Euroclear U.K. & Ireland (EUI), the central securities depository (CSD) for the U.K., is co-operating with the Government’s Debt Management Office (DMO) to bring to market the first ever U.K. Sovereign Sukuk bond.
The £200 million Sukuk bond, using a sale and lease back structure, was issued in Euroclear and settled in EUI and Euroclear Bank, on July 2 2014. It is listed on the London Stock Exchange. Maturing in 2019, the primary issuance was heavily over-subscribed.
The U.K. becomes the first nation outside the Islamic world to bring such an instrument, which has been sold to both domestic U.K. and international investors. Primary issuance of this bond will occur at Euroclear Bank, the Brussels-based international central securities depository.
U.K. Chancellor of the Exchequer George Osborne says: “This issuance of Britain’s first sovereign Sukuk delivers on the government’s commitment to become the western hub of Islamic finance and is part of our long term economic plan to make Britain the undisputed centre of the global financial system. We have seen very strong demand for the Sukuk, resulting in a price that delivers good value for money for the taxpayer. I hope that the success of this government issuance will encourage further private sector issuances of Sukuk in the UK.”
EUI currently safe-keeps £1.3 trillion worth of gilts on behalf of clients. John Trundle, chief executive officer of EUI says the CSD has a strong history of providing post-trade expertise for Shari ‘a compliant debt – “as recently as last year we partnered with Borse Dubai to support asset servicing for our global client franchise purchasing bonds on NASDAQ Dubai’s Sukuk trading platform.”
The U.K. DMO had been working on the issuance for several years, but it could not until recently communicate on the launch date, choosing instead to launch and then engage in dialogue in terms of how it may be utilized to meet liquidity requirements.
“What needs to be worked on is where this fixed-income instrument sits in the hierarchy in terms of liquidity and in terms of its credit rating,” says Trundle. “Will it be viewed as good an asset as normal UK gilts? The depth of the secondary market could be a determining factor here. Being issued in the U.K., it is essentially a form of U.K. government debt so we anticipate the U.K. DMO to lead the conversation with interested sectors of the market about the attractiveness of the asset and how potentially it may be used to cover exposures in the secured markets. Another question is whether it is likely to be favored by other Islamic banks.
“We continue to closely support the DMO with the settlement and optimization of these assets in the best way possible. This is not a new development, we’ve been working with the Debt Office for many years on a variety of initiatives.
“Furthermore, we are also working with the Bank of England and LCH. Clearnet in a revision to the clearing house’s Sterling GC collateral product, which is launching in August.”
Euroclear Supports U.K.’s First Islamic Bond
Euroclear U.K. & Ireland (EUI), the central securities depository (CSD) for the U.K., is co-operating with the Government’s Debt Management Office (DMO) to bring to market the first ever U.K. Sovereign Sukuk bond.
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