Goldman Sachs has registered a $2 billion Islamic bond programme, providing further evidence of conventional borrowers looking to sharia-complaint funding sources as market volatility makes raising debt finance more difficult.

The investment bank has set up the Cayman Islands-registered Global Sukuk Company Limited special purpose vehicle to issue murabaha-structured sukuk, according to a base prospectus filed with the Irish Stock Exchange.

Murabaha is a cost-plus-profit arrangement which complies with Islamic law.

"In the current environment it is unsurprising to see borrowers turning to markets in which they believe liquidity is still available," Chavan Bhogaita, head of markets strategy unit at National Bank of Abu Dhabi, said.

"(Goldman Sachs' decision to tap sukuk) is simply a reflection of the very challenging environment in which we currently find ourselves, and the relative strength of the sukuk market at present given that we are seeing solid demand for assets in this space."     

The Islamic bond, which will be listed on the Irish bourse, could be denominated in UAE dirhams, US dollars, Saudi riyals or Singapore dollars but a time frame for issuance was not provided.   

The sukuk market has been largely resilient despite a global financial downturn that has dried up bond issuances. HSBC's Middle East unit became the first Western bank to issue a sukuk in May. The $500 million Islamic bond priced at 155 basis points above midswaps, carrying a maturity of five years.

Goldman does not have an established presence in the Islamic banking sector, unlike HSBC through its HSBC Amanah brand.

"Islamic investors are generally not comfortable providing funding for conventional banks unless it has a very large and dedicated Islamic business," one Islamic banker said.

"You'll find there are large Islamic investors that aren't comfortable with it and tell us that they don't want to see their money being used in a conventional business."     

Dar Al Istithmar Limited, which has offices in the UK and Dubai, is the sharia adviser of the programme. - Reuters