DUBAI: Goldman Sachs is reviving plans to issue at least $500 million worth of Islamic bonds, a sign that Islamic finance is going mainstream as big conventional banks seek to tap Middle Eastern money.

The US bank will meet investors in Qatar next Wednesday and the United Arab Emirates on the following day to discuss issuing sukuk, a document from lead managers of the sale said on Thursday. There was no immediate comment from Goldman.

If the issue then goes ahead, Goldman will become only the second non-Islamic bank to sell sukuk, after the Middle Eastern unit of HSBC did a ground-breaking $500 million deal in 2011.

Other global banks are poised to follow suit. In recent months, France’s Societe Generale and Bank of Tokyo-Mitsubishi UFJ, Japan’s largest lender, have been preparing to issue sukuk in Malaysia.

An initial attempt by Goldman to sell sukuk in 2011 ran into controversy as some in the industry accused it of failing to follow Islamic principles, which include bans on the payment of interest and pure monetary speculation.

But the US bank is now returning to the market as the Islamic finance industry grows rapidly, fuelled by booming economies in the Gulf and southeast Asia. New issues of sukuk so far this year total $85.9 billion through 456 deals globally, up from $74.9 billion through 558 deals a year earlier, according to data from Zawya, a Thomson Reuters company.

Those volumes remain small compared to conventional finance, but are now big enough to make it worthwhile for Western borrowers to get in on the act.

Governments in non-Muslim countries are also starting to issue sukuk; in June, Britain became the first Western government to do so, while Hong Kong, South Africa and Luxembourg all plan sales this year.

For some investors, Goldman is a symbol of Western banking, and its first attempt to enter the sukuk market - a $2 billion issuance programme registered with the Irish Stock Exchange three years ago - was dogged by suspicions that it might exploit Islamic finance.

Some analysts suggested Goldman might use the proceeds of the issue to lend money to clients for interest, or that the issue might not trade at par value, which could also contravene sharia principles.

Although Goldman insisted that these concerns were unfounded and Islamic scholars had given its 2011 plan adequate certification, it never made a public issue of sukuk.

This time, the US bank appears to taking pains to avoid controversy. The document from lead arrangers said it would use a wakala structure for its sukuk, instead of the murabaha structure planned in 2011.

Murabaha is a cost-plus sale arrangement which is commonly used in some parts of the Islamic world but has been criticised by some scholars for being too close to conventional financial engineering.

Published in Dawn, September 5th, 2014

Opinion

Editorial

Reserved seats
Updated 15 May, 2024

Reserved seats

The ECP's decisions and actions clearly need to be reviewed in light of the country’s laws.
Secretive state
15 May, 2024

Secretive state

THERE is a fresh push by the state to stamp out all criticism by using the alibi of protecting national interests....
Plague of rape
15 May, 2024

Plague of rape

FLAWED narratives about women — from being weak and vulnerable to provocative and culpable — have led to...
Privatisation divide
Updated 14 May, 2024

Privatisation divide

How this disagreement within the government will sit with the IMF is anybody’s guess.
AJK protests
14 May, 2024

AJK protests

SINCE last week, Azad Jammu & Kashmir has been roiled by protests, fuelled principally by a disconnect between...
Guns and guards
14 May, 2024

Guns and guards

THERE are some flawed aspects to our society that we must start to fix at the grassroots level. One of these is the...