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Flexible Cayman paves way for more Islamic business

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The new Arabic language facility introduced by the General Registry of the Cayman Islands government will trigger more valuable business from the Islamic region, according to Gray Smith, a

The new Arabic language facility introduced by the General Registry of the Cayman Islands government will trigger more valuable business from the Islamic region, according to Gray Smith, a leading funds lawyer with Ogier who practices Cayman law from the international firm’s office in London.

According to Smith, the move demonstrates Cayman’s recognition of the Middle East as an important area for new business. ‘We can now use both Arabic and English names on all documents when setting up a company and can also open bank accounts in both names,’ he says.

‘Previously we had to use only an English translation. The same ethos was applied to Chinese characters a few years ago and that was of huge benefit in Hong Kong, where both English and Chinese are used widely.’

Smith says Cayman law particularly lends itself to Islamic finance structures because of the flexibility that has helped the islands to become a centre for sukuks – bond issues that are Shari’a compliant, prohibit interest payments and require tangible assets or equity as collateral.

‘It’s straightforward, the processes are relatively easy and it’s very flexible, allowing for the drafting of articles and agreements that comply with the restrictions of Islamic law,’ Smith says. ‘Cayman is also a lighter regulation jurisdiction and a widely recognised international finance centre which suits Middle East companies looking for investments.’

He expects to see further inflows of money into the Middle East as clients increasingly market their funds outside the region. ‘The inflow to Middle East funds is a new growth area,’ Smith says.

‘Furthermore, the establishment of the Dubai International Financial Centre will enable the listing of Cayman funds on the Dubai Stock Exchange and dual listing, in Cayman and the Middle East or the Middle East and the UK.’

Ogier is involved in significant investment fund work in the Middle East, with a range of underlying assets, including real estate and private equity, as well as securitisation work. ‘It’s one of the big growth areas for us at the moment,’ Smith says.

The Arabic language facility introduced by the General Registry, which enables registration and other certificates to be issued bearing the company name in both Arabic and English, follows a recent roundtable on Islamic finance convened by the Cayman government’s Portfolio of Finance & Economics.

Representatives from the government, the financial industry regulator, the Cayman Islands Monetary Authority, and private sector professionals specialising in capital markets products examined ways in which Cayman could specifically cater to the Islamic market.

‘This customisation of our registry service for a market of growing importance to us is an indication of our commitment to innovation and quality, and we look forward to catering to Islamic finance structures for the long term,’ says Deborah Drummond, the government’s deputy financial secretary for financial services, noting the role played by the Cayman office of the Saad Group, an international group based in Saudi Arabia.

Adds Charles Quin, president of the Cayman Islands Law Society: ‘The ability of the Cayman Islands to quickly implement service enhancements such as the Arabic language facility is a clear indicator of the jurisdiction’s swiftness in responding to commercial opportunities, such as the growth of Islamic finance. Enhancements such as these also help contribute to the world-class quality of financial services providers that exist in Cayman.’

The Cayman Islands is fast becoming the leading offshore jurisdiction for Islamic finance structures, which have a current estimated market size of between USD250bn and USD500bn.

Sukuks developed and marketed in the Middle East predominantly use Cayman-domiciled issuers because of the islands’ established legal regime, competitive costs, efficient turnaround and professional infrastructure, as well as the advantage of the centre’s strong reputation in global finance in securing the desired bond listings and ratings.

A ground-breaking USD600m Cayman-structured sukuk was closed in February for Dar Al Arkan Real Estate, a leading residential real estate developer in Saudi Arabia. The landmark three-year issue, the first sukuk issued by a Saudi corporate in the international capital markets, was heavily subscribed, with many western investors, particularly hedge funds, attracted to the diversification and strong asset backing provided by a rated Islamic bond.

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