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Goldman issued 50-year unsecured bond of $500M and plans $2 billion Sukuk issue

After its historical quarterly loss, the American bank is turning to Islamic finance in order to raise funds. It also carried out a remarkable feat by issuing a 50-year senior unsecured debt of 500 million USD

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Goldman Sachs has set up a 2 billion USD Islamic bond programme which provided additional proof of the difficulties faced by borrowers looking for classic financing in the presently highly volatile markets. The sukuk market has shown great resistance in spite of a financial crisis that dried up bond issuance.

In order to carry out this operation, the investment bank created a Special Purpose Vehicle in the Cayman Islands called Global Sukuk Company Limited. The latter will issue a structured sukuk of the Murabaha type according to a prospectus filed at the Irish exchange.

“Unlike classic bond, a sukuk is backed by a tangible asset. It provides the holder with an ownership right on an underlying asset which has been identified prior to the emission. The sukuk holders benefit from this asset on the prorata basis of their investment. Consequently, their return is based on the performance of the underlying. It can be constant if the revenue from the underlying is constant as well. This is the case regarding underlying assets which are part of the Murabaha category” explains Kaouther Jouaber, lecturer at Paris Dauphine University and co-director of the Islamic Finance programme.

The Islamic bonds which will be listed on the Irish Exchange will be denominated in United Arab Emirate dirhams, in American dollars, in Saudi riyals and in Singaporean dollars. Sources close to Goldman Sachs have indicated that the percentage returns would range between 1.2% and 1.5% depending on the currency involved.

The leading American investment bank has also carried out a remarkable feat by issuing a 50-year senior unsecured debt of 500 million USD,well above the initial $250 million expected. The yield to maturity came out at 6.5%. In October 2010, Goldman Sachs issued 50-year debt of 1.3 billion dollars, callable in five years with a yield of 6.125%. The bank does not have any issuer call option on the newly issued bond.

Next Finance , October 2011

Article also available in : English EN | français FR

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