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On February 25, the Bahrain Monetary Agency went on the road to sell a $250 million sukuk – Bahrain's first international Islamic bond. Bahrain's bond follows issues by Qatar and Malaysia. And the news that Citigroup is working with the German state of Saxony-Anhalt on an Islamic bond suggests that, as well as being used to boost the Islamic capital markets, sukuks can be commercially attractive to a broad audience.
Will corporates start issuing sukuks? Well, they are trying. Project finance in particular could lend itself to the creation of a non-sovereign sukuk market.
To keep a bond shariah-compliant, bondholders acquire the underlying asset and receive their return as rent. In a project finance deal, the project itself and the land that it is built on can function as the reference asset.
Lawyers at Norton Rose worked on documents for an Islamic bond for a proposed Saudi project last summer, although that deal eventually fell through. "There's a lot of project work in the Gulf and Islamic project bonds would be relatively straightforward to structure," says partner Christian Parker.