Goldman Sachs plans sukuk issue

-A +A

DUBAI/KUALA LUMPUR: Goldman Sachs is reviving plans to issue at least US$500 million (RM1.58 billion) worth of Islamic bonds, a sign that Islamic finance is going mainstream as big conventional banks seek to tap Middle Eastern money.

The US 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 yesterday. 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 US$500 million deal in 2011.

Other global banks are poised to follow suit. In recent months, France’s Societe Generale and Bank of Tokyo-Mitsubishi UFJ, 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 US bank is now returning to the market as the Islamic finance industry grows rapidly, fuelled by booming economies in the Gulf and Southeast Asia.

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 criticised 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. — Reuters

This article first appeared in The Edge Financial Daily, on September 5, 2014.