Oct 7 FWU Group, a Munich-based financial
services company, has issued a $20 million five-year Islamic
bond backed by insurance policies, a small but rare example of
an asset-backed sukuk from a European firm.
FWU, which offers takaful (Islamic insurance) solutions,
used a structure known as wakala. The sukuk is the first tranche
of a $100 million programme rated BBB- by Fitch, and arranged by
EIIB-Rasmala, a venture between London-based European Islamic
Investment Bank and Dubai's Rasmala Group.
While many sukuk have used rental or asset-based structures,
proponents of wakala agency agreements argue that because
ownership of assets is fully transferred during the life of the
sukuk, they offer a stronger link to real economic activity, a
key principle in Islamic finance.
In a wakala sukuk, certificates are issued by an originator
to buy assets which are given to an agent for management; the
agent charges a fee for his services and the originator
undertakes to buy the assets on maturity at an agreed price.
"Sukuk will benefit from moving to asset-backed structures,
so ring-fencing and recourse to the underlying assets is
important," said Harris Irfan, managing director at EIIB.
"It is fair to say the spirit of sharia-compliant financing
is not merely about replicating conventional financing, rather
it is about forging a new path - making a connection with the
The wakala format used by FWU is flexible enough for other
Western issuers to consider tapping the sukuk market, as long as
they can identify a set of assets, he said. "Anything with a
regular income stream - it could be a utility or a toll-road -
any asset which you can ring-fence."
Proceeds of FWU's sukuk, which carries a profit rate of 7
percent, will be used to fund a set of re-takaful transactions
for its Luxembourg-based unit Atlanticlux, which is the ultimate
obligor under the programme.
The assets for the transaction are the beneficial rights of
insurance policies; ownership is transferred to a Guernsey-based
company which is in turn managed by AON PLC, which acts
as the agent.
Last December, FWU issued a $55 million seven-year sukuk
through a private placement that was backed by intellectual
property rights. That sukuk, its first, was based on the
principle of ijara, an Islamic sale and lease-back contract.