the holy war of islamic finance

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First sharia bonds index created

vanhelsing | 10 March, 2006 16:37

By Josephine Moulds (Filed: 07/03/2006)
The Daily Telegraph (London)
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/03/07/cnbonds07.xml

Citigroup and Dow Jones have created the first index of bonds that comply with sharia law as Muslim investors demand more innovative investment products.
Banks will be able to structure new products around the index to attract Muslim high-net-worth individuals and retail investors to the growing Islamic debt market.
The Islamic financing market is worth $300bn (£171bn). Within that the bond market is the fastest growing area at 25pc a year.
Bankers expect this new index to improve secondary trading by providing benchmark pricing for Islamic bonds, or sukuk.
The index will include investment-grade bonds of at least $250m that comply with sharia law and the official standards for tradable sukuk.
Interest payments are banned under sharia law so bonds are structured like an asset sale, rental agreement or profit-sharing arrangement where the investor can share in a borrower's profits.
Dubai Ports World recently issued the biggest sukuk to date at $3.5bn to fund its takeover of UK ports operator P&O. The bonds, convertible into shares, were structured so the proceeds are invested in a joint venture partnership that generates income for the bond investors.
Demand for Islamic bonds has outstripped supply pushing down borrowing costs and prompting interest from non-Muslim borrowers. Usman Ahmed, deputy managing director for Citigroup Islamic Investment Bank said: "Any issuer that appreciates the benefits of diversifying its investor base and increasing price tension among different types of investors can consider Islamic financing."

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