Government issues first Islamic bond
25 Jun 2014 03:40 PM
Britain becomes the
first country outside the Islamic world to issue sovereign
Sukuk.
The government has today (25
June 2014) cemented Britain’s position as the western hub for Islamic
finance by becoming the first country outside the Islamic world to issue
sovereign Sukuk, the Islamic equivalent of a bond.
The government confirmed that
£200 million of Sukuk, maturing on 22 July 2019, have been sold to
investors based in the UK and in the major hubs for Islamic finance around the
world.
The UK’s first sovereign
Sukuk received very strong demand, with orders totalling around £2.3
billion, and allocations have been made to a wide range of investors including
sovereign wealth funds, central banks and domestic and international financial
institutions.
Investors from the major centres
for Islamic finance in the Middle East, Asia and Britain were all represented
in the final allocation.
The profit rate on the Sukuk has
been set at 2.036% in line with the yield on gilts of similar
maturity.
The Chancellor of the Exchequer
George Osborne said:
Today’s issuance of
Britain’s first sovereign Sukuk delivers on the government’s
commitment to become the western hub of Islamic finance and is part of our long
term economic plan to make Britain the undisputed centre of the global
financial system.
We have seen very strong demand
for the Sukuk, resulting in a price that delivers good value for money for the
taxpayer. I hope that the success of this government issuance will encourage
further private sector issuances of Sukuk in the UK.
By issuing sovereign Sukuk, the
government has demonstrated that it is possible to create a successful British
base for Islamic finance.
Britain’s sovereign Sukuk
uses the Al-Ijara structure, the most common structure for sovereign Sukuk,
with rental payments on property providing the income for investors. The Sukuk
is underpinned by three central government properties. Today’s issue will
settle on 2 July 2014, and will be listed on the London Stock
Exchange.
Background
In October 2013, the Prime
Minister announced that HM Treasury was working to issue UK sovereign Sukuk
worth around £200 million.
In January 2014, HSBC and
Linklaters were appointed by HM Treasury as structuring and legal advisers
respectively, to work with it to issue UK sovereign Sukuk in financial year
2014-15. As set out in the tender process, the structuring bank was also
appointed to act as a Joint Lead Manager at the later syndication
stage.
An open and competitive process
to appoint a syndicate of banks as Joint Lead Managers (alongside HSBC) was
launched on 23 May 2014. On 12 June 2014, the government announced that it
intended to issue the Sukuk in the coming weeks, subject to market conditions,
and confirmed the appointment of Barwa Bank, CIMB, the National Bank of Abu
Dhabi and Standard Chartered as Joint Lead Managers for the sale alongside
HSBC.
Following a series of roadshows
beginning on 17 June 2014, at which officials from HM Treasury and the DMO met
with potential investors in the Middle East, Asia and London, HM Treasury UK
Sovereign Sukuk PLC (the Special Purpose Vehicle solely owned by the
government) decided to launch the sale on 25 June 2014.
The order book managed by the
Joint Lead Managers opened at 8.30am on 25 June 2014 with indicative price
guidance for investors at a spread of 0bps to 2bps above the reference gilt,
1¾% Treasury Gilt 2019. The Joint Lead Managers announced around 10am
that the value of orders in the book was approaching £2 billion. At
10.30am the Joint Lead Managers announced that the value of orders in the book
was in excess of £2 billion, that the price guidance had been tightened
to flat to gilts (0bps) and that the book would close at 10.45 am. The book
closed with 75 orders totalling around £2.3 billion.
At 12.45pm the profit rate,
which corresponds to the cost of servicing the Sukuk for the government, was
set at 2.036%.