Article 2.4 UK sukuk bond sale attracts£2bn in orders
By Elaine Moore and Thomas Hale
Financial Times June 25, 2014
Britain has become the first western country to issue an Islamic bond, attracting orders of more than £2bn from global investors for its sale of sharia-compliant debt.
London's maiden ‘sukuk' will pay out profits based on the rental income from three government-owned properties in lieu of interest, which is forbidden under Islamic religious law.
The £200m sale, which comes days before the start of Ramadan, was heavily oversubscribed by investors in the UK, Middle East and Asia, attracting orders of £2.3bn - 10 times higher than the amount sold.
British grocer Tesco issued a sukuk in 2007 through its Malaysian arm and Ocado, the independent online grocer, borrowed £10m in a sharia-compliant loan in 2009. Some of the UK's largest property companies have already expressed interest in the idea of raising finance through Islamic bonds said one banker, but so far only one domestic company - small Yorkshire-based manufacturer International Innovative Technologies - has borrowed money in the UK via a bond that complies with Islamic religious rules.
South Africa and Hong Kong have stated interest in planning Islamic bonds of their own and Luxembourg is expected to issue a ˆ200m bond this year.
‘The issuance of a UK sovereign sukuk sets a precedent for the western financial world with the high demand hopefully encouraging further issuance from western countries and corporates,' said Humphrey Percy, chief executive of The Bank of London and The Middle East.
The UK's five year Islamic bond will pay out an annual ‘profit' of 2.036%, set at the same rate as the yield on the UK's equivalent five-year government bond.
HSBC, Malaysia's CIMB, Qatar's Barwa Bank, National Bank of Abu Dhabi and Standard Chartered were responsible for marketing the bond.
According to HSBC more than a third of the issuance went to UK investors, with the remaining bonds sold in the Middle East and Asia.The sale is small in terms of overall sukuk issuance, which has exceeded $21bn this year according to Dealogic, but was popular with Islamic investors in search of high grade debt.
FT
Source: Moore, E. and Hale, T. (2014) UK sukuk bond sale attracts £2bn in orders, Financial Times, 25 June.
Fixed-interest indices
The FTSE (owned by the London Stock Exchange) creates indices for a variety of securities. The ‘FTSE Actuaries UK Gilts Index Series' provides an indication of returns on bonds of various classes over time. Table 2.11 shows the performance over one month and one year of collections of bonds, e.g. a representative group of twelve bonds with less than five years to maturity. The column labelled ‘Total return' includes both interest payments that the bond accrues
Table 2.11 Gilts - UK FTSE actuaries indices
| Price Indices Fixed Coupon | Jun 16 | Day's chge % | Total Return | Return 1 month | Return 1 year | Yield | ||
| 1 Up to 5 years (12) | 99.62 | -0.05 | 2282.80 | -0.44 | -0.25 | 1.49 | ||
| 2 5-10 years (9) | 172.49 | -0.04 | 2963.71 | -1.09 | -1.55 | 2.39 | ||
| 3 10-15 years (4) | 190.35 | -0.02 | 3324.36 | -1.46 | -1.65 | 3.00 | ||
| 4 5-15 years (13) | 176.16 | -0.03 | 3047.63 | -1.19 | -1.48 | 2.63 | ||
| 5 Over 15 years (15) | 255.06 | +0.16 | 3531.54 | -1.44 | +1.56 | 3.38 | ||
| 6 Irredeemables (1) | 354.85 | +0.18 | 4112.78 | -1.85 | +2.75 | 4.17 | ||
| 7 All stocks (41) | 160.93 | +0.03 | 2872.10 | -1.04 | -0.04 | 3.05 | ||
| Index-Linked | Jun 16 | Day's | Month | Year's | Total | Return | Return | |
| chge % | chge % | chge % | Return | 1 month | 1 year | |||
| 1 Up to 5 years (2) | 319.07 | -0.01 | -0.65 | -2.01 | 2376.40 | -0.65 | -0.06 | |
| 2 Over 5 years (21) | 489.18 | +0.11 | -2.00 | -0.27 | 3568.47 | -2.00 | +0.70 | |
| 3 5-15 years (7) | 413.78 | +0.00 | -1.41 | -2.84 | 3090.17 | -1.41 | -1.48 | |
| 4 Over 15 years (14) | 569.60 | +0.17 | -2.31 | +0.99 | 4088.01 | -2.31 | +1.75 | |
| 5 All stocks (23) | 461.40 | +0.09 | -1.85 | -0.31 | 3403.30 | -1.85 | +0.81 | |
| Yield indices | Jun 16 | Jun 13 | Yr ago | Jun 16 | Jun 13 | Yr ago | ||
| 5 yrs | 2.02 | 2.00 | 1.15 | 20 yrs | 3.36 | 3.37 | 3.12 | |
| 10 yrs | 2.84 | 2.83 | 2.17 | 45 yrs | 3.39 | 3.41 | 3.45 | |
| 15 yrs | 3.20 | 3.21 | 2.78 | Irred | 4.17 | bgcolor=white>|||
| ....Inflation 0 %.... | ....Inflation 5%.... | |||||||
| Real yield | Jun 16 | Dur yrs | Jun 13 | Yr ago | Jun 16 | Dur yrs | Jun 13 | Yr ago |
| Up to 5 yrs | -1.09 | 2.56 | -1.09 | -1.51 | -1.72 | 2.57 | -1.72 | -2.06 |
| Over 5 yrs | -0.06 | 21.21 | -0.06 | -0.15 | -0.10 | 21.32 | -0.09 | -0.18 |
| 5-15 yrs | -0.20 | 9.35 | -0.20 | -0.61 | -0.31 | 9.38 | -0.31 | -0.73 |
| Over 15 yrs | -0.04 | 27.45 | -0.03 | -0.07 | -0.06 | 27.52 | -0.05 | -0.09 |
| All stocks | -0.08 | 19.26 | -0.07 | -0.18 | -0.12 | 19.40 | -0.12 | -0.22 |
FTSE is making a number of enhancements to the FTSE Actuaries UK Gilts Index Series which are effective from 28 April 2014.
Please see the FTSE website for more details: www.markets.ft.com
Source: FTSE Group and the payments that have actually been made which are reinvested in the index as well as capital gain or loss.
The base value for the total return index is a figure that was set years ago, equal to the total market value of the group of gilts at the base (starting) date divided by the starting index value at that date (often 100) but which is subsequently adjusted to allow for changes in the constituents of the group and the nominal amounts of the constituent gilts.The table also shows the average yield to maturity currently available to a buyer of this group of gilts. The price indices, in the second column, labelled ‘Jun 16' (the day of the download), is an arithmetically weighted index based on the dirty price and weighted by the nominal amount outstanding (it does not allow for that part of the return from coupons).
The ‘real yield' (after deduction of inflation) for the index-linked securities (final section) is shown for bonds with a variety of maturities and is based on different assumptions with regard to future inflation.[11] ‘Dur yrs' is the length of the duration in years, a measure related to price volatility of the collection of bonds (see Chapter 13).