2.8
Investment Banking
Richard T de Belder, Denton Wilde Sapte LLP
Introduction
The term “investment banking” does not have a precise description. In
general terms, it can be said to encompass the activities of investment banks
and finance institutionsin the following areas:
- Assisting companies and governments raising finance through the issue
and sale of securities in the capital markets (equity and debt);
- Providing advisory services in areas such as mergers and acquisitions
and in relation to the issue and placement of stocks and securities;
- Derivatives, fixed income, foreign exchange and commodity and equity
securities; and
- Acting as agents or underwriters in the issue of securities.
As a general principle, Islamic financial institutions can provide all of the
usual services offered by conventional investment banks, provided that the
services and productsare Shari’a-compliant.
The activities and services considered below are not intended to be
exhaustive in terms of the range of services and activities that an Islamic
investment bank can offer.
Capital markets
Islamic financial institutions are only able to be involved in capital market
issues that are in compliance with the Shari’a. Accordingly, they are not
able to be involved in conventional bonds, which merely represent a debt
obligation of the issuer.
The Islamic equivalent of conventional bonds aresukuk. However, it is
important to recognize that there are significant differences.Sukukare
supposed to be asset based and the investors must own a pool of assets
supporting the issue (in other words the rights and the obligations relating
to those assets) and not just the right to a debt or a revenue stream divorced
from ownership of the actual assets themselves.
Typically, the structure will involve a special purpose company formed in
a jurisdiction such as the Cayman Islands, which will be owned by a widows
