The recovery of Gulf sukuk markets is lagging conventional bonds, as investors are avoiding less-tested structures, Trowers and Hamlins has said.

Issuance of sukuk in the region stood at $4.3 billion in the 12 months to June 31, compared with $12.8 billion in conventional bonds, the law firm said.

'The fact that conventional corporate bond issuances have overtaken corporate sukuk issuances by such a large margin is unprecedented in the relatively short history of the Gulf's debt markets,' said Neale Downes, partner at the law firm.

He said during times of financial stress investors tended to avoid newer and less-tested forms of investments.

Sukuk are structured around underlying assets, from which returns to bondholders are derived, to account for Islam's prohibition of interest.

The first ever sukuk defaults, such as the $100 million sukuk issued by Kuwait's Investment Dar, have raised the question whether sukuk holders have direct ownership rights to these underlying assets.

'When some originators have found themselves in financial trouble sukuk investors have found themselves unexpectedly competing with the general body of creditors, rather than simply enforcing against or taking possession of the assets 'supporting' their sukuk,' Downes said.

Trowers and Hamlins said sukuk issuance was also hurt by the regional slump in property markets, as real estate and construction companies accounted for a large proportion of issuance before the crisis.-