Goldman Sachs Group Inc. (GS:US) will probably succeed in its latest attempt to sell sukuk as investors clamor for Islamic bonds, according to the manager of the Middle East and Africa’s best performing sukuk fund.

Buyers “have to look at different opportunities” with demand outpacing supply, according to Abdul Kadir Hussain, who oversees about $700 million as the chief executive officer of Mashreq Capital DIFC Ltd. Goldman Sachs will meet investors in the region this week before potentially selling a dollar-denominated, benchmark-sized issue through its unit JANY Sukuk Co., people with knowledge of the deal said last week.

The New York-based lender’s first foray into the Islamic capital markets three years ago ended without a sale amid criticism from scholars about the structure of its sukuk program and the use of funds raised. This time the planned security will be a Sukuk al Wakala, where one party entrusts another to act on its behalf.

“We’ll definitely look at it,” Hussain said in a phone interview from Dubai yesterday. “The structure was an issue” last time and there were “a lot of other issuers in the market,” he said. “Now the market is a lot tighter and there is more capital.”

Investors bid for 10-times the 200 million pounds ($327 million) that the U.K. sold in its debut offering in June.

Best Funds

Mashreq’s Capital DA01 and Al-Islami Income Fund are the two best performing Islamic fixed-income funds in the Middle East and Africa this year among 19 tracked by Bloomberg. They’ve returned 7.7 percent and 6 percent respectively, compared with 5.6 percent for third placed Al Hilal Bank’s Global Sukuk Fund, the data show.

“Like the U.K. issue, the Goldman Sachs deal is a broadening of the sukuk market issuer base, and like that issue this deal isn’t about the pricing or the valuation,” Hussain said. “It’s about the signal that it sends.”

Average global sukuk yields declined 64 basis points this year to 2.78 percent last week, according to an index from Deutsche Bank AG. That compares with a 61 basis-point decline to 5.08 percent in average yields for emerging-market corporate debt tracked by JPMorgan Chase & Co. indexes.

Remaining Shy

Goldman Sachs established a $2 billion program in 2011 based on a so-called commodity murabaha structure, or a cost plus mark-up transaction. The program, blessed by eight of the world’s top Islamic scholars, became entangled in a debate on whether it met Shariah-compliant guidelines because it didn’t ensure debt was traded at par, and it didn’t clarify how it planned to use the funds raised.

This time Goldman Sachs along with Abu Dhabi Islamic Bank PJSC, National Bank of Abu Dhabi PJSC, Emirates NBD Capital Ltd. and NCB Capital will manage the new offering, the people said. It plans to meet investors in the Middle East for two days starting Sept. 10.

“If the investors conclude that Goldman Sachs is going to take this money into their books and use it to finance their conventional activities, then the investors are going to remain a little bit shy,” Harris Irfan, managing director at European Islamic Investment Bank, said by phone from London yesterday, noting the new structure has solved the par-value obstacle, but not issues with transparency. “I do hope they will be more transparent on the flow of money,” he said.

Main Critic

Still, the presence of ADIB on the deal is “very positive” as it was one of the main critics of Goldman Sachs’ earlier plans, Irfan said. The Shariah boards of ADIB and EIIB share one scholar, according to the lenders’ websites. ADIB’s outsourced public relations company didn’t answer e-mailed questions yesterday, and Sophie Ramsay, spokeswoman for Goldman Sachs in London, declined to comment by telephone.

About $72 billion of sukuk have been sold globally in the year through yesterday, compared with $80 billion in the same period in 2013, according to data compiled by Bloomberg.

“Islamic finance is a growing market both in terms of issuers and investors,” Hussain said. “Goldman Sachs clearly has decided that they want to play a role in this market both as an issuer and I am sure also as an arranger and adviser.”

*This article was originally published on Bloomberg Businessweek on 8 September 2014. Read the original article here.