The article is not yet up on its own, so no link yet, but in the most recent issue of The Islamic Globe has a good article on the new Nakheel sukuk, which was issued last Thursday to trade creditors of the troubled real estate developer. The sukuk was part of a deal which included 40% of trade creditor claims paid in cash and the remaining 60% in a tradeable sukuk with a 10% coupon.

As The Islamic Globe's Paul McNamara writes, "Almost as soon as the Sukuk were issued, they were being sold by trade creditors hungry for cash and happy to get 84 cents on the dollar in spite of the hefty 10% profit rate the Sukuk paid to holders". The article points out that using a sukuk--rather than a conventional bond--added costs, but shows "that Islamic finance is moving out of the realm of specialist niche and into the mainstream of finance". I am not entirely convinced that this is the case, although the Nakheel sukuk does add another high-yielding sukuk and is reported to be trading like one, with a yield north of 15%.

Issuing a sukuk to pay claims to trade creditors--by a company with a limited ability to pay out cash--is probably a smart move. They get the publicity from issuing a sukuk, they give trade creditors a way to get some recovery (even if it is nearly 2 years after the problems started) and provides distressed debt investors with an opportunity to bid for around $1 billion in high-yielding sukuk.

Whether the sukuk works out for investors is a different story and we have 5 years to speculate about the possible outcomes, but in the meanwhile, we can watch at least a partial success for Nakheel's trade creditors as they recover some of what they are owed by the company.