The sukuk issue forms part of the government's strategy of diversifying its borrowing streams and is aimed particularly at providing a new asset for local Islamic investors. The funds raised will not be used for refinancing existing debt or for general funding purposes, but will instead contribute specifically to the financing of the construction of the Hamad Medical City. The $450 million complex will initially be used as the athletes village for the 2006 Asian games after which it will be retrofitted (MEED 3:1:03).

'The Qatari government is cash-rich and doesn't really need the money,' says an HSBC official. 'The focus is on developing a benchmark for Islamic investors.' The issue will be backed by government-owned land. US rating agency Standard & Poor's (S&P)has assigned the sukuk an A+ rating.

Qatar staged two sovereign bond issues in 1999 and 2002, worth $1,000 million and $1,400 million respectively (MEED 16:8:02). The sovereign bonds were taken up largely by US institutional investors.

Doha is not the first regional government to issue a sukuk. Bahrain has issued a number of the instruments, the most recent being a $250 million, five-year sukuk issued in May (MEED 4:7:03).