The U.K. has chosen HSBC Holdings Plc to arrange and advise on its debut Islamic bond planned for as early as this year in an effort to become the first non-Muslim nation to sell the debt, a Treasury official said.
Other banks will be mandated closer to the time of the sale, the official said yesterday, asking not to be named because the information isn’t public. Linklaters LLP will provide legal support for the Islamic bond, or sukuk, including its tax and real estate implications, the person said. Shani Halstead, a spokeswoman for HSBC in London, declined to comment when contacted by Bloomberg News.
Prime Minister David Cameron announced the plan to sell 200 million pounds ($330 million) in securities that comply with Islam’s ban on interest in October. The sukuk will help the U.K. establish itself as a “global capital” for Islamic finance alongside Dubai and Kuala Lumpur, Cameron said in a speech Oct. 29. The industry is growing 17 percent a year and may be valued at $2.67 trillion by 2017, according to PricewaterhouseCoopers.
The U.K. government has weighed the sale of sukuk since at least 2007. Robert Stheeman, chief executive officer of the Debt Management Office, said as recently as September that issuing Shariah-compliant debt wouldn’t be value for money. The sale of an Islamic bond takes “pragmatism and political will,” Cameron said the following month.
The $1 billion sukuk due June 2018 from Islamic Development Bank, which has Moody’s Investors Service highest rating at Aaa, had a yield of 1.68 percent as of 6:10 p.m. in London yesterday. U.K. bonds due in July of the same year, rated one level below the Jeddah-based bank at Aa1, yielded 1.66 percent, data compiled by Bloomberg show.
Fish and Chips
In addition to acting as a bookrunner for Britain’s sukuk, HSBC will provide financial advice to the DMO and the Treasury on the syndicated issue, the Treasury official said. The timing of the sale will depend on market conditions and the required preparation, the person said. A spokesman for Linklaters didn’t immediately return calls seeking comment when contacted by Bloomberg News yesterday.
Islamic bonds are typically backed by assets or cash flow. About 60 percent of global sukuk is issued from Malaysia, according to the Malaysia International Islamic Financial Centre. The nation has a developed and liquid domestic market, where companies are able to raise small ringgit-denominated amounts with ease. Dubai is also seeking to become the capital of the global Shariah-compliant economy.
Islamic finance should be as British as “fish and chips or even the overcast skies we see outside today,” London’s Lord Mayor Alderman Roger Gifford said in a speech at a sukuk summit in June. Unlocking different pools of capital could help revive and support the city, he said.
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