LONDON (Reuters) - France must host a sukuk issuance this year to show it is serious about Islamic finance and overcome the legal uncertainties that caused a delay to a 1 billion euro ($1.37 billion) issuance, a lawyer working on the deal said on Wednesday.
At least one French Islamic corporate bond, or sukuk, had been expected last year but was delayed by legal hurdles.
“In 2010 we need to have at least one sukuk issuance if we want to really move forward and have France playing a major role in the development of Islamic finance in Europe,” said Gilles Saint Marc, a lawyer and a member of the Islamic Finance committee at Paris Europlace, the body which promotes the French capital’s financial district.
France and Britain have been involved in a tentative race to take a lead on sukuk issuance in Europe, although appetite on the continent has been dampened in the wake of wranglings over debt in Dubai.
Saint Marc acknowledges that the industry has been deeply hit by the sukuk defaults of last year and the Dubai World DBWLD.UL standstill request on $26 billion of debt, partly Islamic.
However, he says he is still confident the delayed 1 billion euro ($1.37 billion) Islamic bond — which has already received approval from sharia scholars in the Middle East — will be able to raise the target amount.
“The cash is available, the question is more the structure and the practical feasibility from the legal and accounting point of view, and of course the sharia one,” Saint Marc said at the Reuters Islamic Banking and Finance Summit.
The French Islamic financial market is relatively small and has been confined to real estate deals. Saint Marc said that in the three years to 2009, Islamic real estate transactions worth 3 billion euros took place.
To encourage further development, Europlace and the French finance ministry are working on tax clarifications for sukuk and a liquidity management vehicle known as murabaha, following feedback from scholars. They are also working on further tax measures to facilitate project financing.
The tax modifications are expected by the end of March. Europlace and the finance ministry are also addressing legal issues connected with sukuk issuance after laws designed to remove obstacles to issuance were stymied by a challenge from the French Supreme Court.
Saint Marc said Europlace and the finance ministry are now working on using the existing legal structures instead.
“We are going to be creative,” he said. “The idea is to propose structures which are workable within the existing legal tools, without necessarily requiring amendments and to assess whether these structures are acceptable to French and AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) scholars,” he said.
(Editing by Rupert Winchester)