Islamic banks in the UK are disappointed that the British government has not included any of them as issuers of its first Islamic bond.
The UK is staking its claim as the western centre for Islamic finance by becoming the first non-Muslim country to sell a government bond, expected in the next few weeks, that complies with the religion’s ban on interest, selling £200m in a five year investment.
However, Islamic banks based in London have expressed surprise that they were not included as one of the five institutions hired to issue the bonds, or sukuk.
Malaysia’s CIMB, Qatar’sBarwa, National Bank of Abu Dhabi, Standard Chartered and HSBC have been chosen to lead the sale after what the Treasury called an open and competitive process.
“The government’s decision not to choose a local Islamic bank as an arranger is a lost opportunity to promote the homegrown Islamic finance industry,” said Harris Irfan, of European Islamic Investment Bank, which says it has supported London’s development as a centre of Islamic finance.
Britain has six Islamic banks, which are expected to be active buyers of the new bond.
“We are pleased that progress is being made on the UK government sukuk as it is important for the UK Islamic banks and the industry,” said Humphrey Percy, chief executive officer of Bank of London and The Middle East, the biggest Islamic bank in Europe. “Naturally we are disappointed that no UK Islamic bank has been selected as an arranger, however BLME will be actively participating in the issue for liquidity purposes and on behalf of our customers.”
However Sultan Choudhury, managing director of Islamic Bank of Britain, a largely retail bank, said he was unsurprised by the UK’s choice of issuers, which he saw as a commercial decision. “I understand where the government is coming from,” he said.
The UK’s sukuk will use an ijara structure, where investors receive a share in the agreed rental income of certain assets, in this case three central government offices.
A roadshow for the bond will begin in Jeddah on June 17 before moving to Riyadh, Dubai, Doha and Abu Dhabi, ending three days later in London.
Britain has been working on plans for a sukuk for years and rejected a previous planned sale after deciding that the structure was too expensive to set up.
The plan was resurrected last year by George Osborne, the chancellor, who said the City of London would become the “unrivalled western centre for Islamic finance”, attracting investment from across the Muslim world.
London last year also secured the first offshore bond issued by China’s biggest lender, Industrial and Commercial Bank of China, in an attempt to become the offshore trading hub for China’s renminbi currency.