Luxembourg Stock Exchange becomes an important European centre for Sukuk

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Luxembourg Stock Exchange becomes an important European centre for Sukuk

Source: Le Voix E paper, Originally taken from Salaheddine Ahmedi

The Luxembourg Stock Exchange is an important European centre for the quotation of sukuk issuances. The statement follows after the admission of a new issue of sukuk for a total value of USD 1.5 billion. The issuer is the oil company owned by the Malaysian government, Petroliam Nasional (Petronas), which simultaneously made a bond debt quotation for an amount of USD 3 billion. The Luxembourg Stock Exchange lists 16 sukuk for a total amount of USD 7.3 billion, further positioning itself among the major players for this niche product and enabling it to compete in terms of value with notably London.

In 2009, global sukuk issuances could amount to USD 27.5 billion, according to a report by global consultancy firm Ernst & Young (E&Y) on Islamic finance, of which sukuk represents only one part. The E&Y report also highlights that this market weakened a bit in 2008, with issues worth USD 15.5 billion compared to USD 47 billion in 2007. Proving the interests of the Grand-Duchy, the Luxembourg Stock Exchange advocates a practical approach in requesting documentation pertaining to the inherent transactions rather than that of an exhaustive description of the sukuk structure. In addition, Clearstream, which is the international central depositary of Luxembourg, has adapted its technical procedures to take into account the specific nature of these products.

Finally, according to representatives of HSBC Securities Services, specialists in Islamic Finance, the Luxembourg government is at the moment studying the possibility of financing various activities of state or public entities through sukuk. Equivalent to bonds in Islamic finance, the sukuk should conform to Sharia law. Among other rules, the Sharia prohibits loans with interest, on which lies the principle of the classic bond issue. In the case of sukuk, the issues should correspond to a specific investment project and the profits paid annually to owners corresponding to profits coming from the development or utilisation of the underlying project. Hence, if losses are incurred, the owners don’t receive anything; a risk notion is thus associated with the return on investment of a sukuk.

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