Ethical investment: News

Author: Lianna Brinded

As the Islamic financial market grows, the market is seeing a proliferation of Islamic finance structures to fund a variety of functions.

The Dubai offies of offshore law firms Walkers has seen a dramatic increase in the use of sukuks, or Shari'ah-compliant bonds, which allow Islamic religious principles to be respected while accessing and raising finance in debt markets.

While the market for sukuks is still relatively small, compared to the conventional debt market, Robert Varley, a partner in Walkers' Dubai office, believes "there is enormous potential for growth from both local investors and international markets."

Varley continues, '"As local institutions in the Middle East partner
with conventional Western banks to issue these types of bonds with increasing frequency, it is certain that banks outside the region are watching the sukuk market with great interest."

The Capital Markets Authority in Dubai introduced new regulations for sukuk transaction and securitization this year, while there was a launch of the Dow Jones Citigroup Sukuk Index earlier this year, which exposes the room for growth in this market. There is also increased interest on the part of private investors, in both Middle East countries and further afield, in sukus as a destination for investment. Sukuks seems to have been 'filling a number of gaps left in the Islamic market', with general businesses and acquisition finance and project finance, and securitizations have all being funded this way.

The largest sukuk in history was issued earlier this year, a USD$3.5 billion bond issue by Dubai Ports. In July 2006, a USD$200 million issue from Tabreed became the first sukuk to be listed on the London Stock Exchange and rated by Standard & Poors. Walkers has seen a significant increase in the number of USD$150 million to $1 billion deals for these vehicles. The range in deal size underscores the flexibility of the structures. While they can be complicated structures to construct, sukuk can play an important role in accessing debt without violating Shari'ah rules.

Walkers has advised on several high-profile sukuk deals in recent months, and expects to see more offerings soon. "Investor demand remains enormous," continued Varley. "Offerings are hugely oversubscribed. The recent listing of Cayman Islands-issued sukuk on both the London Stock Exchange and the Dubai International Financial Exchange will only strengthen that demand."

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