Qatar Islamic Bank to launch sukuk fund

ISLAMIC BONDS: Qatar Islamic Bank hopes to raise $200m for Europe-based sukuk fund. (AFP)

Qatar Islamic Bank has confirmed it intends raising $200m for a European-based fund investing in Islamic corporate bonds.

The fund, called the EFH Global Sukuk Plus Fund, will be operated by QIB’s European Finance House Ltd. unit out of London, and managed by former Lehman Brothers credit analyst, Aleksandar Devic, according to news agency Bloomberg. It will be pitched at both Muslims and non-Muslims.

While the market for Islamic bond bonds has been more resilient than its non-Sharia compliant counterpart, sales are likely to drop this year from 2008 although local currency issuances will help support markets hit by the credit crisis.

Globally, the value of Islamic bonds, or sukuk, issued in 2008, fell more than 56 percent to $14.9bn from 2007, according to a recent report from credit ratings agency, Standard & Poor's.

"The decline in sukuk issuance in 2008 was a result of global market turmoil, drying up of liquidity, widening of credit spreads, and investors' wait-and-see attitude," S&P credit analyst Mohamed Damak said in the report.

"Although difficult to measure, part of this decline could also have been due to comments about the Sharia compliance of some sukuk by the Accounting and Auditing Organization for Islamic Financial Institutions.

"We do not expect the market to start reviving before the second half of 2009 or early 2010," he added.

However, long-term prospects for the sukuk market remain strong. Indeed, conservative estimates of the pipeline of sukuk that have been talked about or announced are in excess of $45 billion, S&P has said.

Under sukuk the issuer of a sukuk sells an investor group the certificate, who then rents it back to the issuer for a predetermined rental fee. The issuer also makes a contractual promise to buy back the bonds at a future date at par value. This avoids the payment of interest, which is not permitted under Sharia law.

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