Islamic finance has been one of the fastest-growing sectors in global finance but the industry has yet to shake off perceptions about high costs and complexity that are holding back some issuers.
Sukuk, or Islamic bonds that follow religious principles such as a ban on interest and speculation, are now a major funding tool for companies in the
Those plans are not new: the Luxembourg government first mooted a sukuk issue in 2010, followed by
These and other plans have been delayed by factors including double-taxation on some sukuk structures and a difficulty in identifying assets to underpin the transactions, although Islamic finance experts say such drawbacks have largely been overcome.
Jurisdictions such as
"These recent developments strongly signal growing international acceptance and will facilitate future issuance," said Badlisyah Abdul Ghani, chief executive of CIMB Islamic, one of the industry's top sukuk arrangers.
As a result, first-time issuers that would have expected to pay a premium on their sukuk in previous years can now achieve levels comparable to conventional bonds, he said.
"Issuers that have existing conventional bonds will have a benchmark curve to refer to and the sukuk should be priced flat, if not potentially lower, than the conventional points of reference. They should not pay a premium when raising sukuk."
Issuance of sukuk globally hit an all-time high of
Increased clarity on sukuk structures has helped: the design and approval process has become generic as more Shariah advisory firms have entered the market, pushing down costs, said
"It is a lot cheaper now. For corporates, it is broadly in line with Eurobond or private dollar-denominated placement transactions," he said.
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