UK Islamic Finance Week

UK’s First Sovereign Sukuk Debuts on the 25th June

Article courtesy of Islamic Finance News

The UK has finally put its money where its mouth is and succeeded in entering the Islamic debt capital markets, with a maiden sovereign Sukuk issuance of GBP200 million (US$339.6 million) launched yesterday priced at 2.036% and callable on the 22nd July 2019, with an orderbook rumored to be over US$3 billion.

“The pricing is in line with gilts of similar maturity. It was obviously the government’s intention that it would be the equivalent to a gilt,” said Neil Miller, the head of Islamic finance at Linklaters, who worked on the deal. Speaking to Islamic Finance news on the sidelines of IFN Europe 2014 (currently underway in Luxembourg) just minutes after the pricing was confirmed, he explained that: “Structurally, that was what we tried to do with the way the product was put together – to present it to the market in as gilt-like a form as possible.”

IFN hears that the rest of the instructions from the sovereign were simple and straightforward: the deal must be issued by Ramadan. With just two days to go before the deadline, the UK yesterday made history and the players involved in the issuance are understandably delighted. “I am very pleased that it has finally happened,” confirmed Miller. “It is an important statement of support for the Islamic finance industry in the UK.”

The deal’s enthusiastic reception highlighted the urgent anticipation in the market for UK sovereign paper. IFN has learned from a reliable source that the issuance was just short of 12 times oversubscribed, and is rumored to have been fully sold before the roadshows had barely begun. Stella Cox, the managing director of DDCap, informed IFN that the orderbook reached around GBP2.1 billion (US$339 billion), and noted that to her knowledge at least one GCC institution wished the issuance had been larger, as they would have taken up as much as US$1billion. “I think they were keen to express in principle their appetite for Sukuk with the profile of the UK sovereign issue,” she explained.

This appetite is not only encouraging for the prospect of further issuance but should be instrumental in attracting more Islamic investors to the UK. “There are lots of other projects that the government would like to see financed Islamically,” said Miller. “The end objective is to try and fund infrastructure projects.”

However, although the Sukuk will go a long way towards driving forward participation in the Islamic debt capital market, it is unlikely that the UK sovereign will return any time soon, with the government currently insisting that it is doing this for demonstration reasons only. For further issuance, we must look to the other contenders of Luxembourg, Hong Kong and South Africa, who should all be issuing this year. For now, however, the UK has pipped them all to the post.

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