* Expected to be at least $500 million with 5-year tenor
* Five banks will arrange it
* Investor roadshows in Middle East next week
* Sukuk market now big enough for global banks
* Changes structure after issue plan in 2011 hit controversy
(Adds details of plan)
By Archana Narayanan and Al-Zaquan Amer Hamzah
DUBAI/KUALA LUMPUR, Sept 4 Goldman Sachs
is reviving plans to raise at least $500 million with its first
issue of Islamic bonds, a sign that Islamic finance is going
mainstream as big conventional banks seek to tap Middle Eastern
The U.S. bank will meet investors in Qatar next Wednesday
and the United Arab Emirates on the following day to discuss
selling sukuk, a document from lead managers of the sale said on
Thursday. The sukuk are expected to have a tenor of five years.
If the issue goes ahead after the investor meetings, Goldman
will become only the second non-Islamic bank to sell sukuk,
after the Middle Eastern unit of HSBC did a $500
million deal in 2011.
The underlying assets in Goldman's sukuk issue would be
linked to commodities and crude oil, a source with knowledge of
the plan said, adding that the proceeds would be used in the
commodities business of J. Aron & Co, a Goldman unit.
Other global banks are poised to follow Goldman. 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 and was called off 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 U.S. 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
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 global sukuk pipeline, click:
Glossary of Islamic finance terms:
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
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
Although Goldman insisted that these concerns were unfounded
and Islamic scholars had given its 2011 plan adequate
certification, it never went ahead with the issue.
This time, the U.S. bank appears to be 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
Goldman's latest plan may indicate that wakala, in which one
party manages assets on behalf of another, is becoming the
structure of choice for big global banks. The HSBC issue in 2011
was wakala, and Societe Generale and Bank of Tokyo-Mitsubishi
UFJ have both chosen that structure for their plans.
Sales of Islamic financial instruments are checked for
religious permissibility by sharia scholars engaged by the
issuer. Goldman sought advice for its latest plan from three
prominent scholars: Abdul Sattar Abu Ghuddah, Mohammed Elgari
and Sheikh Nizam Yaquby, the source familiar with the plan said.
"Goldman wanted to do something accepted by the market and
has worked very hard on the structure with their sharia board
and advisers, and also sought endorsements from the sharia
boards of the joint lead managers, besides other experts," the
Goldman chose itself, Abu Dhabi Islamic Bank,
Emirates NBD, National Bank of Abu Dhabi and
the investment banking arm of Saudi Arabia's National Commercial
Bank IPO-NACO.SE to arrange the investor meetings, the
document from lead managers said.
Initial indications are that Goldman's new plan may be
received positively by the market. The involvement of top
Western banks could help to develop Islamic finance by expanding
its investor base and the pool of expert bankers involved in it.
"It has always been my view that it's good for them to make
a comeback. This is a market that welcomes all kinds of
issuers," Daud Bakar, chairman of the sharia advisory council
under Malaysia's central bank, told Reuters.
"They need to make sure there is full disclosure on what the
underlying project is. Also they need to consult with sharia
Mohamad Akram Ladlin, executive director at the
International Shari'ah Research Academy for Islamic Finance,
said: "As with any issuance it is encouraged if the purpose of
it is for good: to develop infrastructure, to enhance Islamic
finance, for example.
"The earlier controversy was with their background, their
image in the industry. There were also issues with the structure
of the sukuk. If they can overcome these, why not?"
The sukuk would be issued through a vehicle called JANY
Sukuk Co and be guaranteed by Goldman Sachs. The issue is
expected to be rated A-minus by Standard & Poor's and A by Fitch
Ratings, identical to the ratings of the investment bank, the
The issue would be listed on the Luxembourg Stock Exchange;
trading wakala sukuk is less controversial than trading murabaha
instruments, many scholars believe.
(Additional reporting by Bernardo Vizcaino in Sydney; Editing
by David French and Andrew Torchia)