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finance BRIEFING


Over $5 billion in Gulf Sukuk will change hands in 2012.


conventional sense. Sukuk issuers pay bondholders with the cashflows generated by specific assets, which are put into a special-purpose vehicle as part of the deal. It’s structured this way to avoid the Islamic prohibition on interest payments. With conventional bonds, a business would pay interest to the bondholders, and eventually redeem the bond. “The beauty of Sukuk is that they are


linked to revenue producing assets, in other words, the real economy,” says Yusuf De Lorenzo, an independent Shariah scholar. “If the revenue stops, the assets are the backstop. “More importantly, the concept


Safe aS houSeS? Sukuk on the riSe


the islamic funding tool has enjoyed another record year as Gulf funding needs grow.


TExT By RyaN HaRRISoN


raised through Sukuk will rise three-fold this year, to heights last enjoyed before the financial crisis. The current problems of non-Islamic indebted European nations have contrasted nicely with the emphasis that Sukuk, or Islamic bonds, place on a balanced, risk-sharing and asset-based approach. Indeed, Islamic finance fans insist that Western economies could learn a thing or two about the use of the


T


HE MIDDLE EAST Sukuk market exits 2011 in a jolly mood. Funds


Shariah-compliant debt instruments in GCC countries and other Muslim regions. Nearly $17 billion was raised through


Sukuk in the first nine months of 2011, according to Saudi Arabia bank NCB, an impressive departure from around $7.6 billion in 2009 and $6.1 billion in 2010. In 2007 – the climax of a six-year boom for Gulf states – Sukuk issuances hit $18.7 billion. Some in the Islamic finance world say the big appeal of Sukuk is that technically a company is not issuing debt in the


behind Sukuk is that they are not debt instruments, but hybrids that look and perform like bonds when they are actually a form of equity investing. Thus, investors buy a share of a business and effectively become the issuer’s, the government’s, partners in a business enterprise,” he adds. Others say that no matter how you


spin it, companies are still on the hook to their Islamic bondholders. Debt is debt. And in the Gulf, property developer Nakheel has been the cause of a lot of this scepticism. It could be argued that


“The concepT behind Sukuk iS ThaT They are noT debT inSTrumenTS, buT hybridS ThaT look and perform like bondS when They are acTually a form of equiTy inveSTing. ”


GULF BUSINESS / 37


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