Category Archives: United Kingdom

Sukuk Summit 2008: London — Islamic Capital, Syndication & Securitisation Markets

Sukuk Summit 2008: London — Islamic Capital, Syndication & Securitisation Markets

The UK has yet to see its first Sukuk origination. However, London has an unenviable history and track record for structuring and arranging Sukuk. HSBC; Citigroup; WestLB London Branch; Standard Bank (London Branch); Deutsche Bank London Branch; ABC International Bank; and Dawnay Day CAP have all been active in this capacity.

They have drawn on the unparalleled expertise of City law firms such as Clifford Chance; Linklaters; Norton Rose; Denton Wilde Sapte; Trowers & Hamlins, Simmons & Simmons, Stephenson Harwood, Taylor Wessing, Whie & Case, etc. in structuring Islamic financial products including Sukuk.

The potential for London is huge. With the recent tax treatment guidelines for Sukuk issuance in the UK and HM Treasury’s announcement that it has embarked on a feasibility study to see how the UK Shariah-compliant instruments in the wholesale sterling market, GCC and South East Asian Islamic financial institutions see this as an important development.

The UK is highly respected as a well-regulated and sophisticated market and the City as one of the top international financial centres. Post 9/11 and thanks to the three Patriots Acts in the US (which is perceived as unwarranted and prejudicial against Muslims by Gulf and Malaysian investors), there has been a definitive shift in the preference of GCC and South East Asian Islamic investors to invest in UK and EU assets.

This together with the UK’s historical relationship with the Middle East and with other Asian and African countries through its leadership of The Commonwealth, puts it in a pole position to capitalise on future investment flows especially through the vehicle of wholesale Islamic financial instruments.

The UK Government is trying to capitalise on British financial expertise in the Islamic finance sector. Gordon Brown as Chancellor of the Exchequer confirmed that the British Government is keen to develop the UK as a hub for Islamic trade and finance. There is no reason to assume that this ambition would change now that Prime Minister Brown is in No 10 Downing Street.

On the contrary, Sukuk structures and Islamic finance in general could proliferate in the UK with new opportunities opening up as a result of the Government’s social and financial inclusion policies and the urgent need for investment in education, healthcare, transport infrastructure and affordable housing.

Sukuk can be a competitive alternative financing tool to raise funding for a host of projects – Infrastructure such as transport including toll roads; education such as City Academies; leisure facilities such as sports and recreational facilities; healthcare such as hospitals and clinics; and sports stadia and facilities such as the facilities for the London Olympics 2012. These could also be developed under the Public-Private Financing Initiative.

Sukuk is not only issued by Governments, corporates or utilities. Municipalities such as the London Assembly or the Mayor’s Office could also raise funding through a Sukuk issuance.

The overwhelming reason for a UK Sukuk issuance is that there may be a good business case for doing so. HM Treasury would be able to diversify the sources of its debt market instruments; a Sukuk issuance could prove to be competitive from a pricing point of view; a Sukuk issuance would stimulate a nascent Eurosukuk market; this would attract business to the City and further enhance London’s position as a major centre for structuring and originating Islamic financial products; it would also help ‘demystify’ the wholesale Islamic markets to the UK and EU authorities; and it could pave the way for UK corporate Sukuk issuances thus helping UK companies also to access a new form of financing.

With London overtaking New York as the premier international financial centre, US banks envy the advantage their British and some European counterparts have in Islamic finance. A UK and Eurosukuk market allows for diversification of investment to Muslim and other investors. It also allows issuers better access to capital – US dollar, Euro, Sterling – to meet specific requirements of investors. Issuers out of the Sterling and Euro market may have a better rating compared with issuers from other parts of world. So, this would create a better benchmark.

Bankers in London already project that Sukuk origination and issuance by European corporates and governments ‘will be the next big step forward’ in the market, with the UK leading the initiative. Already some banks – both global and regional – are talking about forming strategic alliances to pitch for the mandate to structure and arrange the potential UK debut sovereign Sukuk.

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Britain to press ahead with Islamic bond (Sukuk)

Britain to press ahead with Islamic bond (Sukuk)

Britain will announce its determination to launch the first Islamic bonds by a western government, in the clearest sign yet that long-running doubts over costs and pricing have finally been put to rest.

Kitty Ussher, the UK’s economic secretary to the Treasury, will say there is a “powerful momentum” behind the plans, which will cement London’s position as the leading western centre for Islamic finance.

The government unveiled hopes to issue Sharia-compliant bond, or sukuk, to much fanfare in April 2007. Since then, the initiative has been hotly debated, with some civil servants raising concerns over the costs of issuing sukuk, which are far higher than for conventional bonds because of their complex structures to avoid paying interest in line with strict religious laws.

The government is convinced the political and financial benefits far outweigh worries about cost. It also believes the bonds can be priced competitively to attract buyers, another concern of some civil servants.

Ms Ussher spoke to the Financial Times ahead of a seminar on Islamic finance on Monday, where she will outline the government’s position.

She said: “This is an important market for Britain, which we are committed to growing.

“Although we don’t see this as a competition between financial centres, London is now established as the most important western centre for Islamic finance. New York has missed the boat.

“We are determined to issue Islamic bonds. It will bring money to London and send out a strong positive signal to the Muslim community.”

Bankers say a sovereign UK Islamic bond would be a milestone for the $80bn sukuk market, one of the world’s most rapidly growing, as it would boost liquidity and encourage other western governments and institutions to follow suit.

So far, the only western issuers of sukuk are a Texas-based oil group , a German state and the World Bank. The bulk of issues have come from the Middle East and Malaysia, making up about 90 per cent of the market.

Bankers predict the bond will be launched next year and be of benchmark size, which means about £500m.

A bond of this size would help Islamic banks by giving them the ability to buy safe triple A rated paper, which will improve their balance sheets and provide them with collateral for other lending operations.

Islamic Financial Services London (IFSL) to take part in Sukuk Summit 2008

Islamic Financial Services London (IFSL) to take part in Sukuk Summit 2008

International Financial Services London (IFSL) will take part in the 2008 London Sukuk Summit which will be held at the Royal Horseguards in Whitehall on June 25 and 26.

The summit, whose theme is ‘Gearing up for UK Sukuk Originations’, is supported by the UK Treasury; the Financial Services Authority (FSA); the City of London Corporation and the Islamic Financial Services Board (IFSB).

It is also endorsed by the UK Trade & Investment (UKTI), the trade promotion body jointly funded by the Department for Business Enterprise and Regulatory Reform and the Foreign and Commonwealth Office.

An IFSL report on Islamic Finance published in January 2008 estimated that the global market for Islamic financial services has grown three-fold over the past decade to $531 billion in 2006. London is establishing itself as the key western centre for Islamic finance. The cluster of expertise in London is represented by banks, fund managers, international law firms, a secondary market in Sukuk and a growing market for retail mortgage business, a statement said.

IFSL is taking a leading role in the promotion of Islamic financial services available from the UK through its Islamic Finance Working Group, involving the private sector and government.

The Sukuk Summit will be addressed by a bevy of top local and international experts including Professor Rifaat A Karim, secretary general of the IFSB, the prudential and supervisory standard setting body for the global Islamic finance sector; Dr Abdur-Rahman Taha, CEO of the Islamic Corporation for the Insurance of Exports Credits and Investment (ICIEC), a member of the Islamic Development Bank (IDB) Group; Michael Ainley, head of Financial Institutions at the FSA; and Darko Hajdukovic, manager, Debt Products, London Stock Exchange.

IFSL sees the Sukuk Summit as a vital event in consolidating London as a major international hub for Islamic trade, finance and investment, which is in line with the stated policy of the UK government, it said.

Paris to rival London as centre for Islamic finance

Paris to rival London as centre for Islamic finance

France will on Wednesday take a significant step towards establishing Paris as a western centre for Islamic finance when plans to attract this fast-growing sector to the city are discussed in the country’s parliament.

The move is a part of the French capital’s wider aspirations to rival London as an international financial centre.

Christine Lagarde, France’s finance minister, has already introduced several measures to attract global funds since taking office last June.

“This government’s objective is to make France more competitive and one aspect of that is [attracting] Islamic finance,” said Anouar Hassane, a credit analyst for Moody’s, based in Paris. “We have to compete with the rest of Europe and the emerging economies.”

Paris has been left in London’s wake when it comes to Islamic finance, even though France has a Muslim population of about 6m – three times that of Britain.

The UK is home to five licensed Islamic banks, the only licensed ones in the EU, and lists £5.5bn in sukuk, or Islamic bonds, on its stock exchange.

Only a handful of French banks, such as BNP Paribas and Société Générale currently offer wholesale Islamic services. There are no retail products available.

The senate – the upper house of the French parliament – will bring together politicians, bankers and Sharia scholars to discuss how to support Islamic finance – by raising awareness and changing legal and fiscal frameworks.

Sharia principles forbid interest on the grounds that money should measure rather than create value, and the government must alter certain tax laws to better accommodate this approach.

“Paris has seen what London has done with Islamic finance and has realised there is money to be made, especially because there is a lot of demand from the Middle East,” said Zoubair Ben Terdeyet, who founded Isla Invest, France’s first Islamic finance advisory service, in 2004.

Islamic banking assets have been growing at a rate of just under 20 per cent a year since 2000 and are currently worth about $500bn globally, according to Moody’s. This rapid growth has been driven by the oil wealth of Middle Eastern investors as crude prices have hit fresh records.

Arnaud de Bresson, managing director of Paris Europlace, which represents the capital’s financial professionals, said: “The senate’s initiative to organise a high-profile event on Islamic finance is a sign that the authorities are paying increased attention to this market.”

The UK government has since 2003 been reforming laws to ensure that Sharia-compliant investments are not prone to higher levies than their conventional equivalents. Analysts say Paris will have to catch up with London by modifying rules such as double stamp duty, which affects Islamic mortgages.

Sheikh Nizam Yaquby answers common questions relating to Shariah-compliant halal mortgages

Sheikh Nizam Yaquby answers common questions relating to Shariah-compliant halal mortgages

To what extent do contemporary Islamic mortgages comply with Shariah Law: http://www.bbc.co.uk/religion/realmedia/islam/nizam_shariacomp.ram

How important is it for Muslims that their money comes from permissible (halal) sources:  http://www.bbc.co.uk/religion/realmedia/islam/nizam_halal.ram

Do Sharia mortgages really address the ethical concerns of Muslims about what is happening to their money: http://www.bbc.co.uk/religion/realmedia/islam/nizam_ethical.ram

Will Islamic mortgages lead to greater social inclusion: http://www.bbc.co.uk/religion/realmedia/islam/nizam_social.ram