U.K. Picks HSBC for Sukuk Debut as Early as This Year

The U.K. has chosen HSBC Holdings Plc to arrange and advise on its debut Islamic bond planned for this year or the next in an effort to become the first non-Muslim nation to sell the debt.

Other banks will be mandated closer to the time of the sale, which is expected to take the form of a syndicated offering, the Treasury said in an e-mailed statement today. Linklaters LLP will provide legal advice for the Islamic bond, or sukuk, including tax and real estate implications, according to the statement.

Prime Minister David Cameron announced the plan to sell 200 million pounds ($330 million) in securities that comply with Islam’s ban on interest on Oct. 29. The sukuk will help London establish itself as a global capital for Islamic finance alongside Dubai and Kuala Lumpur, Cameron said in a speech at the time. The industry is growing 17 percent a year and may be valued at $2.67 trillion by 2017, according to PricewaterhouseCoopers LLP.

The U.K. government has weighed the sale of 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 sukuk plan. Islamic bond sales require “pragmatism and political will,” Cameron said the following month.

Fish and Chips

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 yesterday. U.K. bonds due in July of the same year, rated one level below the Jeddah-based bank at Aa1, yielded 1.62 percent as of 11:55 a.m. in London, data compiled by Bloomberg show.

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. 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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