Yesterday, we brought you the story of the troubles facing Goldman Sach’s first Islamic bond issuance.
As it turns out, after we ran that story, the following research report dropped into our inbox.
As writer more clever than me noted, the author gets a pass on the title of the report given it represents a rare triple entendre and an ever rarer on-topic one at that.
It’s authored by Mohammed Khnifer, who knows far more about the ins and outs of Islamic finance than this author. In it, he lays out what he sees as the specific issues with Goldman’s transaction.
The three issues he identifies? They’re each pretty technical and still very much unsettled, but here’s a basic summary:
1) It is actually a reverse Tawarruq, a structure that has been called a “deception” that seeks to disguise interest income (usury) as permissible income. A Tawarruq is a transaction where a party purchases an asset from a customer and then sells it to a third party.
2) The possibility that Goldman will use the proceeds of the transaction for conventional funding (i.e. loan) activities. Banks issuing Sukuk are restricted from using the liquidity generated by the Sukuk for conventional interest-based activities.
3) The Sukuk will be listed on the Irish Stock Exchange and any trading that does not occur at par is contrary to Sharia, because if yields move while the sukuk is traded, the effect is that debt is being traded.
Here’s the full report: