The sukuk market has been hammered by the global economic downturn, with the value of issuances dropping almost 40 percent year-on-year in the first eight months of 2008.

Ratings agency Standard & Poor's said in a report on Tuesday total issuances worldwide stood at about $14 billion in the year to Aug. 31, down from about $23 billion during the same period in 2007.

The lower level of issuance was largely due to the deteriorated conditions on the global markets resulting in lower investor interest in buying the paper and the related widening of credit spreads, S&P said.

The agency predicted the market for sukuk, or Islamic bonds, will pick up in the second half of the year to as much as $25 billion, but will still fall well short of last year’s total of more than $60 billion.

"Despite lower issuance versus last year, we still expect that sukuk issuance will reach $20-$25 billion in 2008 given the good pipeline," S&P credit analyst Mohamed Damak said in a statement.

S&P said it still sees a lot of interest from issuers in a large number of both Muslim and non-Muslim countries and that entities in more than 15 countries have expressed interest in issuing sukuk.

More than 50 percent of sukuk issued in the first half of 2008 were "ijara" (lease financing), it said.