2008 London Sukuk Summit
Al-Arab, London-UK Government Consolidates Commitment to Originate Sukuk in the Wholesale Sterling Market
The UK government took a definitive step nearer to the eventual issuance of a debut sovereign benchmark Islamic bond (Sukuk) when Chancellor of the Exchequer Alistair Darling confirmed in his Budget 2008 announcement on 12th March that “the Government remains committed to examining this issue and will continue to assess the feasibility of issuing a sovereign Sukuk.” “We are determined to consider fully the overall implications of such an issuance. Outstanding tax, regulatory and value-for-money considerations mean than any final decision taken today would be premature. However, the Government will take legal powers in the Finance Bill 2008 to facilitate a future sovereign issuance,” stressed Darling.
The Chancellor also promised that the Treasury would publish later this summer an update to the work on a Sukuk programme, including a response to the public consultation on the issuance of a Sukuk in the wholesale sterling market which closed at the end of February 2008. In addition, the Government plans a further series of legislation in the Finance Bill 2009 aimed at establishing a level playing field between conventional and alternative financing arrangements including investment bonds.
These developments augur well for the nascent UK Sukuk market and the future development of a Euro Sukuk market. Already there are strong indications that a number of blue chip British corporates are planning substantial Sukuk issuances during 2008 or early 2009.
The implications of the UK Government’s announcements and intentions regarding the issuance of Sukuk in the wholesale and retail sterling market, together with other pertinent Shariah compliance issues such as the ownership of underlying assets in a Sukuk transaction and the risk and profit-sharing elements of the Musharaka Sukuk, will indeed be discussed at this year’s London Sukuk Summit 2008, which is scheduled to be held at the Royal Horseguards in (Whitehall) London on the 25th to 26th of June 2008 and is endorsed by UK Trade & Investment (UKTI) and the Arab British Chamber of Commerce. The theme of this year’s Summit is ‘Islamic Capital, Syndication & Securitization Markets’ with the sub-theme of ‘Gearing up for UK Sukuk Originations’. The 2008 Summit follows the highly successful inaugural London Sukuk Summit along the theme ‘Strategies for Today; Demystifying Islamic Capital Market Products’ held in June 2007, with the support and encouragement of leading market players in the UK and abroad. Senior speakers from the Financial Services Authority and prominent organizations and market players have already committed to participate at this year’s Summit. These are indeed exciting times for potential Sukuk originations out of the UK and indeed the European Union especially in a conventional market badly affected by the global credit crunch as a result of the US subprime mortgage crisis, and the beckoning of the GBP10bn London Olympics 2012. Following a commitment made in April 2007, the UK Government has been examining the feasibility of a sovereign Sukuk issuance.
The fact that the UK Treasury is taking powers in the Finance Bill 2008 to issue a Sukuk should the occasion arise in the near future, is a positive sign of the Labour government’s intent and commitment to the Islamic finance sector in the UK. But to ensure that corporations can directly replicate any potential sovereign Sukuk issuance, the UK Government further announced in the Budget 2008: a) Its aim to legislate in Finance Bill 2009 to provide relief from stamp duty land tax (SDLT) for alternative finance investment bonds. The Government will consult with stakeholders over the coming period to ensure that any scheme minimises both avoidance risks and potential administrative burdens b) Amendments to legislation to classify alternative finance investment bonds as loan capital for stamp duty and stamp duty reserve tax (SDRT) c) Adjustments to legislation to allow existing corporation tax and income tax rules on alternative finance arrangements to be amended by regulation if and when required. The UK’s National Savings & Investments (NS&I) similarly remains on track to complete its feasibility study in spring 2008 on the issuance of Shariah-compliant retail savings products. The study is looking at the level of demand for a Government-issued Islamic savings product; how such a product would impact the existing retail market; and how such a product would fit within NS&I’s overall strategic objective of helping reduce the cost to the taxpayer of Government borrowing now and in the future, through the sale of savings and investment products to the retail market. The Labour Government should be commended for its role in facilitating Islamic finance both in the UK national interest and under its social and financial inclusion policies. The Government remains committed to creating a level-playing field for Islamic finance in the UK to both enhance the competitiveness of London as an international financial centre and ensure that everyone, regardless of faith, can participate fully in the financial system. Both the UK Government and the Financial Services Authority have promised to “work together with stakeholders to clarify the regulatory treatment of these instruments.” The London Sukuk Summit is specifically aimed at keeping you informed about the Sukuk market developments and innovation; to provide a platform for dialogue with your peers; and to give you a voice in contributing to the future direction of the Islamic debt and capital markets!