Islamic Leasing and Securitisation: Sharia Investment in Western Markets. Islamic Leasing Developments, Trends and Opportunities

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1 Islamic Leasing and Securitisation: Sharia Investment in Western Markets 7 September London Islamic Leasing Developments, Trends and Opportunities

2 Where does Leasing fit in Islamic Finance? Non profit area Profit area Insurance Money lending Asset Finance Equity Services Takaful Mutual or co-operative insurance Qard Hassan, benevolent, interest free loan Leasing, Installment Murabaha purchase, Ijara Project Istisna Finance Salam Proft-/Loss Sharing Fundmanagement Current Accounts, Advise, Placement, Etc.

3 Which trends are seen in the last 12 months? The main trends seen are: Securitised Leases (Islamic bonds, Sukuk) grew to nearly USD 7 bn in 2004, reaching almost the same level already in 1. Half of 2005 Leasing bank founded Airline finance as Sukuk Ship finance as Sukuk or lease syndicate Strategic move towards leases in the GCC countries

4 Case Study: Aircraft Lease Fund Kuwait Finance House established a leasing fund for aircraft MALC : Millenium Aircraft Leasing Company 12 Aircrafts USD 520 mn in assets Ca. Equity USD 130 mn (KFH and Investors) Ca. Total Financing USD 390 mn (INTERNATIONAL MARKET) Cash on cash return 9,31 % p.a. Initiator Kuwait Finance House, via Alaf Aviation Lease and Finance Company Opportunity to participate in Islamic Leasing deals for international partners Sources: Media annoucements, presentation on Mena Airfinance Conference September 2004

5 Case Study: Emirates Airlines Sukuk Emirates Airlines raised USD 550 mn via Sukuk Lead Manager Dubai Islamic Bank Lead Arranger Emirates Bank, National Bank of Abu Dhabi, National Bank of Dubai, HSBC 50 % oversubscription, 75 bp over US Dollar LIBOR Purpose building new headquarter, new engineering centre to be leased after construction to the airline (Sukuk Al Musharaka) Securitisation of Islamic Lease to the capital markets

6 Case Study: Al Safeena Sukuk First Ship Finance MT Venus Glory Sukuk Al Safeena : Structured and arranged by ABC International Underwritten by ABC International and Abu Dhabi Commercial Bank USD 26 mn, 5 years, 6 % return Final client Saudi Aramco Innovation: Islamic Equity for the first ship finance embedded in a conventional structure Using Islamic equity for a conventional lease deal Ship finance will increase especially with Qatar (LNG)

7 Case Study: First Leasing Bank, Bahrain Set up of the First Leasing Bank, Bahrain: Focus on equipment leasing without downpayment in the GCC Leaving out real estate and luxury items as hot topics to others US$ 50 million FLB Gulf Medical Equipment Fund Target return 3 % above US Dollar LIBOR Shareholders: Gulf Finance House (22.5%), Gulf Investment House (22.5%), Ithmaar Bank (30%) and Overland Capital Group of the USA (25%) Opportunity: Foreign technical partner and investor

8 Case Study: Strong impetus towards Leasing in Kuwait Kuwait fuels leasing companies to expand throughout GCC region: The International Investor changed business focus from investment banking to establishing leasing companies throughout the Gulf The International Islamic Investment Company (ILIC) has a similar goal Aayan Leasing & Investment Co. is for years working in Islamic leasing inside Kuwait New opportunities to apply for being an investor and technical partner for Mideast leasing companies

9 Summarized Opportunities for Western Leasing Institutions How can a Western leasing institution benefit from this growth market? Parcipating in Islamic leases like offered by the Millenium fund Using Islamic equity for conventional structures like Al Safeena Securitising assets from the balance sheet to make use of the liquidity in the Middle East Technical partner for GCC leasing companies Last not least: Looking into the retail side because of your competence in assets you could become a significant player in competition to the Islamic Bank of Britain and other banking providers

10 CONTACT Post MICHAEL GASSNER Consultancy Kyffhaeuserstr Cologne/Germany Office +49 (0) Fax +49 (0) gassner@islamicfinance.de