DCA awards DIB mandate to lead manage the world's biggest Sukuk

Dubai Islamic Bank has been appointed as lead manager, arranger and bookrunner for the Islamic Sukuk.

In a ceremony held at the Dubai International Airport, the mandate given to the bank was officially signed by Sheikh Ahmed bin Saeed Al Maktoum, President of Dubai Civil Aviation and Chairman of the Emirates Group, and H.E. Dr. Mohammed Khalfan Bin Kharbash, UAE Minister of State for Finance and Industry and Chairman of Dubai Islamic Bank.

The mandate awarded by the DCA reconfirms its ability to independently finance its own projects. The Sukuk announced this morning will make a major contribution to fund the cost of Phase II expansion of the Dubai International Airport.

The DCA has been considering several funding options for Phase II and decided to work with DIB because of its expertise in Islamic finance and ability to work closely with local, regional and international banks.

The proceeds would be used toward the Phase II expansion of Dubai International Airport. The issue will have a five-year maturity and is planned to be listed and traded at the Dubai Financial Market.

As previously reported "DCA is committed to finance the project from external sources and repay it from income generated by the Airport operation. The Sukuk announced this morning will raise funds for DCA to support its Phase II expansion of the Dubai International Airport" said Sheikh Ahmed.

Thanking the DCA for the trust it has shown in the Bank, Dr Kharbash said this was the first time an Islamic bank has been given the sole mandate to act as lead manager, arranger and bookrunner for a global Sukuk for DCA.

Dr. Kharbash emphasized the need for other UAE-based entities to further strengthen the country's financial markets by resorting to financial instruments such as sukuks, which serve to bolster domestic liquidity and attract foreign direct investment in regional capital markets. There are many planned projects in UAE and it is hoped that this issue will encourage similar ones and help expand the pool of interested investors. In recent times sukuks have been one of the most innovative forms of securities, acceptable to both conventional and Islamic investors, in the global capital markets.

DCA's decision to Issue Sukuk should encourage further international deals to help development of mature Islamic capital market.

Sukuk structure is in fact a type of securitization and must be backed by assets which are acceptable under Islamic techniques for financing. Commonly known as an Islamic debt market instrument, it has gained popularity amongst the investors in past three years. Sukuks have now become a tool to finance small to mega projects. Sukuk are shari'a compliant, tradeable and fairly easily liquidated, and it is for these reasons that they have generated so much interest not only among Islamic Investors but also the conventional investors also take active share.

With opportunities for shari'a compliant investments currently few and far between, Islamic investors have tended to buy and hold, which has thus far held back the development of an active secondary market for such securities. Critical mass has to be reached before active secondary market can thrive. Including DCA's announced sukuk of US$750 million, the total sukuk market stands at US$3.5 billion to date. On the other hand, participation from conventional investors is certainly an encouraging sign for the development of the secondary market and improve market liquidity, as they are less reluctant than Islamic investors to engage in active trading.

The recent Issues of sovereign Sukuks from Malaysia, Bahrain and Qatar met with widespread critical acclaim. With the DCA announcement, Dubai has now pushed this rising star into the limelight in the United Arab Emirates. The US$750 million offering announced will be the largest global Islamic securities issuance to date.

The success of sukuk market will depend upon the ease of structuring the issues for the use of all types of issues. The sukuk popularity and its prospects are broadening to include more corporate issuers. With corporate issuers, sukuk market will evidence smaller issue with varied flavors and thus a healthy development for the capital markets.

Passenger throughput at Dubai International Airport has increased at a phenomenal rate from 4.3 million in 1998, 18 million passengers in 2003, and in 2004 Dubai International Airport expects to attract over 20 million. According to projections, 60 million passengers are expected to use the Airport by 2010.

The second phase of the airport's expansion programme, began in the first quarter of 2002 and is scheduled to finish by 2008, and includes construction of Terminal 3, concourse 2 and concourse 3, Mega Cargo Terminal, flower centre, Runway, taxiways & other infrastructure & special airport systems.

To meet the travel needs of the influx of travellers and airlines, the government of Dubai has committed to a major expansion of Dubai International Airport. This expansion program is designed to enhance Dubai International Airport's already very high standards and to maintain the Emirate's position as the aviation and business hub of the region.

For now, DCA announcement of US$750 million Sukuk Al Ijarah has appeared to be the brightest new star in the horizon. As more and more active issuers come to this market, the sukuk is likely to be just the first in a whole generation of shari'a compliant players that could soon be breaking international finance records for Islamic Sukuk Financing with their performance.