Goldman Sachs difficulties in accessing the sukuk market threatened to be a big setback for the global Islamic finance markets cause. But a VTB success could revive interest among other potential non-Islamic borrowers providing it goes about the task in the right way.
VTB could be just the pace-setting conventional operator that Islamic finance needs to move things forward. The Russian bank has been clear about its push to take on the large global investment banks in the MENA region and its goal of becoming the worlds leading emerging market bank.
VTB sees its own sukuk deal as more of a chance to lay down a marker for its DCM capabilities in this market than to raise financing for its treasury team. While it may not be able to give as much global reach to Middle East issuers as established sukuk bookrunners such as Deutsche Bank, HSBC and Standard Chartered, VTB would bring welcome diversification in opening up potential Russian markets with issuers such as Lukoil, Gazprom, Rusal, Alrosa and Federal Grid Co.
Moreover, VTBs issue would provide a new source of encouragement for conventional banks like Crédit Agricole that might prefer second mover status. Officials close to Crédit Agricole have told EuroWeek that the bank put its debut sukuk on hold after witnessing the public backlash against Goldmans planned $2bn programme.
That decision was regrettable as there were clear differences in the approach of the two banks to the market. While Goldman Sachs adopted a controversial murabaha (financing) structure and was equivocal about the underlying assets and use of proceeds, Crédit Agricole pre-announced its interest in issuing sukuk by vowing that it would use an ijara (leasing) structure in which real Islamic assets were matched to liabilities.
VTB will have to do some work to get its issue out, of course. There will be questions over the structure and its compliance with Shariah, the use of proceeds and potentially the tradability of the sukuk, depending on the structure the bank goes for.However, if the Islamic market wants to show that it is earnest about having a pro-business attitude and expanding into a global asset class it would do well to heed the (adapted) logic of Oscar Wilde: To have excluded one conventional bank from the sukuk market on Shariah grounds maybe regarded as a misfortune. To exclude two would look like carelessness.