Cash-strapped Western companies are considering issuing Islamic bonds (sukuk) to tap Middle Eastern investors but face a challenge in choosing the right instrument, bankers and asset managers said.
Companies, especially in the UK and France, are looking to Islamic compliant investors as alternative sources of finance as the global crisis restricts their usual funding routes.
"There is a lot of interest from corporates to issue sukuk. My feeling is that as liquidity in the West gets scarce, they will look into the Middle East," said London-based Adnan Aziz, head of Shariah advisory and structuring at asset manager BMB Group.
British retailer Tesco issued its first sukuk – or Islamic-compliant debt – in 2007 for its Malaysian unit as well as raising conventional debt.
"We have discussions with clients, conventional issuers in Europe and we pitch both solutions, [bonds and sukuk] that is going to be a trend going forward," said Vikrant Bhansalim, who works for French bank Societe Generale in London.
"In today's world the corporate sector is interested in the right price, the format is not as important," he said.
The sukuk market has suffered from the global credit crisis. Sukuk issuance fell in 2008 to $20 billion (Dh73.4bn), the International Financial Services London estimated, down from $42bn in 2007. In 2002, sukuk issuance made its modest first steps with an overall volume of $1bn.
"But not all is lost," said Aziz, adding Middle East investors are keen to put their money into Western companies and spread their risk away from domestic investments.
"Investors also understand the opportunities available in the Middle East are relatively limited as economies slow down and may look outside the region," he said.