Goldman Sachs is reviving its plan to tap the growing market for Islamic bonds, by aiming to become the second global financial institution to issue a sukuk.
The US bank is to meet investors in the Gulf states of Qatar and the United Arab Emirates next week, according to a new issue mandate filed on Thursday. The issue, if successful, is expected to be $500m of five-year bonds.
Goldman, which has a strong regional presence, has been seeking ways to diversify its sources of funding while expanding its expertise in Islamic finance – an increasingly important component of fast-growing Middle Eastern and Asian countries’ economies.
The bank has appointed itself, along with Abu Dhabi Islamic Bank, the National Bank of Abu Dhabi, Dubai’s Emirates NBD Capital, and the investment banking arm of Saudi Arabia’s National Commercial Bank as joint lead managers and book runners on the prospective issuance.
Goldman Sachs’s previous sukuk programme met with industry scepticism in 2011, after Islamic scholars criticised its structure.
The bank has changed the structuring of this potential new issuance to fall more in line with the current consensus of Islamic scholarly opinion, said one person familiar with the matter.
However, Mohammed Khnifer, an Islamic financial specialist who criticised Goldman’s aborted 2011 foray into the market, said there was one “potential flaw”, which Goldman must address: whether it was “using, eventually, the proceeds to fund its conventional activities”, which Mr Khnifer warned would not be compliant.
Rating agency Moody’s has suggested that 2014 will prove a landmark year for sovereign sukuk, following the UK government’s issuance of an inaugural Islamic bond, and debut sales by Hong Kong and South Africa that conclude this month.
Other global banks are expected to follow suit as Islamic finance starts to break into the mainstream.
“The fact that non-Islamic countries are joining Islamic nations in sovereign issuance is globalising the market,” said Khalid Howladar, Moody’s global head for Islamic finance.
“Given growth projections, Goldman and other non-Islamic institutions can – just like London and Hong Kong – also establish relevant Islamic finance structuring credentials,” he added.
Annual sukuk issuance grew from $32bn in 2010 to a record $83bn in 2012. It then fell back to about $64bn in 2013, as emerging markets witnessed a capital outflow following the US Federal Reserve’s announcement of a tapering of its bond purchasing stimulus. But Moody’s expects global sukuk issuance to recover to almost $70bn by the end of this year, Mr Howladar said.
Originally published on www.ft.com