REFILE-Saudi investors warm to Goldman sukuk - sources

Mon Feb 20, 2012 4:35pm GMT

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By Mirna Sleiman

DUBAI Feb 20 (Reuters) - Saudi investors are warming to a sale of $2 billion of Islamic bonds by U.S. investment bank Goldman Sachs, banking sources told Reuters, lending support to a sukuk which has run into controversy over whether it complied with Islamic principles.

The bank has also been criticised for naming at least three Islamic scholars as potential advisers on the sukuk even though none had seen the prospectus.

"Despite all the criticism, GS will have no difficulty selling the sukuk. They are in talks with Saudi investors and may do a private placement," a senior Gulf banker involved in the Islamic finance industry told Reuters on Monday.

He declined to be named because of the commercial sensitivity of the subject.

Another Gulf banker, who advises wealthy Saudi individual investors, said one of his clients had been approached. Saudi investors were prepared to buy the sukuk, the banker said.

Goldman Sachs in London said it had no comment.

Goldman announced last October it would issue as much as $2 billion through sukuk, making it one of the first top Western banks to raise money in that way.

Islamic finance is based on principles which ban the use of interest and pure monetary speculation.

Although the sums involved are tiny in comparison to conventional international bond issuance, sukuk has been a relatively stable source of funding during the global financial crisis because of its conservative investor base.

Goldman has said its sukuk could be denominated in United Arab Emirates dirhams, dollars, Saudi riyals or Singapore dollars.

It has not disclosed a time frame for issuance and says Islamic scholars have given the programme sufficient certification to comply with sharia principles.

The first Gulf banker said Goldman believed enough wealthy individual investors in Saudi Arabia were prepared to accept the certification, despite the misgivings of some other investors.

Controversy over the permissibility of financial instruments has characterised Islamic finance since it was born in its modern form in the 1970s.

A range of scholars and industry bodies set product standards which are sometimes contradictory and act as guidelines rather than firm, enforceable rules.

A private placement would allow Goldman to deal directly with a small number of investors, rather than offering the sukuk to the Islamic investment community at large. (With additional reporting by Anjuli Davies; Writing by Andrew Torchia; Editing by David Cowell)

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