sukuk

Islamic bonds, known as sukuk, and renminbi-denominated bonds are in high demand among investors due to their relatively small supply.

Sukuk refers to a financial instrument that complies with Islamic investment principles, which prohibit interest payments.

Dubai World asked holders of its sukuk to appoint representatives to discuss restructuring.

HSBC went a step further, building a Dubai-based fixed-income trading desk, partly to serve the nascent secondary sukuk market.

In the past week, activity in sukuk bonds has come to an abrupt halt as the sector contemplates potentially its biggest default.

But only time will tell if the lawyers are clever enough restructure sukuk in line with the clerics' demands.

But then the clerics stepped in, questioning the anything-goes attitude emerging in the sukuk market and other areas of Islamic finance.

Dubai World's troubled property developer, Nakheel, is due to redeem a $4bn Islamic bond, or sukuk on the same day.

How smoothly the restructuring is handled will affect US and European investor demand for sukuk.

Bahrain is expected to offer a $500m sukuk shortly, its first in 2009, and hopes to hold regular bond auctions afterwards.

The repurchase agreement thus acts also to ensure that sukuk holders are exposed only to the issuer's credit risk.

Indeed, a respected Islamic jurist recently denounced most sukuk as godless.

A Kuwaiti Muslim cannot buy a Malaysian sukuk (sharia-compliant bond) because of differing definitions of what constitutes usury.

Already, the latest Zawya figures show that in the year to date, the sukuk market is only 10 per cent down on the same period last year.

The sukuk market, say insiders, is already turning the corner, with banks such as Credit Suisse reporting healthy pipelines.

At the very least, the Nakheel crisis will stall sukuk activity.

According to Thomson Reuters, just over $19bn has been raised in the sukuk market so far this year.

The nature of Islamic sukuk bonds may be another complication.

Of immediate concern for creditors is a $3. 52 billion sukuk, or Islamic bond, issued by Dubai World real-estate unit Nakheel.

On December 14th Nakheel is due to repay $4. 05 billion to holders of its sukuk, an Islamic bond.

The term "sukuk bond" is a slightly odd one.

Last year, banks were hailing the rise of sukuk , or Islamic bond, as the next big thing.

It is supposed to repay a $4bn sukuk by December 14.

A senior cleric last year began questioning the Quranic credentials of most sukuk structures.

Investors in the US and Europe have started to buy sukuk bonds to gain exposure to Middle Eastern banks, for example.

The Nakheel sukuk, for example, was listed on the DIFC's exchange, NASDAQ Dubai, but it is governed by English law in English courts.