Finance: Luxembourg is the first euro area state to issue Islamic bonds, which leaders hope will give the country an edge in the growing financial market.
Luxembourg has become the first euro zone country to issue Islamic bonds. The Grand Duchy issued €200 million in “sukuk” on Wednesday, in an offering the finance ministry said was more than two times oversubscribed.
Interest payments are not compliant with Islamic finance principles, so the sovereign debt was formally the sale of shares in state-owned real estate assets, or an “al-Ijara” type bond, which the Luxembourg government is leasing back over five years.
The bonds were placed across the Gulf region, southeast Asia and in the EU, with a large portion going to central banks and official institutions.
The Grand Duchy’s sukuk were rated top-notch AAA by global credit agency Standard & Poor’s, which finance minister Pierre Gramegna said in a statement was “a sign of investor confidence in the stability of Luxembourg and the strength of our public finances.”
Reuters news agency reported that Luxembourg’s $254 million sukuk offering was smaller than those issued earlier this year by South Africa ($2.2 billion) and Hong Kong ($4.7 billion).
Nevertheless the Grand Duchy’s government hopes that issuing the first sovereign sukuk in euros will give the country an edge in attracting Islamic finance business.
Consulting firm EY estimated (PDF) that in 2012 the value of Islamic banking assets was $1.54 trillion and that $130 billion in new sukuk was issued, up from $5 billion in 2003.
In 2012 Malaysia led with 525 sukuk issues worth $77 billion, while Luxembourg had one issue worth $20 million, according to EY. Germany and the UK likewise saw single issues that year, raising $55 million and $11 million respectively.