Special Commentary on Goldman Sachs’ Shock $2 billion Sukuk Programme (Part 1)

01 November 2011
The groundbreaking planned sukuk issuance of USD 2 billion by Goldman Sachs will set new heights for the Islamic finance industry.

I think the only reason why Goldman went for the Murabaha structure, asset-based, is because this is the closest you can get to conventional bonds. That means it would be easier to market to Western investors than clustered sukuk, for instance. Also, with Murabaha, you can guarantee the principal and the mark-up at maturity. From the initial structure I saw in the offering circular, I can confirm that there is at least one credit enhancement element that is being used which played very well in the rating.

Goldman might use the Saudi and UAE currencies. One reason why they have not confirmed such usage is the fact that there might be concerns over the reaction of the Muslims during their upcoming GCC roadshow. Such reaction might revolve around the usage of their funds in funding conventional activities of the bank.

I think Goldman does not need to come to GCC in order to raise funds as I have no doubt that the issue will be oversubscribed by non-GCC investors. Goldman wants to use this issuance as a means to build up new business relations with potential institutional investors who might subscribe to sukuk.

The unique facet about this sukuk is the intention to list it on the Irish Stock Exchange. Shariah does not permit trading of Murabaha sukuk in the secondary market. The reason behind that is because we are referring to debt here. In these cases, usually investors buy and hold these types of securities.

Nonetheless, Goldman has two Shariah ways around the impermissibility of the sukuk’s trading. Sukuk can be traded on condition that the Murabaha assets constitute a small percentage of the overall portfolio of the underlying assets. Also, Murabaha sukuk can be traded at the nominal value and not at market value. I think Goldman has chosen the latter for its sukuk as its related underlying assets fully comprise Murabaha.

My advice to potential certificate holders is to contract the service of a Shariah scholar or experienced sukuk structurer before subscribing.

The writer is regarded as part of the second generation of Islamic banking practitioners with a solid academic background in Islamic finance. He is a sukuk structurer and strategist as well as an external Islamic Finance expert at the New York-based Edcomm Group Banker’s Academy. He is in the process of being certified as Shariah Advisor and Auditor by AAOIFI. He can be contacted at mkhnifer1@ gmail.com.

The views expressed in this article are those of the writer and may not reflect those of Zawya.

© Zawya 2011