* Government presents Islamic bond bill to parliament
* Targeted deal size is EUR200m-equivalent
* Three real estate assets identified to underpin
By Abhinav Ramnarayan
LONDON, Jan 7 (IFR) - The Grand Duchy of Luxembourg
GVD-LU, rated Aaa/AAA/AAA, moved a step closer towards the
issuance of a debut sukuk after the government said this week it
has presented a draft bill to parliament to pave the way for the
The news comes just months after British Prime Minister
David Cameron signalled the UK's intention to issue a debut
£200m sukuk in 2014.
Both countries have been considering the issuance of an
Islamic bond for years, as their respective stock exchanges
battle it out to become the listing venue of choice for sukuk
"The government has presented a draft bill to parliament.
The approval of the bill is indeed part of the preparatory work
for the potential issuance of a sovereign sukuk," a Luxembourg
ministry of finance spokesperson told Reuters in an email.
The legislative calendar for the bill cannot be confirmed at
this stage, she added.
The bill presented to Luxembourg MPs proposes the issuance
of a EUR200m-equivalent sovereign sukuk denominated either in
euros or US dollars.
The Luxembourg government has also identified three real
estate assets to underpin the transaction - as sukuk are
structured to pay a fixed profit rate rather than a coupon in
order to comply with Sharia law - they are often backed by real
estate. The UK treasury has not made public any details on
potential underlying assets for its sukuk.
Both countries are considering the issuance of sukuk to
market their respective financial centres to the Islamic finance
world, capital markets bankers told IFR.
"It is certainly about marketing the Luxembourg stock
exchange [as a listing venue for sukuk] but also to the
investment and fund management base," said one banker at a
Gulf-based Islamic bank.
"A lot of GCC investments are made through Luxembourg
entities for tax and legal reasons and they would want to
maintain that status, especially given that Islamic finance is
growing rapidly," he said.
However, no timeframe has been set for the completion of a
deal that has been under consideration for several years now.
MPs will have to get their feet under their desks first
before reviewing the bill. Luxembourg held parliamentary
elections in October last year, with the Christian Democrat
party led by Prime Minister Jean-Claude Juncker winning the most
However, Juncker, who has been prime minister since 1995,
stepped down in favour of Xavier Bettel, head of the Democratic
If Luxembourg and the UK are successful in issuing sukuk, it
will serve to broaden a market that is dominated by Asian and
Middle East issuers.
Other non-Islamic sovereigns have been linked with potential
sukuk deals. In 2012 South Africa appointed BNP Paribas,
Liquidity House Management and Standard Bank to manage a
possible sukuk offering, though a deal has yet to emerge, while
bankers in the past have talked about France as a potential
In 2004, the German state of Saxony-Anhalt issued a EUR100m
(Reporting By Abhinav Ramnarayan and Bernardo Vizcaino; editing
by Sudip Roy)