UK’s first Islamic bond draws torrent of bids

Published June 26, 2014
The government raised 200 million pounds from the five-year sukuk issue, part of an effort to boost London’s position as a centre for Islamic finance. — File photo
The government raised 200 million pounds from the five-year sukuk issue, part of an effort to boost London’s position as a centre for Islamic finance. — File photo

LONDON: Britain became the first Western country to sell an Islamic bond on Wednesday, attracting 2.3 billion pounds ($3.9bn) in orders, more than 10 times the amount it was looking to sell.

The government raised 200 million pounds from the five-year sukuk issue, part of an effort to boost London’s position as a centre for Islamic finance.

Finance minister George Osborne said he hoped the deal would spur more corporate issuance of Islamic bonds, which cannot pay interest but instead offer a fixed profit stream based on underlying assets such as property.

“Today’s issuance of Britain’s first sovereign sukuk delivers on the government’s commitment to become the Western hub of Islamic finance and is part of our plan to make Britain the undisputed centre of the global financial system,” he said.

The Islamic bond was priced to give a profit rate of 2.036 per cent, the same as the yield on Britain’s benchmark five-year government bond, or gilt. That is less than the premium of up to 2 basis points over the conventional bond that was initially indicated, reflecting bumper demand.

However, some analysts questioned whether the relatively small issue was enough to kick-start Britain’s Islamic finance market. Robert Stheeman, chief executive of the UK Debt Management Office, told Reuters that it had been hard to find suitable assets to structure the issue, which does not pay interest in the same way as a conventional bond.

“At this stage it’s planned just to be a one-off,” Stheeman said.

The sukuk is underpinned by rents from three government buildings.

Earlier in the day, speaking at a Euromoney conference, Stheeman described the bond sale as an essentially political decision and not a way to meet core British funding needs.

The strong demand belies concern from some analysts that the low yield for the 2019 sukuk, and the use of sterling, might have dampened its appeal to overseas investors, who are used to higher yields and other currencies.

Published in Dawn, June 26th, 2014

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

Slow start
Updated 15 Jun, 2024

Slow start

Despite high attendance, the NA managed to pass only a single money bill during this period.
Sindh lawlessness
Updated 15 Jun, 2024

Sindh lawlessness

A recently released report describes the law and order situation in Karachi as “worryingly poor”.
Punjab budget
15 Jun, 2024

Punjab budget

PUNJAB’S budget for 2024-25 provides much fodder to those who believe that the increased provincial share from the...
Budget and politics
Updated 14 Jun, 2024

Budget and politics

PML-N, scared of taking bold steps lest it loses whatever little public support it has, has left its traditional support — traders — virtually untouched.
New talks?
14 Jun, 2024

New talks?

WILL this prove another false start, or may we expect a more sincere effort this time? Reference is made to the...
A non-starter
14 Jun, 2024

A non-starter

WHILE the UN Security Council had earlier this week adopted a US-backed resolution calling for a ceasefire in Gaza...