2008 Deals of the Year – Islamic Finance Awards
To many of us 2008 seems the year of abject failures and abysmal performance. Surprisingly, the Sukuk market wasn’t so bad, with originations 12% greater than in 2006 (even if they were down 53% from 2007). Emerging markets, the heart of the Islamic market space, were still active, thanks to strong ongoing business and attractive oil prices for most of 2008. The Islamic space benefitted from a migration of talent and attention from the western markets to the emerging and Islamic markets. And, within the Gulf countries, Malaysia and other emerging markets’ real estate and infrastructure projects continued to generate opportunities for new business. As a result, Islamic Finance News received the largest number of submissions ever. The quality of submissions was excellent, and the variety of deals and sophistication reflected a market that is deepening. Here we go with our 2008 Deals of the Year!
Deal of the Year: Projek Lintasan Shah Alam (PLSA)
Lead arranger and advisor: RHB Investment Bank and RHB Islamic Bank. Sukuk al Ijarah RM330 million (US$94 million) and Sukuk al Mudarabah RM415 million (US$118 million).
The deal applies Ijarah mawsufah fi dhimmah for construction finance and Mudarabah for working capital. With 20 high quality submissions, this was one of our more difficult selections since we started the Deals of the Year proposal. Chelsea Barracks, Purple Island, Central Bank of Bahrain, WCT Engineering and many other deals, winners in our other categories, all brought excellent merits forward. We selected PLSA for three important reasons:
1. The deal met strict Gulf Cooperation Council (GCC) structuring guidelines, demonstrating that Malaysia is a global player, not merely a market with unusual practices;
2. The transaction was successfully marketed in the GCC and Malaysia; and,
3. The deal served important domestic infrastructure needs by crafting Ijarah and Mudarabah tranches side by side in a deal that would have previously used the BBA and Istisna forms as securities.
Sukuk of the Year: Tamweel Sukuk
Tamweel’s AED1.1 billion (US$300 million) was arranged by Badr Al Islami, Dubai Islamic Bank and Standard Chartered.
This deal was rated ‘A3’ by Moody’s Investor Services and ‘A’ by Fitch Ratings, and pools Ijarah and Istisna transactions to generate a yield of EIBOR plus 225. The deal was closed in July 2008 at the height of the market meltdown. The five-year deal matures in 2013 and over-subscribed. Tamweel represents a pass-through security in the Islamic mortgage alternative space and represents an important anchor for the emerging Islamic asset-based market in the Gulf states.
This was a hotly contested category with more contestants than ever.
Most Innovative Deal of the Year: WCT Engineering
Lead Arranger: Aseambankers. RM300 million (US$85 million) Sukuk al Musharakah with warrants.
The deal is rated ‘AA-’ by MARC. The transaction blends Shirkah al inan (limited investment partnership) with an aqd al tabbaru’ (a gratuity contract) which forms the warrants. Although the concept of detachable warrants is controversial, the approach to this problem by making them a grant is a solution that merits considerable review in all Islamic markets. The addition of the warrants builds on the concepts applied in earlier convertible Sukuk as well as helping to evolve the market. The actual warrants are a grant by WCT and their prospective remarketing was accepted by the relevant Shariah boards (Aseambankers’ and the Securities Commission Malaysia’s) as the receiver’s choice since the warrants represent legal ownership of an asset — the claim on shares in the company.
Again, this was a year of exceptional innovation.
Equity Deal of the Year: Saudi Hollandi Bank
Lead Arranger: Saudi Hollandi Capital.
This was a tough decision. WCT Engineering, DP World and United Development transactions are worthy, but this is the first Tier II capital securities issuance in the Islamic space. The SAR775 million (US$207 million) deal is based on Mudarabah and generates an expected income of SIBOR plus 200 bps and a step up in the yield after five years. This is one of the first quasi equity deals in the Islamic space (Maybank’s last year was the first Islamic subordinated Sukuk deal). We feel that this important landmark trumps the other excellent deals that were submitted this year.
Sovereign Deal of the Year: Pakistan Domestic Sukuk
Government of Pakistan’s three-year PKR6.525 billion (US$84 million) deal in September 2008 by Pakistan Domestic Sukuk.
This Ijarah Sukuk program was organized by Standard Chartered Bank (Saadiq) and Dubai Islamic Bank Pakistan to raise money for the general purposes of the Government of Pakistan. It allows ongoing fund raising and establishes a Sukuk auction system akin to that for T-bills whilst allowing for various tenors. This was a tough category with the Central Bank of Bahrain, Ras Al Khaima and Khazanah Nasional deals all meriting consideration. Yet, the opening of the Pakistan market and building the infrastructure for future transactions as well as alleviating some of the financial burden on the government cause us to grant this award as Sovereign Deal of the Year.
Structured Finance Deal of the Year: Sun Finance
Sorouh Real Estate raised AED4.016 billion (US$1.1 billion) via Sukuk al Mudarabah. Coordinated by Citigroup Global Markets. Lead managed by Abu Dhabi Commercial Bank, Citibank, First Gulf Bank, National Bank of Abu Dhabi and Noor Islamic Bank.
This Mudarabah participated in the ownership of land in Abu Dhabi as well as installment sales receivables and project assets. Effectively, this proved an efficient means to raise non-recourse funding in August 2008 as the global markets worsened significantly. The deal represents the equivalent of a receivables securitization without actually selling debt. The non-recourse nature of the deal means that the transaction is a true sale transaction and the receivables may be derecognized from the originator’s balance sheet.
Syndicated Deal of the Year: Project Blue (Guernsey) — “Chelsea Barracksâ€
In another year, Chelsea Barracks, known as Project Blue Guernsey, would have swept multiple categories. This GBP1.25 billion (US$2 billion) syndicated Ijarah was managed by Calyon and HSBC Amanah. The deal allowed the joint venture between Qatari Diar Real Estate Investment Company and CPC Group to acquire the Chelsea Barracks site and fund its redevelopment. This was the largest Islamic deal in 2008 and the most notable Islamic deal in the UK and Europe. The deal was successfully structured to manage UK stamp duties and withholding taxes as well as include a Shariah compliant currency hedge.
Project Finance Deal of the Year: Al Ma’aden Phosphate
Al Ma’aden Phosphate was a worthy competitor in numerous categories. This complex deal included US$2.76 billion of debt including a US$1.139 billion Islamic tranche managed by Standard Chartered Bank, Calyon and Banque Saudi Fransi while a US$625 million Islamic tranche was funded by Al Rajhi Banking and Investment Corporation. The US$1.139 billion Islamic tranche was structured as a forward lease facility. The total project provides for the development of a significant surface mine and chemical processing complex at a total cost of US$5.525 billion and is one of the important joint financings requiring close management of the unique rights between Islamic and traditional financiers.
Cross-Border Deal of the Year: AirAsia French Single Investor Lease
BNP Paribas and Natixis Transport Finance’s US$336 million lease of seven Airbus A320-200 aircraft to AirAsia is one of the more interesting deals in 2008 and wins the cross-border award. This deal successfully blended the Malaysian and European counterparties in a deal that provided cost effective delivery of aircraft to AirAsia. The deal involves funding in US dollars, Euros and Malaysian ringgit over a 14-year period. The deal follows the French Single Investor Lease format and provided 100% financing for the aircraft. Acquisition was funded on a Wakalah by BNP Paribas, Natixis, RHB Islamic and Helaba; and Tawarruq by Bank Rakyat Malaysia. The airplanes are delivered to the client on a leased basis.
IPO Deal of the Year: DP World
DP World was the largest IPO in the Middle East at US$4.96 billion. This transaction allowed for the redemption of the PCFC convertible Sukuk issued in 2006. This was the first IPO officially listed on NASDAQ Dubai (formerly DIFX) and was oversubscribed 15 times. There are a number of other exciting IPOs in the Islamic space including REITs and other companies, but the unique character of this deal in settling one landmark Sukuk and helping to establish a new market is of singular importance to make this the most important IPO for 2008.
Trade Finance Deal of the Year: Yildiz Sunta MDF
Citibank provided Yildiz Sunta with US$26 million to purchase goods and raw materials used in the company’s manufacture of fiberboard and parquet. The deal is secured and represents the penetration of Citibank and the Islamic sector into the Turkish middle market.
Real Estate Deal of the Year: Al-Aqar Capital’s Sukuk Ijarah Program
Al Aqar returns to our winners circle with its RM300 million (US$85 million) Sukuk al Ijarah program. Previously, Al-Aqar won as the first Islamic REIT. Now the REIT’s subsidiary has issued four classes of Ijarah Sukuk to refinance various facilities and expand working capital to the REIT based on the underlying assets.
Corporate Finance Deal of the Year: Al Jaber Group
Al Jaber Group raised US$400 million in a five-year dual currency USD and AED Ijarah facility. The deal was led by Dubai Islamic Bank, BNP Paribas and National Bank of Abu Dhabi.
Musharakah Deal of the Year: Villamar Sukuk
The Villamar US$190 million Musharakah program was a winner in a crowded pool of Musharakah deals (in 2008, 32% of all deals were Musharakah and 48% were Ijarah). This deal is a true Musharakah structure absent any structured credit enhancements by sponsor promise to purchase or other undertakings. The proceeds are applied to the development of residences in the Bahrain Financial Harbor. Al Rajhi Bank and Merrill Lynch were the lead arrangers. In this deal, the developer has contributed real estate in kind and the certificate holders.
Mudarabah Deal of the Year: Purple Island Corporation
The Saudi Binladin Group raised US$267 million with a five-year fixed coupon Mudarabah Sukuk yielding 7% via a British Virgin Islands SPV called Purple Island Corporation. This is based on the development of real estate in Mecca. The yield is generated from rental of the underlying real estate. The deal leverages the underlying Saudi Bin Ladin Group’s expertise in Mecca, in hospitality and in construction management.
Ijarah Deal of the Year: AirAsia French Single Investor Lease
BNP Paribas and Natixis Transport Finance’s US$336 million lease of seven Airbus A320-200 aircraft to AirAsia is one of the more interesting deals in 2008 and also wins the cross-border award. This deal successfully blended the Malaysian and European counterparties in a deal provided cost effective delivery of aircraft to AirAsia. The deal involves funding in US dollars, Euros and Malaysian ringgit over a 14-year period. The deal follows the French Single Investor Lease format and provided 100% financing for the aircraft.
Tawarruq Deal of the Year: Dubai Financial Group
Dubai Financial Group secured US$1.5 billion in a syndicated revolving Tawarruq facility from an all-star group of UAE and international banks including Noor Islamic, Abu Dhabi Islamic, Al Hilal Bank, Al Khalij Commercial Bank, Commercial Bank of Dubai, Commerzbank (Singapore), First Gulf Bank, Standard Finance, Commercial Bank of Qatar and The Royal Bank of Scotland. This complex facility allows for multi-currency tranches and varying maturities of the underlying tranches.
Bahrain Deal of the Year: CBB International Sukuk
The Central Bank of Bahrain’s US$350 million Sukuk al Ijarah transaction of March 2008 is one of the best deals of the year. Were it not for the crowded and excellent field for Ijarah and sovereign Sukuk, this would have been a multi-category winner. Arranged by Calyon, this transaction was the first public debt capital market issue from the GCC in 2008 and generated a strong response with attractive rental pricing at LIBOR plus 75 bps. This is the first sovereign Sukuk listed on the London Stock Exchange.
Brunei Deal of the Year: Brunei Gas Carriers
The Brunei Gas Carriers US$505 million shipbuilding deal for two LNG carriers was arranged by Standard Chartered. The deal used a complex mixture of special purpose vehicles to engage in Istisna contracts to build the ships against the obligor’s forward lease. Again, in a less crowded market, this deal could have been a winner in multiple categories.
China and Hong Kong Deal of the Year: Noble Resources (Hong Kong)
The North Asian markets are slowly opening to Islamic finance. In 2008, several small deals were done in China and Hong Kong. Noble Resources (listed in Singapore) in Hong Kong raised US$80 million in a Tawarruq deal arranged by HSBC Amanah. This was the first Islamic deal syndicated in Hong Kong and helped set the stage for a more active Hong Kong market.
France Deal of the Year: RecovCo Affimet
In one of their breakout deals, the Bank of London and the Middle East arranged a EUR3 million (US$4.1 million) sale-leaseback of equipment for RecovCo Affimet.
Germany Deal of the Year: CCH Europe
Kuwait Finance House arranged a US$300 million Mudarabah for CCH Europe.
Indonesia Deal of the Year: The Republic of Indonesia
In August 2008, the Republic of Indonesia made its debut issue of IDR4.7 trillion (US$431 million). This deal, led by Mandiri Sekuritas, Trimegah Sekuritas and Danareksa Sekuritas, tested the new rules for the Sukuk market in Indonesia and applied a sale-leaseback of government assets. Based on this issue, there is hope that the broader Indonesian government and private market will open fully.
Kuwait Deal of the Year: The Investment Dar
The Islamic deal makers from Kuwait seem to be more active in other markets. Once again, Investment Dar brings the highest profile deal with its Tawarruq financing of US$300 million. Organized by HSBC Amanah and Standard Chartered Bank, this deal helped Investment Dar to secure funding ahead of the weakening of the international syndicated and the domestic Kuwaiti markets.
Malaysia Deal of the Year: Projek Lintasan Shah Alam (PLSA)
Lead arranger and advisor: RHB Investment Bank and RHB Islamic Bank. Sukuk al Ijarah RM330 million (US$85 million) and Sukuk al Mudarabah RM415 million (US$117 million).
The deal applies Ijarah mawsufah fi dhimmah for construction finance and Mudarabah for working capital. As the single most developed market, we enjoyed the largest number of submissions from Malaysia. But, the reality is that we find it difficult to put the many excellent Malaysian deals ahead of the Deal of the Year!
Pakistan Deal of the Year: Pakistan Domestic Sukuk
Government of Pakistan’s three-year PKR6.525 billion (US$84 million) deal in September 2008 through Pakistan Domestic Sukuk. This Ijarah Sukuk program was organized by Standard Chartered Bank (Saadiq) and Dubai Islamic Bank Pakistan to raise money for the general purposes of the Government of Pakistan. It allows ongoing fund raising and establishes a Sukuk auction system akin to that for T-bills while allowing for various tenors.
Qatar Deal of the Year: Al Wa’ab City
Qatar-based Amwal, SHUAA Capital and Kaupthing Bank organized a US$200 million Istisna mezzanine facility for Al Wa’ab City to develop a mixed use real estate site. This is one of the first mezzanine type structures applied in Qatar and it attaches share warrants to the back to back Istisna facility.
Saudi Arabia Deal of the Year: Purple Island Corporation
Purple Island Corporation issued Mudarabah Sukuk worth US$267 million with a five-year fixed coupon yielding 7%. This is based on the development of real estate in Mecca. The yield is generated from the rental of the underlying real estate. The deal leverages the underlying Saudi Binladin Group’s expertise in Mecca in hospitality and in construction management. This deal achieves several firsts including the first true unrated Sukuk distributed solely in Saudi Arabia, the first offshore SPV cleared for settlement on Tadawul (the Saudi Exchange), the first hard asset Sukuk deal for Mecca, and among the first truly AAOIFI compliant Mudarabah Sukuk.
Tunisia Deal of the Year: Group Chimique Tunisien
Group Chimique Tunisien raised US$535 million in equity (US$350 million) and debt (US$185 million) to develop a new fertilizer plant in Tunisia. The lead investors were the Islamic Development Bank (IDB) and the European Investment Bank. The IDB provided Ijarah leverage to the project.
Turkey Deal of the Year: Yildiz Sunta
Citibank provided Yildiz Sunta with US$26 million to purchase goods and raw materials used in the company’s manufacturing of fiberboard and parquet. The deal is secured and represents the penetration of Citibank and the Islamic sector into the Turkish middle market.
UAE Deal of the Year: Sun Finance
Via Sun Finance, Sorouh raised AED4.016 billion (US$1.1 billion) via Sukuk al Mudarabah. In a deal coordinated by Citigroup Global Markets and lead managed by Abu Dhabi Commercial Bank, Citibank, First Gulf Bank, National Bank of Abu Dhabi and Noor Islamic Bank, this Mudarabah participated in the ownership of land in Abu Dhabi as well as installment sales receivables and project assets. Effectively, this proved an efficient means to raise non-recourse funding in August 2008 as the global markets worsened significantly. The deal represents the equivalent of a receivables securitization without actually selling debt. The non-recourse nature of the deal means that the transaction is a true sale transaction and the receivables may be derecognized from the originator’s balance sheet.
UK Deal of the Year: Project Blue (Guernsey) — “Chelsea Barracksâ€
Thanks to enabling legislation in the UK, there is now a robust group of traditional and Islamic financiers offering Islamic financial solutions to UK businesses and projects. This year, the magnitude of the Chelsea Barracks deal known as Project Blue Guernsey, along with its important contributions to demonstrating how Islamic leasing works in the UK stamp duty and withholding tax environment, makes this the UK deal of the year. This GBP1.25 billion (US$2 billion) syndicated Ijarah was managed by Calyon and HSBC Amanah. The deal allowed the joint venture between Qatari Diar Real Estate Investment and CPC Group to acquire the Chelsea Barracks site and fund its redevelopment. This was the largest Islamic deal in 2008 and the most notable Islamic deal in the UK and Europe.
USA Deal of the Year: Greater San Diego Muslim Community Center
This is a US$2.5 million acquisition and construction financing by Ijarah wa iqtina for the Greater San Diego Muslim Community Center executed by Devon Bank of Chicago.
Yemen Deal of the Year: Mobile Telephony Sabafon
HSBC arranged US$20 million for import Murabahah for Mobile Telephony Sabafon. The deal is notable as it secured an ECA policy from Euler Hermes. The master deal structure allows multiple purchases over a five-year period.
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