London/Dubai – Linklaters has advised the United Kingdom Government on its issue of a £200 million sukuk (Islamic bond).  The transaction represents the first sovereign sukuk to be issued by a European government and the first to be issued by a country outside the Muslim world; it also demonstrates the remarkable success of the enabling environment that has been created in the United Kingdom for Islamic finance.

The sukuk carries a profit rate of 2.036% per annum in line with the yield on gilts of similar maturity and the book closed with orders totalling around £2.3billion, demonstrating the strength of demand for the instrument. It was issued on the basis of a sukuk al-ijara structure, over land and buildings used by various Crown bodies, for a tenor of five years. Despite using a traditional Shariah structure, the sukuk documentation included a number of innovations to ensure that HM Treasury achieved its objective of issuing a gilt-like instrument, whilst at the same time remaining Shariah-compliant and falling within the UK’s alternative finance arrangements legislation.

The issue represents a landmark stage in the UK Government’s strategy to promote the UK as a global gateway for Islamic finance, and London as one of the strongest centres for Islamic finance anywhere in the world.

Neil D Miller, Linklaters’ Global Head of Islamic Finance, said:

“This innovative transaction represents a really exciting development for the Islamic financial services industry. The UK is one of the world’s major economies and this sukuk, delivering on past expectations, is a significant statement of support by the government for the United Kingdom as the most important centre for Islamic finance outside the Muslim world.”

Richard O’Callaghan, Capital Markets partner, said:

“This was an extremely technical and challenging transaction that required us to balance Shariah, capital market, legal, tax, real estate and regulatory considerations, all within a set of policy objectives and a framework required by the UK government.  We hope the government’s example will encourage further UK-based issuers to contemplate fundraising using sukuk in the future.”

The Linklaters team acted as sole structuring and documentation counsel, advising on the capital markets, tax, regulatory and real estate aspects of issuing a sovereign sukuk for the first time in the United Kingdom. The team was led by Neil D Miller, Global Head of Islamic Finance, working in conjunction with Elaine Keats and Richard O’Callaghan, Capital Markets partners in London and Dubai, respectively. They were supported by managing associates Manoj Tulsiani and Jonathan Whiteford, and associate Leah Weldon. Tax advice was provided by John Lindsay and Rhian Parker.

HSBC acted as sole structuring adviser to the UK Government.