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Islamic Debt Spurred in $15 Billion Opportunity for Greener Gulf

A body promoting development of debt sales to tackle climate change, with sponsors including National Australia Bank Ltd. and HSBC Holdings Plc, plans to spur green Islamic bond markets as the Middle East diversifies from oil.

The Climate Bonds Initiative, which has advisers from Morgan Stanley and Bank of America Corp.’s Merrill Lynch, will set up a panel to help create financial products complying with Islamic shariah law, Chairman Sean Kidney said. It will work with the Clean Energy Business Council, an Abu Dhabi-based group with members including General Electric Co. (GE) and GDF Suez SA.

“We’re looking closely at a couple of prospective bond issuances,” Kidney said, declining to elaborate. The group will design principles for issuers and investors in Islamic debt, known as sukuk, Kidney said in an interview. It will focus on the Middle East, North Africa and Muslim countries in Asia.

“If you look at current projects across the region, and if a fraction of those were to be financed with green sukuks, then you’re talking about $10 to $15 billion,” said Nasser Saidi, CEBC chairman. “The time is right for a green sukuk.”

Oil-rich Gulf nations are seeking to diversify away from fossil fuel production and toward green-energy projects as they look to longer-term sustainable development of their economies. Higher international crude prices also encourage the countries to sell more of their oil abroad. Prices have risen 10 percent in 2012, after more than doubling in the previous three years.

Building a renewables industry allows more crude to be exported, said Indraj Mangat, a partner at Eversheds LLP.

“There’s a realization that rather than burning it cheaper and at subsidized rates in their own region, they should probably sell” more of it abroad, he said.

The Climate Bonds Initiative gets funding from foundations and banks on a project-by-project basis and doesn’t yet have specific financing for the green sukuk plan, Kidney said.

To contact the reporter on this story: Sally Bakewell in London at sbakewell1@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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