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Wednesday, 30 October 2013

Britain aims to be first Western country to issue sovereign Sukuk

Britain's push to promote itself as a leading Islamic finance hub comes as competition heats up with other financial centres in Asia, led by Malaysia, and in the Middle East.
Britain first announced plans for a sovereign sukuk five years ago but that issue never materialised as the country's Debt Management Office decided the structure was too expensive.
The new proposal is less than a fifth of the size of the original and is designed to boost London's status rather than to diversify Britain's investor base.
"I don't just want London to be a great capital of Islamic finance in the Western world, I want London to stand alongside Dubai and Kuala Lumpur as one of the great capitals of Islamic finance anywhere in the world," Cameron told the World Islamic Economic Forum being held in London.
Sukuk are investment certificates which follow religious principles such as a ban on interest and gambling.
The global Islamic banking industry is expected to tip $1.8 trillion by the end of this year, according to consultancy Ernst & Young, and is starting to attract interest among big Western banks because of rapid growth of trade involving wealthy Gulf economies.
Malaysia, the world's largest marketplace for sukuk, is shifting efforts from local market development towards attracting global issuers, while Dubai is revising regulations to attract sukuk issuance and trading.
Britain is the European base for several Middle East banks and a major centre for Middle East investors, whose assets include Harrods department store and Manchester City football club.
London has sukuk legislation in place and has attracted more than $34 billion in sukuk listings from around the globe over the last five years. Sizeable issuance from local firms, however, has remained elusive.
The government sukuk, by enhancing London's status as an Islamic finance hub, should not stumble on the Debt Management Office's "value for taxpayer" objective, a test which the original plan of five years ago failed.
"The government was previously looking at a relatively large programme of sukuk issuance as part of its regular financing programme, but has now changed its strategy to look at a more modest sukuk issue in order to derive wider benefits such as instigating activity in the Islamic finance industry," a Debt Management Office spokesman said.
A smaller issue was also more likely to be cost effective, he added.
The investment-grade sukuk would be welcome news for local lenders which could use it as a liquidity instrument, said Richard Williams, finance director at Bank of London and the Middle East, the UK's largest standalone Islamic bank.
"This challenge will now be resolved and is one of the final measures in creating a truly level playing field for the UK Islamic banks," said Williams.
The London Stock Exchange also announced plans to launch an Islamic index which would identify companies which are filtered according to Islamic principles, which work in much the same way as socially responsible screens.
Islamic investments have already been used to finance London landmarks such as the Shard skyscraper and the Olympic Village.

The World Islamic Economic Forum is hosting its ninth annual conference in London this week, the first time it has been held in a non-Muslim country.
(Reuters / 29 Oct 2013)

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Senegal revives $200 mln sukuk plan, to launch in 2014

The Senegalese government would sell the sukuk in cooperation with the Jeddah-based Islamic Corporation for the Development of the Private Sector (ICD), an affiliate of the Islamic Development Bank, the institutions said.
"This project is the beginning of an ambitious programme which could lead to the financing of innovative infrastructure and energy projects through sukuk issuances," a statement quoted Economy and Finance Minister Amadou Ba as saying.
A sovereign sukuk from Senegal would be an important step in developing Islamic finance in sub-Saharan Africa; so far, sukuk issuance has been small. Gambia has been selling small amounts of Islamic debt for years and Nigeria's Osun State last month sold a local currency sukuk worth $62 million.
Governments in countries including South Africa, Kenya, Nigeria and Senegal have been considering sukuk issues as a way to attract cash-rich Islamic funds from the Gulf and southeast Asia. Senegal has been studying the possibility of an issue since at least 2011.
Khaled Al-Aboodi, chief executive of the ICD, said the Senegalese sukuk would be the first of a series of regional programmes that would be offered to West African states.
The ICD, which promotes the economic development of its 51 member countries by financing private sector projects, has also been trying to expand the consumer base of Islamic finance in Africa by helping to establish institutions in countries such as Mali and Benin.

The Central Bank of West African States, which serves countries in the region, has in principle accepted that the Senegalese sukuk could be used in its repurchase operations, Aboodi said. This could make it an attractive investment for banks operating in the local money market.
(Reuters / 13 Oct 2013)

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