamic market. The tenors have also notably been increasing to beyond 15 years in some instances, in the case of one of the tranches in Saudi Electric Company’s recent sukuk.”

Globally, new sukuk issuance worldwide could exceed $100 billion again this year, comparable to 2012 when issuances amounted to $138bn worldwide, according to a report published by S&P in March. Sovereign-related issuance reached a record $115bn globally in 2012, comprising about 80 per cent of total issuance for the fourth year in a row.

The GCC issued a total of $24bn in 2012, of which $16bn was raised in the first six months – the equivalent of the amount raised over the entire year prior.

The report also notes that jumbo issuance may pick up further, mainly on the back of huge infrastructure projects from sovereigns. Turkey, Qatar, and Malaysia issued more than $1 billion over the past two years.

“Infrastructure needs in the GCC and Asia will continue to be a key driver for corporate and infrastructure sukuk issuance, although any economic slowdown in China and elevated political tensions in the Middle East could be impediments to this forecast,” continued Nassif.

“Going forward the interaction between the GCC and Asia is going to be something we will be looking at. We’ve already seen GCC entities listing in Malaysia such as Abu Dhabi National Energy Company (Taqa) and Gulf Investment Corporation listing in ringgit out of Malaysia. There’s a natural synergy there because Asian investors are looking for yield and Gulf issuers are looking for liquidity and bigger markets.”

Global Islamic banking assets are forecast to grow beyond the milestone of $2 trillion by 2014, according to the Ernst & Young World Islamic Banking Competitiveness Report 2012, which noted that in some key markets of the GCC Islamic banking assets are now over 50 per cent.