Goldman Sachs is reviving plans to raise at least $500 million (304 million pounds) with its first issue 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 selling sukuk, a document from lead managers of the sale said on Thursday. The sukuk are expected to have a tenor of five years.
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There is buzz about the prospects for Islamic finance in parts of the Middle East and North Africa region (MENA) impacted by the Arab Spring. News reports suggest that, as a consequence of change in public policy, the market share of Islamic banking in Egypt will grow to “35 per cent in five years from 5 per cent now.” Much attention in Islamic finance circles is also falling on the relatively smaller markets, including Oman and Morocco. Observers, including researchers from Credit Suisse, are also pointing to Islamic finance as a potential spur to economic growth in the Arab Spring countries.
As investors looked on in dismay at the 2009 default of Islamic bonds from Saudi Arabia to Kuwait, many critics forecast the demise of the Gulf’s sharia-compliant industry.
Islamic bond structures were seen as too complicated and too far removed from the real economy. While financial instruments appeared to be based on collateral, they turned out to be just like any other conventional product.
Sharia standards are essential to Islamic finance because they promote harmonisation of international standards, enhance users' confidence and encourage growth in demand. That was the message from Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) chairman Shaikh Ebrahim bin Khalifa Al Khalifa at the opening of the AAOIFI conference at the Gulf Hotel yesterday.
"Most importantly, Sharia standards provide clarity to the industry on rules and principles that must be incorporated into Islamic financial operations so as to ensure full compliance with Sharia principles," he said.
VTB Group and Gazprombank are vying to become the first Russian borrowers to sell Islamic debt in a bid to attract Middle Eastern investment. VTB, Russia's second-largest bank, aims this year to raise about $200 million selling sukuk, debt that complies with Islam's ban on interest, Herbert Moos, the lender's deputy chairman, said in an interview Wednesday. Gazprombank, the lending arm of gas export monopoly Gazprom, is in talks with at least 10 Moscow-based companies on arranging a sale and will meet investors in the Persian Gulf in September, said Alexander Kazakov, director of structured and syndicated finance.
When Kuwait Finance House Malaysia helped develop a $1.3 billion real estate project in the country in 2005 as a partner in the deal, Islamic equity property ventures were a rarity.