The Saudi riyal denominated sukuk (Islamic bond) market is expected to record its most active year in 2012, with a further six to eight issues expected to occur before the end of the year, according to bankers in the kingdom.

Already in the first quarter, activity in the Saudi sukuk market has ovetaken the UAE, with $6.4bn of deals done in the kingdom, while in the UAE there was just $1.9bn. Bankers say that the pipeline for the rest of the year is strong.

“I am aware of at least six more sukuk transactions that are currently being worked on,” says the head of investment banking at one local bank.

A banker at another local lender says they have at least four mandates they are working on to bring to the market before the end of the year.

If all these deals are completed this year, it is expected to bring the total number of sukuk issued in the Saudi riyal market to about 10.

The figures in Saudi Arabia have been skewed by the $4bn sukuk issued by the General Authority for Civil Aviation, but the pipeline indicates that more issuers are looking at tapping the market first instead of borrowing from banks.

Attention is increasingly turning to the local sukuk market as it offers borrowers the opportunity to do capital markets issues at cheaper rates than they would get from an international bond because of the liquidity in Saudi Arabia.