South Korea weighs first Islamic bond

DUBAI // South Korean banking officials are in talks with local lenders to launch South Korea's first sukuk as international demand for Islamic debt instruments grows. The Islamic bond could be worth between Dh1.83 billion (US$500 million) and Dh3.67bn, and would be launched by the Korean government or a quasi-governmental organisation, bankers involved in the negotiations say. "The size is not public, but this is the range we are discussing. The final size will depend on market conditions and appetite for the issuance," said Moon Young-tae, the managing director for the advisory group at Woori Investment and Securities, one of South Korea's largest investment banks.

Mr Moon, who is part of the South Korean delegation conducting an investment roadshow in Dubai and Abu Dhabi, did not reveal the names of the banks being consulted. "They are all top sukuk arrangers, but we can't reveal names until we sign a definitive agreement," he said. A global contraction in conventional credit since the onset of the financial crisis has encouraged many companies and governments to consider Islamic financing for the first time.

The Gulf's Islamic finance market has also gathered pace this year, with about 10 sukuk issuances. Most recently, the Government of Dubai raised more than $1.9bn in the Gulf's largest sukuk sale this year. The government of Bahrain issued a $750m Islamic bond in June, which was followed by a $400m issue from Ras al Khaimah a month later. The Islamic Development Bank, based in Saudi Arabia, has issued three sukuk this year totalling more than $1bn.

The International Finance Corp, the financing arm of the World Bank, said last month it planned to list a $100m sukuk in Dubai and Bahrain. "There is a growing interest in Islamic finance in the Korean market. Conventional credit is not enough, and we need to diversify our sources of funding," said Lee Hyun-joo, the managing director of the global capital markets division of Woori Financial Group.

The South Korean government has also moved to amend its financial laws to accommodate sukuk issuance in the domestic market. The South Korean parliament is discussing the draft, and bankers expect amendments to be enacted by the end of this year. The South Korean investment roadshow will move to Abu Dhabi today in the second leg of the tour of the UAE. Lee Young-geol, the vice minister of strategy and finance for South Korea, will hold meetings with senior officials at Abu Dhabi Investment Authority and Mubadala Development.

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