Islamic bonds became an alternative investment product in the global financial market even liquidity is drying up in major western economies, according to the Islamic Bank of Thailand.

President Teerasak Suwannayos said the market for Islamic "sukuk" bonds had expanded by around 25% in the past few years, driven mainly by investment funds from oil-exporting countries, mostly in the Middle East.

After the Sept 11 events in the United States, Middle East private funds worth about US$400 billion flew out from the American market and looked for new investment choices that were not against Islamic law.

"Many big international companies such as Airbus mobilise funds by issuing sukuk. Chinese companies are going to tap this market as well with potential issues to raise up to $600 million from the Middle East," he told a seminar on Islamic bonds yesterday.

Retail Islamic bonds or sukuk can be sold in both Muslim and non-Muslim markets while conventional interest-bearing bonds cannot be sold in Muslim countries.

For Thailand, Mr Teerasak said property funds could be transformed into Islamic property funds without any change of rules and regulations. Moreover, investors who invest in Islamic bonds will pay lower taxes.

However, sukuk is required to comply with the Islamic law and its bond structure must not have any interest payment while underlying assets must not be in prohibited areas such as alcoholic beverage businesses, gambling and pork meat trading.

Sukuk involves the issuance of bonds through special-purpose vehicles. The bonds will be backed by some assets. Sukuk issuers appoint banks as underwriters to sell bonds to investors.

Investors will have rights to own the assets and get their returns from rent when the sukuk rents out the assets.

source : www.bangkokpost.com