VTB to enter sukuk issuance market

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ISLAMIC BONDS: Structered as rental or profit-sharing agreements as the payment of interest is banned under Islamic law. (Getty Images)

Russia's second largest bank VTB may become the country's first issuer of sukuk or Islamic bonds and is considering a deal worth several million dollars, VTB's investment banking head said on Wednesday.

Russian companies need to be more creative about raising capital as usual sources of funding have dried up in the global credit crunch and around $100 billion of foreign corporate debt payments are due this year.

"We are looking at the possibility of entering this market (Islamic finance) - both for us and for our clients," VTB Capital head Yuri Solovyov told journalists, adding that an issue from VTB could be worth several million dollars.

He declined to name which other Russian companies had expressed interest in such financing.

Globally, $14.9 billion worth of sukuk were issued last year, less than half 2007's issuance, according to Standard & Poor's.

To comply with Islam's ban on interest, sukuk are structured as profit-sharing or rental agreements, and returns are derived from underlying physical assets such as commodities or real estate. Investment, pork, alcohol, gambling and pornography is banned.

VTB Capital and Liquidity Management House, a subsidiary of Kuwait Finance House, on Wednesday signed a protocol of intention aimed at cooperating in the development of Islamic finance in Russia and other former Soviet countries. (Reuters)

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