First Islamic bond could boost UK manufacturing

Posted on 31 Oct 2013

A £200m sukuk, a bond that complies with Islamic law, is part of Prime Minister David Cameron’s plans to boost the UK economy.

The bond is scheduled to be issued by the government in 2014, along with the introduction of the world’s first Islamic financial index on the London Stock Exchange.

As billions of pounds have already been injected into the development of renowned construction projects such as The Shard, Chelsea Barracks, Harrods, the Olympic Village and Battersea Power Station, a government spokesperson said that “projects like this can have a knock on effect and boost the manufacturing sector.”

He stressed that “Islamic finance is an important and growing feature of our financial services industry and the government is getting behind this sector because we are open for business and want to attract inward investment and strengthen our economy.”

The news broke without a name for the bookrunner that will eventually sell the bond.

Sultan Choudhury, managing director of Islamic Bank of Britain, commented: “The news is especially positive for larger manufacturing companies that have investment plans in place, with steady cash flows attached to those investments. Financial directors of these companies should consider issuing corporate sukuks in order to attract funding from further afield and access investors they may not have considered before.”

The changes are set to cement the City’s relations with Islamic investors and help to position London as the centre of Islamic finance in Europe.

UK Trade and Investment’s British Business Pavilion at this year’s World Islamic Economic Forum was at the centre of Britain’s attempts to gain tangible trade benefits from the forum. A series of exhibits showcased the UK’s capabilities in sectors such as healthcare, education, smart city technologies, as well as Islamic finance.

According to government sources, the key projects in the UK which currently have the greatest need for investment and development partners include nuclear power stations, with up to eight individual sites with capital value per project of more than £8bn; the debated HS2; ports development, with opportunities for turbine manufacturing investment in support of an offshore wind energy programme; the Thames Tideway, a new waste water tunnel with a capital value £4.2 billion; the £9bn redevelopment for the Olympic Park following the 2012 London Olympics and a major plan of urban regeneration, featuring the construction of a pipeline of over £100bn.

It is hoped that the sukuk, which complies with Sharia-law that forbids riba, or plain interest, could attract a variety of Islamic investors to these projects, and that more sukuk issues will follow.