Jordan- Rajhi announces groundbreaking sukuk issuance 

(MENAFN - Jordan Times) Al Rajhi Cement Company on Tuesday became the first company in Jordan to tap Islamic sukuk to finance its operations in the Kingdom.

Last year, the Cabinet approved the issuance of Islamic bonds (sukuk) for Al Rajhi group at its request for financing an expansion of its investment base in Jordan.

However, the Cabinet demanded that Al Rajhi coordinate with legal bodies in the Kingdom, including the iftaa department, and should buy the sukuk from Jordanian banks.

Sukuk (plural of sakk) are Islamic financial certificates, similar to bonds used in conventional finance, that comply with Sharia, or Islamic law.

As the traditional interest paying bond structure is not permissible in Sharia, the issuer of sukuk sells an investor group the certificate, who then rent them back to the issuer for a predetermined rental fee. The issuer also makes a contractual promise to buy back the bonds at a future date at par value, according to web-based finance sites.

The JD85 million, seven-year sukuk was issued by a consortium of seven local banks led by the Capital Bank and included Cairo Amman Bank, Jordan Bank, Islamic International Arab Bank, Union Bank, Jordan Kuwait Bank and the Arab Islamic Bank.

The announcement of the sukuk issuance, the first in the Kingdom's history, was made during the signing ceremony that was attended by heads and directors of the participating financial institutions in the issuance.

The issuance was managed by Capital Investments, the investment arm of Capital Bank.

Bassem Salem, chairman of Capital Bank, said the move shows confidence in Jordan's economy and will attract investors to the country, adding that Islamic sukuk are associated with less risk than financing tools in conventional banking.

Omar Rajhi, chairman of Al Rajhi Cement Company, which started production in 2010, highlighted the government's support to facilitate the issuance of the Islamic bonds, remarking that Islamic finance proved its soundness during difficult economic conditions, particularly during the global financial crisis.

"It is worth considering carrying out investments in Jordan not only in the cement sector but in several various fields due to the attractive investment environment and incentives," he added.

Sukuk have emerged over the past eight years as an increasingly important asset class in a bid to enable organisations to raise capital in a Sharia-compliant fashion, whilst at the same time expanding the investor base and offering investment opportunities to new groups, according to Islamic websites.

By Omar Obeidat