MIDEAST DEBT-Covered sukuk may meet demand for asset-backed structures

A new type of sukuk, introduced by Gatehouse Bank, could make inroads in the market by offering greater security to investors through a structure similar to conventional covered bonds. The Gatehouse sukuk incorporates a purchase undertaking by the bank that gives primary security to noteholders, while in case of default they have secondary security on the property. It is based on an ijara (lease) contract which is commonly used in Islamic finance. Moreover, by adding the second layer of security, the Gatehouse sukuk effectively became asset-backed and not only asset-based. The Gatehouse sukuk pays a 3 percent annual distribution and offers quarterly redemption options.