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Friday, 27 June 2008

British Treasury Says It's Committed to Islamic Bond-Sale Plan

By Anchalee Worrachate
June 27 (Bloomberg) -- The U.K. Treasury is committed to selling government bonds that conform to Islamic law, the first western country to sell such securities, Treasury Minister Kitty Ussher said today.
Decisions on tax rates and the underlying assets that would back the securities, known as sukuk, have yet to be made, said Ussher. A ``value-for-money assessment'' also must be carried out, she said yesterday.
``There's no doubt in my mind that if we can find a way that works for the taxpayers to do it, the benefit to the City of London in terms if prosperity, jobs and expertise will be enormous,'' Ussher said in an interview in London. The City of London is the capital's financial district.
The U.K. government wants to lure Middle East funds, which are flush with cash after crude oil prices doubled in the past year to over $139 a barrel. The sukuk market will expand by 35 percent to $200 billion in 2010, Moody's Investors Service said in February.
Sukuk bonds bar interest payments, typically paying an agreed profit distribution based on the underlying assets instead.
The U.K. Treasury will have more to say about the sukuk plan, most likely around the time of the government's pre-budget report that is typically is delivered between October and December, Ussher said.
Global sukuk sales climbed to $30.8 billion in 2007 from $18.1 billion a year earlier, according to data compiled by Bloomberg. Islamic bonds are mostly listed in Dubai, part of the United Arab Emirates. Malaysia and Singapore are also competing to become hubs for the sale of sukuk bonds.
More Study Needed
The Treasury said this month it favors a 2 billion-pound ($4 billion) rolling program of ``bill-like'' sukuk rather than ``bond-like'' sukuk.
Bills have maturities of one, three, and six months, whereas bonds have maturities of at least one year.
``A bond will have to be extremely large in order for it to work,'' Ussher said. ``We just felt that since this is the first time we are doing it, it would be simpler and less risky to sell Treasury bills.''
Ussher said the Treasury doesn't rule out selling ``bond- like'' sukuk in the future.
The government wants to show that ``London is serious about being a global center for Islamic finance,'' Ussher said. ``But it will have to be in the overall national interest.''
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