Sukuk Comes to America

Eying a share of the booming Islamic banking, General Electric, a multinational technology and services conglomerate, became the first major American corporation to issue Islamic bonds (sukuk), reported the Business-Intelligence Middle East website Saturday, November 21.

“We have been focused on diversifying our alternative funding sources to include global deposits and covered bonds,” said Kathy Cassidy, GE’s Senior Vice President and Treasurer.

“Transactions such as the sukuk allow us to make progress in meeting our objectives.”

GE Capital Corporation, the company’s finance arm, sold last Thursday a five-year, $500m sukuk.

“This transaction is strategically important for GE as it establishes yet another way of raising funds from an important investor base,” Cassidy said.

Sukuks, which conform to Islam's prohibition of receiving or paying interest, typically work as profit-sharing vehicles.

Companies that issue Islamic bonds make payments to investors using profits from the underlying business, instead of paying interest.

But money can not be invested in alcohol, gambling, pornography, tobacco, weapons or pork.

The Sukuk market has reached $111.9 billion in the eight years to 2008 and a further $69 billion is expected to be issued in 2008/2009, according to the International Islamic Financial Market.

New Horizon

The GE views the sukuk issuance a step to bolster the company’s transactions in the Muslim countries.

“GE Capital’s inaugural entry into the sukuk market aims to further complement and solidify GE’s fast growing presence across the Middle East and Asian regions,” said Aris Kekedjian, Vice President and Managing Director.

“This issuance establishes our presence with a new and important investor base and demonstrates our commitment to these regions.”

Islamic finance is one of the fastest growing sectors in the global financial industry.

Starting almost three decades ago, the Islamic banking industry has made substantial growth and attracted the attention of investors and bankers across the world.

A long list of international institutions, including Citigroup, HSBC and Deutsche Bank, are going into the Islamic banking business.

Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2013.

GE, ranked by Forbes as the world’s largest company in 2009, is planning to issue more sukuk.

“We intend to be regular issuers in the sukuk market and are heartened by the support we have seen in this first transaction,” Cassidy said.

Link: http://www.islamonline.net/servlet/Satellite?c=Article_C&cid=1258711854472&pagename=Zone-English-News/NWELayout