The management of the International Islamic Liquidity Management Corporation (IILM) is meeting this week to try to minimise delays to the issue of its first sukuk, a source close to the programme said.

The official said the meeting would discuss regulatory treatment of the sukuk, the last remaining hurdle before issuance.

"With regulatory challenges this has been delayed, but definitely we will issue this year," the source said. "They are doing their workshop this week and hopefully with that I think the issuance will go ahead."

The Malaysia-based IILM, backed by central banks from the Middle East and Asia, said in April that it planned to issue as much as $500 million of sukuk in the second quarter of this year, with more issues to follow later.

It aims to address a shortage of highly liquid, investment-grade financial instruments which Islamic banks around the world can use to help them manage their short-term funding needs.

"It was supposed to be this month but because of the challenges of the asset structure...there were some fine issues regarding the regulatory treatment," the source said without elaborating on the problems.

He also said the IILM now planned to issue on a quarterly basis.

"There was a change in the structure. Initially it's going to be $500 million short-term, but the sukuk is going to be $2 billion...structured in tranches of short-term papers of $500 million each."

The IILM has not responded to requests for comment on its sukuk plans.

IILM shareholders are the central banks and monetary agencies of Indonesia, Luxembourg, Kuwait, Malaysia, Mauritius, Nigeria, Qatar, Turkey and the UAE, as well as the Islamic Development Bank.

The dollar-denominated sukuk programme, rated A-1 by S&P, is to be backed by sovereign assets from member countries.-Reuters