* Size $500 mln; order book about $1.5 billion
* Issued at only smell premium to outstanding bond
* Cash-rich Islamic funds eager for new credits
* Appears to satisfy concerns that sank 2011 plan
* More conventional banks may follow
(Adds profit rate, comment, analysis)
By Archana Narayanan
DUBAI, Sept 16 Goldman Sachs raised $500 million
with its debut sale of Islamic bonds on Tuesday, becoming the
first conventional U.S. bank to issue sukuk as Islamic finance
develops beyond its traditional homes in the Middle East and
The bank drew about $1.5 billion of orders for the
five-year sukuk, reflecting heavy demand among cash-rich Islamic
funds for new credits.
An initial attempt by Goldman to sell sukuk in 2011, when it
registered a $2 billion issuance programme with the Irish Stock
Exchange, ran into suspicions among some analysts that it might
violate Islamic bans on interest payments and monetary
Although the bank insisted that those concerns were
unfounded, it never went ahead with the 2011 issue.
This time, Goldman adjusted the sukuk structure and enlisted
several heavyweight Gulf banks to arrange the sale, and it
appeared to avoid any controversy.
"I think they have worked hard to address the issues people
had the last time around," said Abdul Kadir Hussain, who
oversees about $700 million as chief executive of Gulf financial
firm Mashreq Capital (DIFC).
The Goldman sukuk, which will be listed on the Luxembourg
Stock Exchange, is only the second such deal from a conventional
bank outside a predominantly Muslim country; HSBC
issued $500 million of sukuk in 2011.
Other conventional banks, and possibly Western corporations,
may follow as they seek to tap into a large new source of
funding: France's Societe Generale and Japan's Bank of
Tokyo-Mitsubishi UFJ set up sukuk programmes in
Malaysia this year.
The governments of Britain and Hong Kong made debut sukuk
issues earlier this year, while South Africa and Luxembourg are
poised for their first sovereign issues.
"Having these kinds of issuers broadens the issuer base in
the sukuk market, which will be positive for the market,"
Hussain said of Goldman's sale.
Year-to-date, sukuk issuance totals $88.9 billion through
475 deals globally, up from $76.4 billion through 574 deals a
year earlier, according to Zawya, a Thomson Reuters company.
Goldman priced its issue at a spread of 90 basis points over
midswaps, a document from lead arrangers showed, tighter than
initial guidance in the area of 95 bps. The sukuk carry a profit
rate of 2.844 percent.
The pricing represented a small premium to Goldman's
conventional 2.625 percent 2019 bonds, which were
trading at a Z-spread of 80 bps, according to Thomson Reuters
Goldman picked itself, Abu Dhabi Islamic Bank,
Emirates NBD, National Bank of Abu Dhabi,
Qatar's QInvest and the investment banking arm of Saudi Arabia's
National Commercial Bank IPO-NACO.SE to arrange the issue.
Investor roadshows took place only in the Gulf.
While Goldman's 2011 sukuk plan envisaged using a murabaha
structure, this week's issue is predominantly based on wakala,
in which one party manages assets on behalf of another; many
scholars consider it a less controversial structure because of
its clearer link to the assets backing the sukuk.
Proceeds of the issue will be used in the commodities
business of J. Aron & Co, a Goldman unit.
The sukuk were to be issued through a vehicle called JANY
Sukuk Co and guaranteed by Goldman Sachs. They were expected to
be rated A-minus by Standard & Poor's and A by Fitch Ratings,
identical to the ratings of the investment bank.
(Editing by Andrew Torchia)