Onshore 2 Offshore

Dow Jones Indexes and Citigroup Corporate and Investment Banking, both leading global index providers, this week announced that they intend to launch the Dow Jones Citigroup Sukuk Index, the first index that seeks to measure the performance of global bonds complying with Islamic investment guidelines.

The index, which is intended to launch April 2, was created primarily for use as the benchmark for investors seeking exposure to Shari’ah-compliant fixed-income investments. In addition, the index may serve to increase secondary market trading in this growing asset class and facilitate cross-market relative value trading among different asset classes.

The Dow Jones Citigroup Sukuk Index will include investment-grade, U.S. dollar-denominated Islamic bonds – also known as Sukuk – issued in the global market. At launch, the Index initially will track seven issues: Islamic Development Bank, Solidarity Trust Services Ltd, BMA International Sukuk, Qatar Global Sukuk, Malaysia Global Sukuk, Sarawak Sukuk and Dubai Global Sukuk.

To be included in the Index, an Islamic bond must comply with both Shari’ah law and the Bahrain-based Auditing & Accounting Organization of Islamic Financial Institutions (AAOIFI) standards for tradable Sukuk. Once a bond meets these criteria, Dow Jones Indexes and Citigroup will apply market-based criteria such as minimum maturity of one year, minimum issue size of US$250 million, and an explicit or implicit rating of at least BBB-/Baa3 by leading rating agencies.

“Sukuk, or Islamic fixed-income securities, have emerged over recent years as an increasingly important asset class. It can be expected that we will see the issue of a significant number of corporate, quasi-sovereign and sovereign Sukuk in the future, along with the development of a liquid and efficient Islamic capital market,” said Michael A. Petronella, president, Dow Jones Indexes/Ventures. “The co-operation with Citigroup to calculate and market the Dow Jones Citigroup Sukuk Index combines experience in the Islamic bond market with expertise in Islamic finance and indexing.”

Mohsin Nathani, chief executive officer, Citi Islamic Bank, said: “We are delighted to offer our global index and Sukuk capabilities to the Islamic Banking industry in partnership with Dow Jones Indexes. The launch of the Index is in line with our strategy to offer Islamic issuers and investors world-class and innovative products that contribute to expanding the frontiers of Islamic capital markets.”

The Dow Jones Citigroup Sukuk Index follows the same consistent, quantitative methodology as the Dow Jones Islamic Market Indexes, which are monitored to ensure their continued compliance with Shari`ah Law. Dow Jones Indexes launched the first Islamic indexes – the Dow Jones Islamic Market Index family – in 1999. Today, the Dow Jones Islamic Market Indexes are used by asset managers in 16 countries for a variety of financial products that screen out activities that are incompatible with Islamic investment guidelines. Excluded from the indexes are stocks of companies in these lines of business: alcohol, tobacco, pork-related products, financial services, defense/weapons, and entertainment. Also excluded are companies that fail any of three financial ratios.

Citigroup’s Islamics operation began in 1981 in London, and in 1996 Citigroup was the first international institution to set up a separately capitalized Islamic Bank, Citi Islamic Investment Bank (CIIB). CIIB’s core business has been the origination, structuring and distribution of Islamic banking transactions in structured trade finance, leasing, project financing, advisory services and Islamic securities.