The U.K. government, facing the deepest recession since the 1980s, is unlikely to sell its first Islamic bonds over the next 12 months, according to BMB Group Ltd., which advises on structuring of Islamic products.

Two years after first floating the idea of developing a sterling-denominated sukuk market in London, the plan “remains on the table,” said Humayon Dar, the London-based chief executive officer of BMB Islamic U.K. Ltd., a unit of BMB Group.

“Coming up with another bond, and an Islamic bond in this case, and trying to raise money from Islamic capital markets, it would be rather difficult at this point,” Dar said in an interview from Kuala Lumpur. “I wouldn’t think that in the near future, and the near future means in the next 12 months or so, there will be any Islamic sovereign bond issued by the government of Britain.”

The credit crunch crimped Islamic bond issuance in 2008 as tumbling crude prices sapped demand from the oil-rich Middle East. Corporate and government sales of sukuk slumped to $13.9 billion in 2008 from a record $31 billion in 2007, according to data compiled by Bloomberg.
The U.K. Treasury has been mulling the sale of Islamic bonds denominated in British pounds since at least April 2007. The government is considering changes to its investment and tax rules to spur the development of a domestic Islamic bond market, the Treasury and Financial Services Authority proposed in a paper published on Dec. 11. It wants the so-called sukuk to be publicly traded and treated the same way as conventional bonds.  

Islamic law, or Shariah, bans the payment and receipt of interest, prohibits investment in businesses such as gambling and alcohol, and stresses profit-sharing. Cayman Islands-based BMB Group, which counts former Pakistan Prime Minister Moeen Qureshi as a honorary vice chairman, provides wealth and money management services and advises on structuring Islamic products.

BMB Group’s Islamic division has helped structure more than $10 billion of Shariah-compliant products, including for European banks such as Societe Generale SA and Calyon, the investment-banking unit of Credit Agricole SA.
BMB plans to “beef up” its presence in Singapore and expand in China in 2009, Dar said. Rising oil wealth and government initiatives have turned Islamic banking and insurance into an industry with $1 trillion in assets globally.