`Korea needs incentive for investment in sukuk`

The Korean government should offer incentives to Korean investors buying Islamic financial products, known as sukuk, to help attract more money from the Middle East, according to the head of Doha Bank`s Seoul unit.

"While the Korean government is scrambling to attract Islamic funds by discussing tax benefits to investment in some types of Islamic bonds sold by Korean issuers, incentives for Korean sukuk investors are also very much in need," Kwon Kwan-soon, who heads the Doha Bank Seoul Representative Office, said in a telephone interview on Monday. Doha Bank is Qatar`s third-biggest lender by assets.



Korea has the potential to become an Islamic financing hub in the Asian region, surpassing China and Japan, said Kwon. Global sales of Islamic bonds plunged to $13.9 billion last year amid the credit crisis after soaring to a record $31 billion in 2007, according to data compiled by Bloomberg.

Indonesia`s first sovereign dollar sukuk sale in April drew seven times the securities on offer, the chief debt management official said at the time. Hong Kong Chief Executive Donald Tsang has pledged to develop Islamic finance in the Chinese city. Muslim Shariah law forbids interest payments, so sukuk are securities paying a profit distribution to investors, rather than interest.

The Korean government submitted a tax proposal to the National Assembly to exempt companies from paying tax on distributions from Ijara and Murabaha, the most common types of sukuk, to help companies sell the notes, the Finance Ministry said on Sept. 29.

Doha Bank formed a representative office late last year and plans to have an office within three years, said Kwon.

"Korean builders doing business in the Arab states should reinvest profits, for example, in Islamic financial products to build a long-term and solid relationship with the countries, which will in turn help attract oil money to Korea, and the investment will advance Korea`s understanding of such products," Kwon said. "To do so, the government incentives should be given to both sides."

Four Korean builders including GS Engineering & Construction Corp. were among the top five to win state plant projects in Kuwait and Saudi Arabia while two Korean developers ranked third and fourth in the United Arab Emirates from 2007 to 2009, according to data compiled by the Korea Plant Industries Association. (Bloomberg)