Two months ago, the U.K. became the first Western nation to sell Islamic bonds. But missing from the list of advisers and arrangers on the £200 million transaction were any of the country’s six shariah-compliant banks.
One of them, Bank of London and the Middle East, doesn’t appear to have any hard feelings about it and applauds the rise in sovereign sukuks as they will help accelerate the development of the global Islamic finance market.
“I expect the sukuk market [Islamic bonds] issuance to grow and that will be underpinned by these new sovereigns,” said BLME’s Chief Executive Humphrey Percy.
He is not only referring to the U.K.’s maiden sukuk but also potential new Islamic bond sales by Luxembourg, South Africa and Hong Kong. At the time of the U.K. sukuk, global Islamic bond issuance stood at $21.6 billion, the most at that stage in the year since data provider Dealogic started tracking those deals in 2008.
- Annual Global Sukuk Issuance.
- Dealogic
Mr. Percy argues that demand for high-quality sukuk is on the rise because under ever more stringent banking regulations those investments can be treated as part of the lenders’ mandatory liquid assets buffers. Those rules were devised in the aftermath of the financial crisis to help protect banks against any liquidity shocks. In addition, as global interest rates could go up, entities would be more compelled to consider selling sukuk, Mr. Percy said.
And the more sukuk issuance from relative newcomers outside the traditional markets, the better for the overall development of the industry, Mr. Percy noted.
“It’s good for the market because it means more global interest in sukuk as opposed to local demand from only Southeast Asia and the Gulf,” Mr. Percy said.
BLME’s omission from the U.K. sukuk transaction, notwithstanding the bank bought a portion of the bonds, wasn’t reflected in its performance for the first six months of this year. First-half net profit quadrupled to GBP4 million as the bank’s balance sheet grew to GBP1.3 billion. The bank is hoping to pay out a dividend for the first time in 2016. BLME was also enlisted by the Islamic Development Bank on their $1.5 billion sukuk sale.
BLME last year listed its shares on Nasdaq Dubai as a way to gain more proximity to its Middle Eastern clients. It became operational in 2007 and is mostly active in the U.K. with mid-sized clients.
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