LONDON (Reuters) – Britain’s plan to issue an Islamic bond, or sukuk, next year is a symbolic gesture that is unlikely to be repeated, the head of the government’s debt-issuing arm said on Thursday.
The government’s plan to sell a 200 million-pound sukuk in 2014 – the first sovereign sukuk outside the Muslim world – will act as a beacon, signalling London is a centre for Islamic finance, said Robert Stheeman, the head of the Debt Management Office.
“It’s clearly symbolic and at this stage it’s envisaged to be a one-off transaction,” Stheeman told Reuters.
Stheeman gave no details about the timing of the sale. He said his team was working closely with the Treasury as well as with experts in Islamic finance.
“There’s a lot going on behind the scenes. A lot of ground-work, such as identifying suitable assets.”
Shariah law prohibits interest payments, so sukuk bonds entitle investors to a share in the returns generated by an underlying asset.
Britain first announced plans for a sovereign sukuk five years ago, but that issue never materialised. The Debt Management Office decided the structure was too expensive.
That bond would have been 10 times bigger than the one now planned. Stheeman said the smaller sale would make the new bond cheaper to issue, although he made clear the ultimate decision on whether it represented value for money for taxpayers lay with the Treasury.
“We would have input into that decision, but ultimately the Treasury will make that judgement,” he said.
He said the Treasury would take a broad view when making its assessment, looking not just at the absolute cost of raising funds via a sukuk but also at the potential benefits to London as a financial centre.
“That could justify a potential increase in costs, over and above what you would expect with a conventional five-year gilt,” he said.
On the broader health of the gilt market, Stheeman said he was confident a plan by British insurers to invest 25 billion pounds ($40.86 billion) in infrastructure projects over the next five years would not undermine demand for long-dated government bonds.
“Given the size of insurers’ overall demand for gilts, I don’t think it will cause us any problems,” he said. “I don’t see a situation where one cannibalises the other.”
Source: Yahoo News