UK Sovereign

This week’s first-ever Western sovereign sukuk represents a landmark moment in the global expansion of Islamic capital markets that offers significant potential to attract further new names to the product, writes Dan Alderson.

The UK Debt Management Office followed a £5bn 30 year print on Tuesday with the first sukuk from a western sovereign a day later.

The UK Debt Management Office raised £5bn of January 2045 money on Tuesday with a deal that was several times subscribed — despite the potential of an appearance by the governor of the Bank of England before the Treasury Select Committee to induce volatility in sterling bond markets.

While most sovereign debt management offices pride themselves on being dull, Spain — which hasn’t had the calmest of times in the primary issuance market over the last four years — decided to take a different tactic this week. And it paid off in bucket loads. Other sovereigns, both peripheral and core, should take note.

The UK Debt Management Office has hired a group of banks to syndicate its debut sukuk. It is expected to issue the £200m debut in the coming weeks — which means that it is likely to beat rival Western European sovereign Luxembourg in the race to become the first to issue. The UK DMO also named leads for a syndicated Gilt sale for the week of June 23.

This week's scorecard covers the funding progress of sovereign issuers, with every issuer with a funding year that matches the calendar year either over the halfway mark or approaching it. Next week's scorecard will deal with European supranationals and agencies.

The UK is likely to syndicate a new 30 year conventional bond in June, after finding overwhelming support for the tenor from investors and banks this week. An inflation linker of similar tenor could follow in the second quarter of its financial year, after the idea drew similar interest.

The UK government will consider selling part of it debut sukuk to retail investors, according to a market official with knowledge of the matter. But some bankers warned that this could over-complicate the deal.

Barclays has announced plans to take an axe to its investment banking operations, a move which will see 7,000 job cuts across the globe by 2016. The restructuring will also see a streamlining of the bank’s Asian operations, but despite the expected downsizing, bankers are not expecting any massive upheaval just yet.

The attention being paid by UK politicians to Moody’s comments on how Scottish independence would affect both the newly independent country and the leftovers of the UK is at best laughable and at worst a sign of the poorest of politicking.

This week's scorecard covers the funding progress of sovereign issuers, with Belgium, Ireland, Netherlands and Portugal all over the halfway mark on their programmes for the year. Next week's scorecard will deal with European supranationals and agencies.

Network Rail is set to leave the capital markets after the UK government decided that it could guarantee better value taxpayer money by lending directly to the agency. But the funding team’s jobs appear to be safe and there has been little impact on Gilts following the announcement.