Islam is not the only driver for sukuk popularity
By Eric Uhlfelder / Published: April 30 2007 Financial Times

Before 9/11, in the year 2000, sukuk bonds were about as obscure as a debt-equivalent instrument could be. Complying with the tenets of shariah law, only three issues came to market, raising just $340m (€250m, £170m). Last year, a variety of banks – including ABN Amro, Barclays, Société Générale, Deutsche Bank and UBS – underwrote nearly 190 issues, raising more than $27bn. And Arul Kandasamy, head of Islamic Finance at Barclays Capital, projects the Gulf region will need $1,000bn in additional financing over the next decade, with a significant portion of capital demands projected to be met through sukuks. Sukuks differ from traditional fixed income in that technically, they do not pay interest – something that’s prohibited in Islam. Instead, investors are compensated through a cash stream typically generated from assets placed in special purpose vehicles. New-found demand for shariah-compliant products is especially evident in Saudi Arabia, where “the vast majority of retail investors have a clear preference for shariahcompliant assets,” says Ruggiero Lomonaco, head of Islamic Investment products at ABN Amro in London. “Currently, over half of all Saudi deposits are shariahcompliant, up from zero a decade ago.” In June of last year, even the US saw the issuance of its first sukuk in Texas by Houston-based oil and gas concern East Cameron Partners, which raised $166m. This month, the UK government announced plans to become the first western government to issue sukuk in a bid to become the world centre for Islamic finance. This segues the discussion into one of the more surprising aspects of soaring sukuk offerings: that the vast majority of investors buying sukuks – liberally estimated at around 80 per cent by John Wegulin, managing director of the