Friday, January 27, 2012

France’s First Sukuk Hampered by Debt Crisis

Jan. 25 (Bloomberg) -- France’s efforts to sell the nation’s first Islamic bonds and attract Shariah investors from the oil-rich Persian Gulf are being hindered by Europe’s debt crisis as borrowing costs rise.

The euro region’s second-biggest economy, which put in place the legal framework to allow banks and other private issuers to sell Islamic bonds in 2009, had its top AAA credit rating cut by Standard & Poor’s on Jan. 13 on concern policy makers are failing to address the effects of the debt crisis. Yields on two-year French government notes have climbed 10 basis points since the one-step reduction, according to data compiled by Bloomberg.

“Just because the legal framework is in place doesn’t mean the economic and financial situation is conducive to an issuance of sukuk in France,” Jawad Ali, the Dubai-based global deputy head of the Islamic finance practice at law firm King & Spalding, said in a Jan. 19 interview. “Investors aren’t looking at Europe and saying there are a lot of opportunities. They are looking at Europe and saying there is a lot of uncertainty.”

The cost to protect France’s debt from default is almost twice that of Germany, the largest economy in the euro area and the only one to retain a stable outlook on its AAA status from, S&P.

[By Khalid Qayum and Dana El Baltaji, Bloomberg]