LONDON, 31 October 2005 — The successful closure this month of the $100 million Al Musharaka Sukuk issued for the Kuwait-based Investment Dar Company is the latest sign of a maturing global Sukuk (Islamic bond) market, especially in moving away from the Sukuk Al-Ijara (leasing bond) which has hitherto dominated issuances.
The $100 million Investment Dar Sukuk is issued by a special purpose company (SPC) registered in Bahrain, the Investment Dar Sukuk Company (IDSC), which is wholly-owned by ABC Islamic Bank. IDSC has entered into a joint venture Musharaka agreement with Investment Dar Company, a Kuwaiti Islamic investment and finance company established in 1994 and which offers a wide-range of Islamic financial services especially consumer finance (especially vehicle leasing and home mortgages), real estate, fund management, investment, brokerage and trading.
IDSC will contribute 49 percent and Investment Dar 51 percent of the capital in-kind in the form of vehicles, real estate etc, which will be valued at their actual value. Profits will be distributed according to respective capital contributions. The proceeds of the issue will be used by IDSC to pay its contribution to the Musharaka. TID will manage the Musharaka under a separate agreement. Units of the Musharaka will be sold to Investment Dar KSC on a declining ownership basis until such time the entire Musharaka units are eventually owned by Investment Dar. The sale of the Musharaka units will be on the basis of value of units sold plus agreed return minus realized earned amount.
The four pioneering issuances involving the Musharaka structure include the $200 million 5-year Sukuk Al Musharaka issued by Dubai Metals & Commodities Company (DMCC) Authority, which was the first international Sukuk to be structured as a Musharaka and the first rated Dubai Sukuk issue (a senior unsecured A rating by Standard & Poor’s). The proceeds of the Sukuk is being used to build the Almas Tower, the AU Tower and the AG Tower at the DMCC Free Zone.
The second major issue is the 7-year non-amortizing $550 million Sukuk Al-Musharaka issued by Wings FZCO on behalf of Emirates Airlines in June 2005, which was the first Sukuk issued by an airline and the largest corporate Sukuk issued to date. The issue’s mandated lead manager was Dubai Islamic Bank, which also is the joint book runner with HSBC and Standard Chartered Bank. The proceeds of the issue, which is listed on the Luxembourg Stock Exchange, will be used to finance the new Emirates Engineering Center and headquarters building in Dubai. The issue, which is priced as 0.75 percent over LIBOR with 12-months periodic coupon payments, was well received by the market and oversubscribed to the tune of $824 million.
The third major issuance was in July 2005, when CIMB, the Malaysian investment bank, lead arranged with others “the world’s first rated Islamic Residential Mortgage-backed Securitization transaction” based on the issuance of a Musharaka-based Sukuk. The RM2.05 billion 6-tranche quasi-sovereign Sukuk issue of tenors ranging from 3 years to 15 years, was launched by the Malaysian Mortgage Corporation, Cagamas MBS Berhad.
The originator of the issue is the Malaysian government which through its Housing Loans division appointed Cagamas in April 2004 to securitize the entire pool of the government’s Housing Loans and Home Financing mainly given to civil servants and pensioners. The mandate is not only for the existing portfolio but extends to all future Malaysian government Housing Loans and Home Financing.
The fourth Musharaka Sukuk involved assets in the UK involving “an innovative 143 million pounds Islamic property finance deal on a landmark building”. UK law firm Taylor Wessing advised a consortium including Bahrain-based Taib Bank and Hong Kong-Based Dominion Asset Management (represented in the United Kingdom by Pelham Associates) on the purchase of the prestigious “Sanctuary Buildings” property in London SW1. The equity for the deal, which Taylor Wessing claims to be the first of its kind, was raised through two Sukuk issues and the senior debt, provided by UK High Street bank, Lloyds TSB, invested using an innovative Musharaka structure.
