1. Introduction

In recent years the Sukuk market has registered exceptional growth worldwide. Sukuk issuance is becoming more diversified geographically particularly through sovereign issuances across the globe including non-OIC countries. Sukuk or Bond issuances, as fundraising methods through fixed income instruments, have played a key role in financing the economy. In the GCC region, the demand for Shari’a compliant financial instruments has increased significantly in recent years. After Malaysia, The GCC region is second largest globally with 30% of total value of issued Sukuk.

In the present paper, the purpose is to define the determinants of Sukuk yields in the GCC region from 2006 to 2010. In 2008, the GCC region witnessed two major crises (systemic and global). As such, the study period chosen should allow analysis of the trend of Sukuk yields two years before and two years after these crises. Based on a database of two indexes (Islamic (HSBC/NASDAQ Dubai GCC US Dollar Sukuk Index (GSKI)) and conventional (HSBC/NASDAQ Dubai GCC Conventional US Dollar Bond Index (GCBI)): cf. Annex 1 and Annex 2) of multi-country and multi Sukuk and Bond issuers, over the period 2006-2010, we propose an empirical assessment of the Sukuk yields in the GCC region.

In the analysis, we compare the impact of the two crises in the Sukuk market and the resilience of Sukuk yields after a period of stress. Moreover, we compare with the Conventional fixed-income securities (GCBI:HSBC/NASDAQ Dubai GCC Conventional US Dollar Bond Index) within a risk analysis of both securities.

Materials and Methodology

1.1. Literature

In this section, we start with literature and the definitions that we need in this analysis. First of all, the Islamic fixed income securities analysed in the present paper are Sukuk which are an integral part of the Islamic capital markets. On one hand, conventional bonds are a contractual debt obligation whereby the issuer is obliged to pay the investors interest and principal, on certain specific dates. On the other hand, they are often referred to as Islamic bonds but “Trust Certificates” or “Participation Securities” describe Sukuk better. AAIOFI defines Sukuk as: “Certificates of equal value representing after closing subscription, receipt of the value of the certificates and putting it to use as planned, common title to shares and rights in tangible assets, usufructs and services, or equity of a given project or equity of a special investment activity.”

Issuer interest in Sukuk increased for these reasons: the first is a market demand for substantial infrastructure/project financing especially in emerging markets where we issue Sukuk to finance projects. Second, issuers are eager to tap into liquidity through Sukuk (IILM Corp, 2011). Third, various corporates (issuers) are now making meaningful efforts to penetrate more into a growing investor class.