* Programme approved by 10 scholars
* Advisor says no need for further debate
* Industry unlikely to switch from murabaha
* Secondary market trading risk not new
* Still unclear when Goldman may issue sukuk
By Bernardo Vizcaino
DUBAI, March 29 Dar Al Istithmar, the advisor to
Goldman Sachs' planned $2 billion sukuk programme, said
it had finished obtaining the approval of Islamic scholars for
the issue and that the next move was up to Goldman.
"The ball is in their court," Geert Bossuyt, chief executive
of Dar, told Reuters on Wednesday, adding that the programme had
been approved by 10 scholars, which was more than enough, and
that the structure of the sukuk had been debated sufficiently.
Goldman's plan to become one of the first top Western banks
to raise money through Islamic bonds, announced last October,
has attracted controversy in the industry, and the bank has not
so far proceeded with the plan.
Some analysts have suggested Goldman might use the proceeds
of the sukuk to lend money to clients for interest, which would
be against Islamic law, and that the issue might not trade at
par value on the Irish exchange, which would also contravene
Bossuyt said, however, that the approval of 10 scholars -
the normal practice for Islamic financial instruments is to
obtain the endorsement of three to five scholars - meant there
was no need for further debate on the issue.
Scholars endorsing the Goldman sukuk include Dubai-based
Sheikh Hussein Hamed Hassan and Malaysia-based Aznan Hasan, two
of the industry's most experienced and respected figures. Both
belong to Dar's five-member sharia board, which Sheikh Hussein
Goldman has also been criticised for naming in its
prospectus at least three Islamic scholars as potential advisors
on the sukuk even though they had not responded to it. One of
them, Malaysia-based Daud Bakar, told Reuters this was
"unprecedented, unprofessional and unethical".
Goldman, which has insisted its sukuk meets all necessary
criteria and that it has acted properly, has not said when it
may issue the debt. Gulf banking sources told Reuters last month
that Goldman was in talks with potential Saudi investors about
the sukuk and was likely to have no major difficulty in selling
it. A Goldman spokesman declined to comment on Thursday.
The proposed sukuk is based on a murabaha structure;
investors' money is used to buy commodities that are then sold
by a special-purpose vehicle to the issuer of the sukuk at cost
plus an agreed mark-up.
Bossuyt said the scholars had established that the Goldman
programme was a valid example of the murabaha structure, similar
to transactions done in the past by other issuers in places such
as Saudi Arabia. Some supporters of Goldman believe it is being
targeted by critics simply because it is such a prominent U.S.
investment bank, and that accusations against it could also have
been levelled against past deals which did not spark
Murabaha has been criticised by some scholars for mirroring
conventional finance too closely; the mark-up resembles interest
and in some cases is even based on a conventional interest rate.
Islamic banks rely heavily on murabaha, however; their
balance sheets are often comprised 30 to 50 percent of
murabaha-related transactions, according to data from the
Islamic Banks & Financial Institutions Information System. So
banks have little incentive to switch to another structure.
"Murabaha is the most difficult product to begin with. A
true Islamic solution would call for a total overhaul of the
economic model, and that is in no way happening in the short-
(and probably) medium term," said a senior Islamic banker in
The risk of murabaha sukuk trading at levels other than par
is also not confined to the Goldman sukuk.
This month's filing for U.S. bankruptcy protection by
Bahrain investment house Arcapita, ahead of the maturity of a
$1.1 billion syndicated murabaha facility, highlighted the risk.
A group of distressed-debt hedge funds are listed as creditors
even though they were not present during the 2007 placement.
It is unclear whether they entered the facility through an
over-the-counter transaction or a sharia-approved mechanism. The
current murabaha was partly used to refinance a pre-existing,
$210 million murabaha sukuk issued in 2005; that deal
incorporated a sharia-approved trading mechanism, but public
documentation does not show whether that mechanism was
incorporated into the 2007 refinancing as well.
Arcapita said at the time that the financing would be used
for "general corporate purposes" - language identical to
Goldman's prospectus, which gave the same explanation for its