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Thu 20 Sep 2012 02:13 PM

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QIB UK to launch first sukuk-linked note this month

Product will be first time in industry that a structured note uses a sukuk as underlying asset

QIB UK to launch first sukuk-linked note this month
Qatar money, Qatar currency, Qatar finance, Qatar banking, Qatar finance

London-based QIB UK, a subsidiary of Qatar Islamic Bank, plans to launch two structured products this month including a note linked to a sukuk, its head of asset management told Reuters.

It will be the first time in the industry that a structured note uses a sukuk as an underlying asset, Anouar Adham, head of asset management at QIB UK, told Reuters late on Wednesday. The capital-protected note will be based on a five-year sukuk which Qatar Islamic Bank is expected to issue soon, he said.

"We are planning to launch the product before month-end. We expect this new ground-breaking structure to take off substantially," Adham said.

The firm has raised US$153m through the first six products of its 'Hemaya' structured note programme; the previous notes were linked to equities listed on the Qatar, Saudi Arabia and Abu Dhabi stock exchanges.

The new product will address growing investor appetite for sukuk, and be launched alongside an equity note based on Islamic bank stocks listed in Qatar and Saudi Arabia.

QIB UK manages the world's largest sukuk fund with US$213m in assets as of June. It raised US$100m last year, and has an institutional investor base of mostly takaful and re-takaful institutions (Islamic insurance and re-insurance).

Client concerns about liquidity and regular payment options influenced the design of the latest products, which will feature semi-annual payments, Adham said.

Islamic capital-protected products have started to gain ground among investors, because of volatility in the equity markets and growing acceptance in the industry that the protection aspect does not violate Islamic law.

QIB UK's new product features a new type of sharia-compliant structure as it relies on sukuk issuance for capital protection instead of murabaha trades, Adham added. Details of the structure could not be disclosed.

In the past, the guaranteed principal in Islamic capital-protected products was often delivered using a murabaha, a cost plus mark-up contract that delivers a return similar to a zero-coupon bond.

But the industry has been moving away from murabaha because of concerns about its legitimacy, and various alternatives have been used including a structure known as wa'ad, a "unilateral promise".