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UK:
The UK has finally put its money where its mouth is and succeeded in
entering the Islamic debt capital markets, with a maiden sovereign
Sukuk issuance of GBP200 million (US$339.6 million) launched yesterday
priced at 2.036% and callable on the 22nd July 2019, with an
orderbook rumored to be over US$3 billion.
“The
pricing is in line with gilts of similar maturity. It was obviously the
government’s intention that it would be the equivalent to a gilt,” said
Neil Miller, the head of Islamic finance at Linklaters, who worked on
the deal. Speaking to Islamic Finance news on the sidelines of IFN Europe
2014 (currently underway in Luxembourg) just minutes after the pricing
was confirmed, he explained that: “Structurally, that was what we tried
to do with the way the product was put together – to present it to the
market in as gilt-like a form as possible.”
IFN
hears that the rest of the instructions from the sovereign were simple
and straightforward: the deal must be issued by Ramadan. With just two
days to go before the deadline, the UK yesterday made history and the
players involved in the issuance are understandably delighted. “I am
very pleased that it has finally happened,” confirmed Miller. “It is an
important statement of support for the Islamic finance industry in the
UK.”
The
deal’s enthusiastic reception highlighted the urgent anticipation in
the market for UK sovereign paper. IFN has learned from a reliable
source that the issuance was just short of 12 times oversubscribed, and
is rumored to have been fully sold before the roadshows had barely
begun. Stella Cox, the managing director of DDCap, informed IFN that
the orderbook reached around GBP2.1 billion (US$339 billion), and noted
that to her knowledge at least one GCC institution wished the issuance had
been larger, as they would have taken up as much as US$1billion. “I
think they were keen to express in principle their appetite for Sukuk
with the profile of the UK sovereign issue,” she explained.
This
appetite is not only encouraging for the prospect of further issuance
but should be instrumental in attracting more Islamic investors to the
UK. “There are lots of other projects that the government would like to
see financed Islamically,” said Miller. “The end objective is to try
and fund infrastructure projects.”
However,
although the Sukuk will go a long way towards driving forward
participation in the Islamic debt capital market, it is unlikely that
the UK sovereign will return any time soon, with the government
currently insisting that it is doing this for demonstration reasons
only. For further issuance, we must look to the other contenders of
Luxembourg, Hong Kong and South Africa, who should all be issuing this
year. For now, however, the UK has pipped them all to the post.
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