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Crown Commercial Service Sends Out RFP for Proposed Second UK Sterling-denominated Sovereign Sukuk

Deal or no Deal, Brexit or No Brexit, the UK’s Islamic finance proposition continues to consolidate as the country seeks to forge new trading, investment and financial partnerships.

The issuance of the request for proposal (RFP) follows up on the pronouncement of John Glen, the Economic Secretary to HM Treasury, at the London Sukuk Summit in July 2019, that “the original 2014 UK Sovereign Sukuk matures in July, having unlocked millions in sterling denominated liquid assets for Islamic banks. And it was so successful that we’re following it up with a second Sovereign Sukuk, as the Chancellor (Philip Hammond) announced last month in his Mansion House speech.”

In September 2019, the Crown Commercial Service, acting on behalf of HM Treasury, sent out a RFP simply stating: “We invite you to bid in this competition for the appointment of Structuring Bank(s) for the New UK Sovereign Sukuk.” Given that the bid process will close on 14 October 2019 and the contract period is six months from 4 November 2019 to 3 May 2020, this suggests that the Sukuk is likely to go to market after mid-2020, depending on market conditions, in particular whether or not the UK has left the EU with our without a withdrawal agreement with the remaining EU member countries.

The strength of the UK’s Islamic finance policy is underlined by a supportive cross-party approach which ensures continuity in the event of a change of prime minister or government party in office. Mr Glen in his capacity as City Minister is a key member of the Treasury team of ministers under Chancellor Sajid Javid, and it his ultimate responsibility to see through a possible second Sukuk with his senior officials at the Debt Management Office (DMO). The issue will, of course, always be subject to market conditions and DMO criteria of whether the issuance is “value for money for the British taxpayer” and the Treasury’s own impact assessment for bonds and now for Sukuk.

At the Sukuk Summit, Mr Glen revealed that “the Sukuk will be sterling-denominated, which should help UK-based Islamic financial institutions in meeting their mandatory liquidity requirements without additional FX risk, and help the market by providing an additional source of high-quality liquid assets.”

Mr Glen could not be more optimistic about the future of Islamic finance in the UK. “You will hopefully come to understand,” he assured, “that even as our relationship with Europe changes, we remain committed to international commerce. As Britain’s financial system grew and evolved, we’ve always been keen to learn from our friends. This approach has brought us new partners, and new paths to prosperity. The City of London has always been a beacon: drawing business, capital, and talent from around the world. It has shone even more brightly over the last few decades as we embraced the energy of Islamic finance. And that beacon will continue long into the future – not dimmed by Brexit but fuelled by Brexit – as we move towards a truly Global Britain.”

The RFP comprises six documents, which are comprehensive yet to the point. These include appendices About the Procurement, How To Bid Including Evaluation Criteria, Statement of Requirements, Price Matrix, and Terms and Conditions of the Contract.

According to the Statement of Requirements, “the purpose of this procurement is to appoint one or more Structuring Bank(s) that will undertake Preparatory Phase work for the UK government’s intention to issue a second sovereign Sukuk. Following the Preparatory Phase work, the project will proceed to Execution Phase. For the Execution Phase, the Authority will be seeking to appoint a syndicate of banks to act as joint lead managers, to execute the transaction. It is envisaged that the Structuring Bank(s) will also act as a joint lead manager on the transaction.”

For the debut UK Sukuk in 2014, HM Treasury appointed a representative syndicate of joint lead managers and bookrunners, which contributed to the success of the issuance. They included Standard Chartered Bank (UK), HSBC Bank Plc (UK), CIMB Bank (Labuan) (Malaysia), National Bank of Abu Dhabi PJsc (UAE) and Barwa Bank Qsc (Qatar), thus covering all the major centres of global Islamic finance activity

A second UK sovereign Sukuk will be a timely boost to the sector in the UK, particularly when seen together with the much-discussed launch of the Bank of England’s new Shariah-Compliant Facility (SCF), designed to enable Islamic banks to hold Bank of England reserves to meet their regulatory requirements for holdings of high-quality liquid assets in a way consistent with Islamic commercial jurisprudence.

The UK, according to Mr Glen, is home to five fully Sharia’a-compliant banks, with assets totalling around US$5.5 billion in the first half of 2018. Beyond those five, a range of conventional UK banks offer Islamic finance products and services.

“Our commitment to equal treatment for all has helped attract investment, while our legal and regulatory systems have been emulated across the world. Companies are also flocking here because Britain is the home for Islamic finance expertise in the West. There are over 200 international law firms, at least 25 of which have dedicated Islamic finance units. And we have the world’s highest number of institutions offering Islamic finance courses: more than the likes of Malaysia and Singapore,” he concluded.

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