The UKs maiden sovereign sukuk issue was
announced with considerable fanfare in October,
and appears to be making progress. But the UK Treasury is not
in a rush, and market participants are beginning to wonder why
there is a delay.
Speaking at the
Euromoney Islamic finance forum in London in February,
Sajid Javid, MP, the financial secretary to the Treasury and a
former Chase Manhattan and Deutsche Bank executive who is very
much the public face of the UK governments Islamic market
ambitions, said the sukuk would now take place in the "next
financial year" that is, no earlier than April 5, and
potentially not even this year.
Naturally, a sovereign
has to be fairly studious and open in its appointment of
advisers, and after review settled on HSBC and Linklaters. But
with that done, why the sluggish pace?
In one sense, Javid is
keeping history in mind in the cautious approach. "The market
has long made the case for a sovereign sukuk issued by the UK
government, and it is something the government has looked at
doing in the past," he said. "Due to hurdles, it never quite
Asked why it is still not under way, he said: "I actually think
that, drawing on my own experiences, its not been that
long. It is the first for the UK, the first sovereign sukuk by
any western country, and it is very important that when the UK
issues it has looked at everything in fine detail. It would be
in no ones interests if it was rushed unnecessarily and
theres a problem that could have been avoided."
|Sajid Javid, MP, the financial secretary to
the Treasury and a former Chase Manhattan and Deutsche
Javid also confirmed
that, for the moment, the UK only intends to issue one sukuk.
"We have said this is a one-off issuance, not a long-term
programme, and its main purpose is not financing for the
government," he said. "It is more to develop the UK as a
This attitude clearly
makes some sense, since the £200 million ($334 million)
issue, when it comes, will not make the slightest difference to
the UKs national coffers compared with the deep and
liquid conventional gilt market. The sukuk, instead, will be a
statement: about inclusiveness for the UKs Muslim
community; about London welcoming further investment from the
Islamic world; and about the hopes London continues to harbour
as a global centre for Islamic finance.
There is an alternative
view, muttered by bankers and lawyers. Just because the UK
doesnt need sukuk for its funding doesnt mean it
shouldnt continue to build a curve, they say, and it
seems a waste of effort and research to put all this
preparation into a one-off.
After all, the hope is
that a UK sovereign issue will prompt other UK enterprises to
launch sukuk, priced off whatever level the sovereign issue
clears the market at. The more widely established the curve,
the greater the opportunity there will be to encourage others
to price against it.
There is also a certain
amount of market back-chat about the appointment of HSBC to the
advisory mandate so soon after the bank had closed down many of
its Islamic finance businesses worldwide including some
of its presence in the UK.
This objection was
levelled at Mohammad Dawood, managing director of global
capital financing at HSBC Middle East, by Harris Irfan,
managing director of the European Islamic Investment Bank, at
the same Islamic conference. Irfan asked: "Why should HSBC be
rewarded by the British government with a high-profile Islamic
Dawood responded: "Yes,
we have closed down businesses in the UK and in the Middle
East," but he countered that HSBC has maintained its presence
in the two key Islamic markets of
Saudi Arabia. "Our selection was perhaps just a reflection
of the experience that has been built up over a number of
years. It was a transparent process."
notwithstanding, there are high hopes for the influence the
sukuk could eventually have.
"Without a shadow of a
doubt, the UK issuance will have the largest impact" of the
various non-Muslim jurisdictions believed to be planning a
sukuk, said Arsalaan Ahmed, head of capital financing at Barwa
Bank. "The UK has shown all the areas that need to be looked at
for a non-OIC [Organization of Islamic Cooperation] sovereign
issue, and when it is done, the UK will be a case study on how
to do it."
He believes the
"trickle-down effect will be good for investors", and notes
that the fact that most Islamic cross-border contracts are
structured under English law should work to the benefit of
London as a financial centre.