Japan Bank Delays First Islamic Bond Sale on Market, Structure
By Will McSheehy

May 27 (Bloomberg) — Japan Bank for International Cooperation, the government’s main overseas lender, is delaying its first sale of Islamic bonds while it reviews the planned structure and waits for credit market conditions to improve.

“We want to issue at the right time and the right price, and some questions have been raised about the commodity Murabahah” structure planned for its first sukuk, Kentaro Tsuboi, JBIC’s deputy director-general of project finance, said in an interview in Abu Dhabi yesterday.

Tadashi Maeda, director general of Tokyo-based JBIC’s energy and natural resources department, in July said the bank plans to sell sukuk in Malaysia backed by commodity products traded on the London Metal Exchange. JBIC planned to sell as much as $500 million of sukuk by the end of March, Moody’s Investors Service said in a Feb. 26 report.

Japan, like the U.K., Singapore and Hong Kong, aims to sell sukuk to help win a greater share of the Islamic finance market, which the Malaysia-based Islamic Financial Services Board estimates may have assets worth $1 trillion. Demand for investments that comply with Muslim Shariah law, including a ban on interest payments, is soaring as oil money floods into the Persian Gulf.

A Murabahah contract is a sale and deferred-payment agreement based on an asset, usually a commodity, in which the cost and profit margin are pre-agreed to comply with Shariah.

Compliance Order

Religious scholars advising the Bahrain-based Accounting & Auditing Organization for Islamic Financial Institutions in February said as much as 85 percent of sukuk sold to date may not fully comply with the precepts of Shariah. In March they published new rules obliging issuers to legally transfer the ownership of assets underlying sukuk to bondholders to meet Shariah’s stipulation that transactions be based on a genuine transfer of tangible assets.

Companies and their bankers rely on rulings from respected scholars approving their sukuk to be able to sell the securities to devout Muslims.

JBIC set up an Islamic finance task force and Shariah advisory group in 2006 and is being advised on its Islamic finance plans by banks including Mizuho Financial Group Inc. and Mitsubishi UFJ Financial Group Inc., Tsuboi said.

Global sales of sukuk fell to $1.96 billion in the first quarter from $4.72 billion in the same period a year earlier as losses from the U.S. subprime mortgages roiled credit markets, data compiled by Bloomberg show.

To contact the reporter on this story: Will McSheehy in Dubai at [email protected] http://www.bloomberg.com/apps/news?pid=20601080&sid=aU87FksVM9DQ&refer=asia

 

Last Updated: May 27, 2008 02:57 EDT

 

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