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Luxembourg moves closer to debut sukuk
January 7, 2014 / 1:06 PM / 4 years ago

Luxembourg moves closer to debut sukuk

* Government presents Islamic bond bill to parliament

* Targeted deal size is EUR200m-equivalent

* Three real estate assets identified to underpin transaction

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 deal.

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 issuers.

“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 seats.

However, Juncker, who has been prime minister since 1995, stepped down in favour of Xavier Bettel, head of the Democratic Party.

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 sukuk issuer.

In 2004, the German state of Saxony-Anhalt issued a EUR100m sukuk. (Reporting By Abhinav Ramnarayan and Bernardo Vizcaino; editing by Sudip Roy)

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