U.K. PLans to Sell 200 Million Pounds of Islamic Bonds

Britain plans to sell 200 million pounds ($339 million) of five-year Islamic bonds in the coming weeks as it seeks to become the first non-Muslim nation to issue the debt.

The sale, subject to market conditions, will build on efforts to make Britain the hub of Islamic and Chinese finance, Chancellor of the Exchequer George Osborne said in his annual Mansion House speech in London yesterday. Investor returns on the sukuk, the Islamic equivalent of a bond, will be “broadly equivalent” to that on conventional U.K. government debt of a similar maturity, according to the Treasury.

Prime Minister David Cameron announced the plan to sell securities that comply with Islam’s ban on interest on Oct. 29. The sukuk will help establish London as a global capital for Islamic finance alongside Dubai and Kuala Lumpur, Cameron said at the time. The industry is growing 17 percent a year and may be worth $2.67 trillion by 2017, according to PricewaterhouseCoopers LLP.

“It is with these active steps that together we are making Britain the undisputed center of the global financial system,” Osborne said.

Proceeds from the sukuk, to be sold by a special purpose vehicle, will go toward buying a 99-year head-lease on three central government properties and land legally owned by the Department for Communities and Local Government but occupied by other government departments, the Treasury said. The sukuk will be underpinned by rental income from three office properties that will remain in government ownership during the lifetime of the sukuk.

Sale Weighed

The U.K. chose HSBC Holdings Plc in January to arrange and advise on its debut Islamic bond issue, It also appointed Barwa Bank, CIMB Group Holdings Berhad, National Bank of Abu Dhabi and Standard Chartered Plc as joint lead managers.

The U.K. government has weighed the sale of a sukuk since at least 2007, when it ordered a study into the possibility of issuing the securities. Selling Islamic debt hadn’t been deemed value for money, Robert Stheeman, chief executive officer of the Debt Management Office, said in September, before the announcement of the current plan.

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. Islamic finance should be as British as “fish and chips,” London’s then Lord Mayor, Roger Gifford, said in a speech at a sukuk summit last June.

The U.K. is home to about 2.7 million Muslims out of a total population of 63.7 million, according to government statistics.

To contact the reporters on this story: Lyubov Pronina in London at lpronina@bloomberg.net; Svenja O’Donnell in London at sodonnell@bloomberg.net

To contact the editors responsible for this story: Daliah Merzaban at dmerzaban@bloomberg.net Chris Kirkham, Ash Kumar

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