Business | Banking

Goldman's $2b sukuk debut puts Islamic scholars on edge

Sharia experts call for strict supervision on how proceeds are used

  • Bloomberg
  • Published: 00:00 April 30, 2012
  • Gulf News

Kuala Lumpur/Singapore: Goldman Sachs Group Inc's $2 billion (Dh7.34 billion) Islamic debt debut is leading scholars to call for stricter supervision.

Goldman said in an Oct-ober 18 prospectus that it would use proceeds for general corporate purposes and financing needs.

Non-Islamic banks need to make investment plans clearer, while approvers need to supervise more rigorously, Rusni Hassan and Mohammad Akram Laldin, who sit on the Malaysian central bank's Sharia Advisory Council, said in separate interviews.

Sharia forbids raising money for businesses earning interest or involved in alcohol and gambling.

National Australia Bank Ltd and Saudi Arabia's Banque Saudi Fransi are planning to sell Islamic securities, tapping an industry whose assets are projected to almost triple by 2015.

Michael DuVally, Goldman's spokesman in New York, declined to comment, while Dar Al Estithmar Ltd, the London-based adviser for the programme, said it is awaiting instructions on whether more information on the sukuk will be released.

Tighter supervision

"Supervision activities need to be tightened and strengthened, not only by the Sharia advisers, but by all parties involved in the sukuk issuance, on how sukuk proceeds are used," Rusni said this month.

Islamic bond sales worldwide have more than doubled to $13 billion this year from a year ago, according to data compiled by Bloomberg.

Average yields on sukuk were little changed at 3.62 per cent on Friday, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. That is 243 basis points more than the London interbank offered rate, or Libor, compared with 241 more at the end of last week. Sharia-compliant securities worldwide returned 3 per cent so far in 2012, according to the HSBC/Nasdaq Index, while debt in developing markets climbed six per cent, JPMorgan Chase & Co's EMBI Global Composite Index shows.

More non-Islamic banks want to sell Sharia-compliant debt as an alternative source of funding, Badlisyah Abdul Gani, chief executive officer of Kuala Lumpur-based CIMB Islamic Bank Bhd, said in an interview last week. CIMB is in talks with several such institutions in Asia-Pacific that are considering issuing sukuk, he said.

"Our condition to them is that they must affirm and represent they are going to sell sukuk to finance Sharia-compliant activities," Abdul Gani said.

"Many of them may not have a specific Islamic window established or standalone Islamic subsidiaries but they do have activities which are by nature already compliant such as the leasing business."

Elisha Vincent, National Australia Bank's corporate affairs manager in Sydney, declined to comment on how the sukuk's proceeds will be utilised in an email last week. Banque Saudi Fransi's Riyadh-based chief financial officer Philippe Touchard didn't respond to an email seeking comment on April 23 and to at least three calls to his mobile and office phones last week.

While capital-market regulators in Malaysia and Indonesia require the use of sukuk proceeds to conform to Sharia, there isn't a similar requirement in the Arabian Gulf.

Even though scholars in the Middle East who certify an Islamic bond usually state that proceeds must be used for approved purposes, there is no central board to monitor the spending, Akram said in an interview on April 19.

Disconnect

"Sometimes there is a disconnect between the issuer and the Sharia board," he said. "There is no real, rigorous monitoring that's being done."

Regulators in the six-nation Gulf Cooperation Council may do little to toughen supervision of how sukuk funds are used following the Goldman debate, due to differences in interpretation of Sharia principles, Malek Khodr Temsah, vice-president of treasury and investment at Al Baraka Banking Group BSC in Manama, Bahrain, said in an email on April 19.

"What the Goldman debate achieves is, in fact, a re-enforcement of the perception that the Achilles' heel of the sukuk market remains the lack of a standard-setting and rule-enforcing cross-border regulatory body that would call the shots in such situations," he said.

Yields on Malaysia's 3.928 per cent Islamic notes due 2015 dropped two basis points to 1.82 per cent, according to prices from Royal Bank of Scotland Group Plc.

The difference in yields between Dubai's 6.396 per cent sukuk maturing in November 2014 and the Malaysian bond narrowed two basis points to 232 basis points on Friday, according to data compiled by Bloomberg.

Gulf News
Retail Gold Rate
Business Editor's choice

More from Popular in Economy

Quick Access

  1. Markets

  2. Economy

  3. Property

  4. Aviation

Business Top Stories

  1. Damac to list shares on Dubai bourse

  2. Volatility could be right on the horizon

  3. American cities make a comeback

  4. PadFone offers a phone-tablet hybrid

  5. LG Display’s mission to reshape flexible screens