Japan bank plans first G8 sukuk

State-owned Japan Bank for International Cooperation (JBIC) plans to sell Islamic bonds for the first time by May, a year after saying it would sell $100 million of the bonds in the first quarter of 2007.

The sale would be the first backed by a state in the Group of Eight industrialised nations that includes the United States, Russia and Germany. Japan is the world's second-largest economy.

"We're studying the possibility of a sukuk issue in the Malaysian market or internationally," Tadashi Maeda, JBIC's director general of energy and natural resources, told Reuters on the sidelines of an Islamic finance conference in the Qatari capital, Doha, on Monday.

"Without due attention to Islamic finance, Tokyo cannot be a fully fledged international market ... we recognize that Islamic finance is rising and it is becoming very important in world markets," he said.

A JBIC official told Reuters last November the bank planned to sell the equivalent of $100 million of ringgit-denominated bonds in Malaysia to help deepen the Asian bond market.

The five-year bonds would be sold in the first quarter of this year and the funds used to finance biomass projects in Malaysia, Fumio Hoshi, senior executive director, said in Dubai.

JBIC's Maeda said the bonds would be priced in ringgit or US dollars and that the bank had hired Malaysia's Bank Negara to arrange the sale.

Sukuk comply with Islam's ban on the receipt of interest, and returns derived from underlying physical assets are paid to bondholders instead.

JBIC's mandate is to promote economic cooperation with foreign countries. Japan's Muslim population is negligible but Asian neighbour Indonesia is the world's most populous Muslim state and Malaysia is an Islamic finance hub.

Maeda said Japan aims to attract more investment from the Gulf, where economies are surging on a near five-fold rise in oil prices during the last six years.

"We encourage Japanese companies with subsidiaries abroad to issue sukuk ... some overseas branches of Japanese banks are getting involved," Maeda said, declining to give names. The planned sukuk sale is one several initiatives to stimulate awareness of Islamic finance in Japan's relatively conservative financial markets.

Tokyo has hosted several Islamic finance conferences. In September, the Bank of Japan said it joined the Islamic Financial Services Board, an international body for setting Islamic finance standards, as an observer member.

Last year, Japan appointed a board to advise on Islamic law, or sharia.

Bankers from the United Arab Emirates' Abu Dhabi are visiting Japan and Abu Dhabi's Crown Prince Mohammed bin Zayed al-Nahayan is visiting Japan next month, partly to stimulate more bilateral trade. Demand from the world's 1.3 billion Muslims for investments that comply with their beliefs has boomed, and in the Gulf - also an Islamic finance hub - growth has been underpinned as oil prices creep towards $100 a barrel.

Western and Asian institutions seeking exposure to booming Gulf economies have also given the region's Islamic finance industry a boost.