LONDON, 22 January 2007 — Two landmark financing facilities closed here last week based on the Murabaha (cost-plus financing) and Musharaka (equity participation) contracts, another sign of the continuing importance of London as one of the premier international centers for structuring and arranging Islamic finance.
UK High Street banking giant Lloyds TSB’s corporate markets division has provided a Murabaha facility “in excess of 100 million pounds” to refinance the purchase of the Grosvenor House Apartments Ltd. by Park Lane Properties Ltd., which is co-owned by Kuwait-based ADEEM Investment Company (ADEEM) and The Investment Dar (TID).
Lloyds TSB said this is the “second largest Islamic finance deal in the UK” to date and is structured in accordance with Shariah principles using a series of sequential Murabaha transactions.
Rob Milne, property relationship director at Lloyds TSB Corporate Markets, said “this is a landmark Murabaha deal that required a specially tailored and individually structured finance package. We were able to bring together our commercial property experience, our track record in Islamic finance and our financial markets expertise to ensure we arranged the best deal for ADEEM.” Managing Director and Chief Executive Officer Mustafa Al-Saleh of ADEEM, which has assets under management of over $1 billion, underlined the importance of securing a significant Islamic financing deal with Lloyds TSB to redevelop one of London’s most historic buildings. Working in strategic partnership with SPARC Group, the UK-based specialist Project Development Managers and Lloyds TSB Corporate Markets, Park Lane Properties is planning to “transform the Grosvenor House Apartment complex into a super deluxe apart-hotel.”
Lloyds TSB is one of the frontrunners in providing Islamic consumer finance products in the UK. Islamic mortgages under the Lloyds TSB Alburaq brand are now available at all branches of the bank throughout the UK. The Alburaq mortgage is based on the Diminishing Musharaka contract which combines co-ownership with a leasing (rental) component, but allows early redemption of the mortgage facility without any penalties. Lloyds TSB was also one of the first to pioneer a range of Islamic current and savings accounts.
In the second facility, the London branch of German bank, WestLB AG has been mandated to arrange a $100 million syndicated Musharaka facility for Emirates Trading Agency LLC, the flagship business of Dubai’s ETA-Ascon Group. The main shareholders of the Group is Al-Ghurai Investment Company of Dubai. Emirates Trading Agency has branches and associated offices in 26 countries in the Middle East and Southeast Asia. The company specializes in strategic investments.
This latest Musharaka facility has a final maturity of 5 years and includes a put option at the end of third year. The facility is priced at a profit margin of 110 basis points for years 1 to 3; and 135 basis points for years 4-5. The facility went out for general syndication last Friday and WestLb is confident that it would get a good response.
WestLB, through its London branch, has been very active in the Islamic finance market in the last few months. In December 2006, it lead arranged together with Raiffeisen Zentralbank Osterreich Aktiengesellschaft (RZA) bank of Austria, a revolving $300 million Murabaha facility for Bahrain-based Gulf Finance House (GFH), which was subscribed to by over 30 participating banks. The facility allows GFH to draw down the facility over three years as and when the funds are needed, primarily for general corporate purposes and to fund the expansion of the bank’s activities into European Asset Management, more private equity and into new ventures in Malaysia, Singapore, India, Jordan and China. David Testa, executive director of WestLB AG, described the facility as “spectacularly successful” and believes there is huge potential for Islamic finance and expects more substantive deals to come to the market in 2007.
Robert Denks, head of financial institutions at RZA, stressed that “we have deep respect for the Islamic financial institutions and the way in which they conduct their business in the interests of their stakeholders and their local economies. We are confident that the involvement of conventional banks in Islamic banking would lead to further growth of the industry and to higher ethical and compliance standards.”
In August 2006, the London branch of WestLB AG together with Bahrain-based Unicorn Investment Bank, lead arranged a $150 million 5-year Musharaka Trust Sukuk, issued on behalf of Kuwait’s TID, which has a market capitalization of about $2.5 billion. The Sukuk issued through TID Global Sukuk I Limited, a Cayman Islands-registered special purpose vehicle (SPV), a single-purpose company with the sole task of issuing the Sukuk, closed in September 2006, and was heavily oversubscribed, indicating the huge appetite for Islamic commercial papers from both Islamic and conventional investors.
