The Guardian, UK:

“To complicate matters further, the debts were taken out as Islamic bonds, known as sukuks, and the rules about what happens if the borrower fails to pay them back are hazy.”

My Comment

Add to this the earlier announcement that Abu Dhabi would treat the debts selectively, and you begin to wonder. If the selectivity is based on the degree of interconnection with the government, that would be one thing. But if the selectivity is based on discriminating between domestic and foreign creditors, Islamic and non Islamic, I suspect this would cause problems.

Now a bit of information on the sukuk.

Islamic banking has five pillars, as noted in this Times piece :

1. a ban on interest

2. a ban on speculation

3. a ban on haram (forbidden) investments, such as pork or gambling

4. the requirement of partnership or sharing of profit and loss

5. the requirement of asset backing.

What´s interesting is that while several Islamic funds have defaulted, the sukuk itself has never been tested in court, giving rise to uncertainty about how creditors would be treated in an insolvency….how they would be ranked in preference…and  whether they would be competing against each other rather than for the underlying assets…..