Paul McNamara looks back at the month in the Islamic capital markets
The equity investment Sukuk from Kuwait's Al Ahlia Real Estate Projects Company (AREPCO) was probably the highlight of the month as the roadshow wound its way across the GCC. Bahrain's mighty Liquidity Management Centre (LMC) was the lead arranger on the deal and Emirates Islamic Bank (EIB) was both co-arranger and senior lead manager. The Sukuk has a tenor of two years that pays a profit rate of 8 per cent twice yearly.
Proceeds from the Sukuk will be used to acquire up to 49 per cent of the outstanding equity in AREPCO at a US dollar equivalent of KD 0.325 fils per share. AREPCO is currently a wholly owned subsidiary of Al Ahlia Holding Company (AHC) which is listed on the Kuwaiti stock exchange. Subsequent to the successful Sukuk closing AHC will hold a 51 per cent ownership of AREPCO and the company will remain the real estate arm of AHC. It is likely that the Sukuk will be listed in Bahrain. This is the second Sukuk that LMC has arranged for AREPCO.
Proving that it has many strings to its bow, LMC featured in the signing ceremony for the much talked about Berber Cement Sukuk where EIB also had a showing. LMC was the lead arranger and EIB the co-arranger. Alpen Capital was the financial adviser for the deal. The $130 million Sukuk proceeds, along with $70 million equity contribution by Berber Cement Company's shareholders, will be used to complete the development and construction of the $200 million Berber Cement project over the next 18 months.
The Sukuk has been structured by LMC as the first Musharaka structure based on an al-Wakala bel Istithmar contract between the investment agent, Berber Cement Company, acting through its agent, National Cement Company of Dubai, and the Sukukholders acting through their agent, Berber Sukuk Company of Bahrain. The Sukuk tenor is seven years with an average life of 4.75 years, and paying semi-annual fixed returns.
It has been a busy month for EIB which also managed to conclude a $40 million Ijarah facility grant to Emirates Healthcare Development Company. The facility will be used to provide better medical facilities in the UAE. LMC has also been linked to the second Sukuk from Bahrain Financial Harbour (BFH). The proceeds from the issue will be used to finance part of the $1.5 billion BFH, a financial city spread over 380,000 square metres.
Readers of Islamic Business & Finance magazine's sister title, Banker Middle East, will remember reading about the Caravan Sukuk that came to market some years ago. This month saw the announcement of Caravan II, or Caravan II Saudi Auto Securitisation Sukuk to give it its full name. Eric Meyer's Shariah Capital has been retained as Shari'ah advisor by Al-Tala'a International Transportation Company (Hanco) of Jeddah, Saudi Arabia for this issue. As before Bemo Securitisation (BSEC) is the arranging, structuring and placement agent bank for the Sukuk.
Caravan II is a $64 million issue and the second for Hanco and its rent-a-car and limousine operations in Saudi Arabia. Former head of BSEC, Ibrahim Mardam-Bey's new outfit, Siraj Capital, will also play an important role in the transaction.
Eric Meyer, chairman and chief executive of Shariah Capital said, "Winning the Shari'ah advisory mandate for the Hanco Sukuk was a significant accomplishment for us. Although Shariah Capital made its name for our work developing Shari'ah compliant screens and solutions for hedge funds, our Shari'ah structuring and advisory business is a key component of our business model. We aggressively look for Sukuk opportunities with established names like BSEC and Hanco and premier institutions like Siraj Capital and the Al Sulaiman Group."
Ibrahim Mardam-Bey said, "BSEC's experience with Sheikh Yusuf DeLorenzo and Shariah Capital has been a great example of teamwork and execution. The Caravan series of Sukuk will continue to set the standard in auto fleet securitisation Sukuk."
Also of interest this month Moody's assigned an A1 rating to the proposed Global Medium Term Notes (GMTN) programme to be issued by Jebel Ali Free Zone (JAFZ). The outlook is stable. Moody's has also assigned an A1 rating to the proposed Sukuk al-Musharaka transaction to be issued by JAFZ Sukuk Limited (JSL). The outlook is also stable.
According to the terms of the Sukuk JAFZ, as the ultimate obligor, will issue the securities through JSL. When the transaction completes, the certificate holders will pay the proceeds of the transaction to JSL, which will form the capital of a trust known as the Musharaka, pursuant to the Musharaka Agreement. The trust will contain trust assets, which include the capital of the trust as well as certain rights over land and buildings. The agreement stipulates that JAFZ will invest the capital in accordance with a business plan that provides that investments will be Shari'ah compliant. Certificate holders will earn a pre-determined profit percentage from their participation in the Musharaka assets. Where the return is higher than determined, the excess profit is retained by JAFZ, not the issuer. Where the return is lower, JAFZ attains an obligation to ensure that any shortfall is met.
The issue, which has also been rated by S&P at A+, will also be listed on DIFX and in London.
Doha Bank also surprised the audience at the World Islamic Infrastructure Conference in Doha when bank chief executive Seetharaman announced a $1 billion Sukuk to be used for investments in sustainable investments and green technology in particular. The issue will be lead managed by the bank's own Islamic subsidiary, Doha Islamic. The issue should be closed by September of next year.
On the same day, over in Saudi Arabia, Zamil Group Holding Company announced a $1 billion Sukuk. It should be a seven year issue and will appear sometime next year. No further details are available.
In Kuwait, Kuwait Resorts Company plans to sell Sukuk worth $50 million to finance both outstanding loans and future expansions. The Sukuk will be issued in cooperation with Kuwait Financial Centre (Markaz).
The Central Bank of Bahrain (CBB), meanwhile, has issued its usual short term Salam Sukuk which this month was oversubscribed by 383 per cent. This, the 21st issue in the series, should pay a profit rate equal to 5.1 per cent and was issued in local currency for the equivalent of $16 million. This issue was preceded by the CBB's short term Ijarah Sukuk, again in local currency but this time for the equivalent of $13 million. The profit rate on this six month issue is the equivalent to 5.15 per cent. The issue was oversubscribed by 580 per cent.
Also in the short term Ijarah sovereign issue game is the government of Brunei which has issued another 91 day Sukuk paying a profit rate of 2.275 per cent. The issue size was $34 million.
In neighbouring Malaysia, Standard Chartered Bank and CIMB Islamic have lead managed a Sukuk issue for Tesco Stores Malaysia. The issue size was $207 million although it was issued in local currency for MR 700 million and the Musharaka programme has a tenor of seven years. Proceeds from the issues will be used to refinance bank borrowings and for general corporate purposes. The profit rate payable on these issues will be 4.15 per cent for three year bonds and 4.35 per cent on five year bonds.
It was rather a quiet month in Malaysia with the only other major issue being the DESB Marine Services Islamic Medium Term Notes programme that came to market via CIMB Investment Bank. The notes have a tenor of seven years and were issued in local currency of MR 120 million or $36 million.
Banker Middle East 2007
