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UK signals major push into Islamic finance

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A UK Export Finance publicity banner

Britain signalled a major push into Islamic finance, taking on existing operators in Malaysia, the Middle East and Luxembourg, with a US $913 million export-credit guarantee for the sale of Sharia-compliant bonds for the United Arab Emirates’ airline Emirates.

British Minister of State for Foreign and Commonwealth Affairs Hugo Swire said Britain planned to incorporate similar Islamic-finance linked export guarantee into its “standard product range,” Bloomberg reported.

The UK guarantee is the latest indicator of Britain’s commitment to developing a major role in Islamic finance, after high-level talks in London last year that sought to emphasise the country’s quest for pre-eminence in a field dominated by Asian operators and to a minor degree Luxembourg.

Britain already has five fully Sharia-compliant banks and more than 20 other institutions offering Islamic products, most of them based in the City of London.

About $1.8 trillion in assets are known to be held by Islamic financial institutions worldwide. It’s not clear if recent losses in Middle East sovereign funds have impacted on the Islamic finance markets.

Law firm Norton Rose Fulbright said it advised Emirates on the sukuk which it said was utilised for pre-funded aircraft financing for Emirates.

A cross border team from global legal practice Norton Rose Fulbright advised Emirates on the sukuk, marking a world first for utilising a UK Export Finance (UKEF) backed sukuk for an aircraft financing, the first time that a sukuk has been used to pre-fund the acquisition of aircraft and the first ever sukuk financing for A380 aircraft, said the law firm. The proceeds from the issuance of the certificates will be used to fund the acquisition of four Airbus A380-800 aircraft, which are expected to be delivered in April, May, June and July 2015. The aircraft will be leased to and operated by Emirates.

The US $913,026,000 certificates due 2025 were issued by Khadrawy Limited and have the benefit of a guarantee by the British Secretary of State acting by the Export Credits Guarantee Department of the UK Government (currently operating as UK Export Finance), Norton Rose Fulbright said.

The Certificates, which have a tenor of 10 years, are to be issued pursuant to Regulation S and Rule 144A under the United States Securities Act of 1933. They were priced on 25 March 2015 at a profit rate of 2.471% (90 basis points over the interpolated mid swap rate). The Certificates saw strong demand from global investors, attracting orders exceeding US $3.2 billion and recording an oversubscription of 3.6 times.

Citigroup Global Markets Limited, HSBC Bank plc, J.P. Morgan Securities plc and National Bank of Abu Dhabi P.J.S.C. acted as Joint Structuring Agents and Joint Lead Managers; Abu Dhabi Islamic Bank P.J.S.C., Dubai Islamic Bank, Emirates NBD Capital Limited and Standard Chartered Bank acted as Joint Lead Managers and NCB Capital Company acted as Co-Lead Manager.

Mohammed Paracha, partner and Head of Islamic finance, Middle East and Africa at Norton Rose Fulbright in Dubai called it “a cutting-edge” transaction.

“The industry has been seeking new and innovative structures that make Islamic financing techniques available to a wider audience and this transaction is evidence of that. The sukuk builds on the reputation London already has as a key hub for Islamic finance and also underlines Dubai’s efforts to become the capital of the global Islamic economy.”

 

Author: Editor

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