Luxembourg sukuk plan back on track as lawmakers revise bill

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Luxembourg's plan to issue an Islamic bond is back on track after a three month hiatus, with the government presenting a revised bill to the Council of State, a body which advises the national legislature. AAA-rated Luxembourg is hoping to match Britain in issuing a sovereign sukuk, as both countries look to boost their Islamic finance credentials to attract more business from cash-rich Gulf countries. The proposed bill was discussed by the finance commission on Thursday and will now be sent to the Council of State for review, said Guy Arendt, a member of Luxembourg's legislature, the Chamber of Deputies.

"After we receive the second opinion of the CE (Council of State), the final report will be voted," Arendt told Reuters, adding there was still no time frame for such a vote.

The proposal would allow the government to securitise three government assets to back a sukuk worth 200 million euros ($275 million). In March, the Council of State scrutinised the bill raising issues including the economic rationale for issuing a sukuk and a need for greater clarity on its tax treatment.

The Council requested a "convincing explanation" for why sukuk financing was more appropriate than a conventional bond, citing the additional costs of establishing a sharia board to oversee the transaction's adherence to Islamic law. Last week, Britain mandated five banks to arrange a 200 million pound ($336 million) sukuk which could be issued in coming weeks, subject to market conditions.