DUBAI/KUALA LUMPUR
(Reuters) - Goldman Sachs is reviving plans to issue at
least $500 million worth of Islamic bonds, a sign that
Islamic finance is going mainstream as big conventional
banks seek to tap Middle Eastern money.
The U.S. bank will meet investors in Qatar next Wednesday and the
United Arab Emirates on the following day to discuss issuing sukuk,
a document from lead managers of the sale said on Thursday. There
was no immediate comment from Goldman.
If the issue then goes ahead, Goldman will become only the second
non-Islamic bank to sell sukuk, after the Middle Eastern unit of
HSBC did a ground-breaking $500 million deal in 2011.
Other global banks are poised to follow suit. In recent months,
France’s Societe Generale <SOGN.PA> and Bank of Tokyo-Mitsubishi UFJ
<8306.T>, Japan's largest lender, have been preparing to issue sukuk
in Malaysia.
An initial attempt by Goldman to sell sukuk in 2011 ran into
controversy as some in the industry accused it of failing to follow
Islamic principles, which include bans on the payment of interest
and pure monetary speculation.
But the U.S. bank is now returning to the market as the Islamic
finance industry grows rapidly, fueled by booming economies in the
Gulf and southeast Asia.
New issues of sukuk so far this year total $85.9 billion through 456
deals globally, up from $74.9 billion through 558 deals a year
earlier, according to data from Zawya, a Thomson Reuters company.
Those volumes remain small compared to conventional finance, but are
now big enough to make it worthwhile for Western borrowers to get in
on the act.
Governments in non-Muslim countries are also starting to issue sukuk;
in June, Britain became the first Western government to do so, while
Hong Kong, South Africa and Luxembourg all plan sales this year.
CONTROVERSY
For some investors, Goldman is a symbol of Western banking, and its
first attempt to enter the sukuk market - a $2 billion issuance
program registered with the Irish Stock Exchange three years ago -
was dogged by suspicions that it might exploit Islamic finance.
Some analysts suggested Goldman might use the proceeds of the issue
to lend money to clients for interest, or that the issue might not
trade at par value, which could also contravene sharia principles.
Although Goldman insisted that these concerns were unfounded and
Islamic scholars had given its 2011 plan adequate certification, it
never made a public issue of sukuk.
This time, the U.S. bank appears to taking pains to avoid
controversy. The document from lead arrangers said it would use a
wakala structure for its sukuk, instead of the murabaha structure
planned in 2011.
Murabaha is a cost-plus sale arrangement which is commonly used in
some parts of the Islamic world but has been criticized by some
scholars for being too close to conventional financial engineering.
Goldman's latest plan may indicate that wakala, in which one party
manages assets on behalf of another, is becoming the structure of
choice for big global banks. The HSBC issue in 2011 was wakala, and
Societe Generale and Bank of Tokyo-Mitsubishi UFJ have both chosen
that structure for their plans.
Initial indications are that Goldman's new sukuk plan may be
received positively by the market. The involvement of top Western
banks could help to develop Islamic finance by expanding its
investor base and the pool of expert bankers involved in it.
"It has always been my view that it's good for them to make a
comeback. This is a market that welcomes all kinds of issuers," Daud
Bakar, chairman of the sharia advisory council under Malaysa's
central bank, told Reuters.
"They need to make sure there is full disclosure on what the
underlying project is. Also they need to consult with sharia
scholars."
Mohamad Akram Ladlin, executive director at the International
Shari’ah Research Academy for Islamic Finance, said: "As with any
issuance it is encouraged if the purpose of it is for good: to
develop infrastructure, to enhance Islamic finance, for example.
"The earlier controversy was with their background, their image in
the industry. There were also issues with the structure of the sukuk.
If they can overcome these, why not?"
Goldman Sachs chose itself, Abu Dhabi Islamic Bank, Emirates NBD,
National Bank of Abu Dhabi and the investment banking arm of Saudi
Arabia's National Commercial Bank to arrange the investor meetings,
the document from lead managers said.
The sukuk would be issued through a vehicle called JANY Sukuk Co and
be guaranteed by Goldman Sachs. The issue is expected to be rated
A-minus by Standard & Poor's and A by Fitch Ratings, identical to
the ratings of the investment bank, the document added.
(Additional reporting by Bernardo Vizcaino in Sydney; Editing by
David French and Andrew Torchia)
