Sheikh Ahmed predicts Emirates' First Sukuk Bond will be quickly subscribed

GCC investment circles welcomed the issue, which ushers Emirates into a new market to help finance its rapid expansion.

The carrier previously adopted Islamic Ijarah (Lease finance) to fund the purchase and acquisition of airliners through operational lease. The carrier's latest move towards the use of Sukuk bonds represents a further commitment to the use of Islamic tools.

HH Sheikh Ahmed bin Saeed Al-Maktoum, Chairman of Emirates, expressed his satisfaction over the positive response to the airline's initiative. He said: "We have embarked on a long, major expansion of our fleet, route network and facilities, which we will be financing both from local and international markets. Islamic finance adds a new dimension to our policy of diversification of financial resources."

Sheikh Ahmed praised the development of the national and regional banking industry and added: "The Emirates Group has been making a big contribution to the national economy, and we are also determined to strengthen national and regional institutions by sourcing a large part of our financial needs through them. Banks such as the Dubai Islamic Bank, National Bank of Abu Dhabi and Gulf International Bank have proven that they can support complex corporate requirements and arrange major finance deals with international banks."

Emirates Airline's policy of diversifying its finance resources seeks to protect its foreign currency revenues against inflation and currency fluctuations. Sheikh Ahmed said: "The Emirates solid performance is well respected in international finance circles, and has given us access to the best deals, both through traditional instruments and Islamic resources such as Ijarah and now Sukuk. Because we operate in many different countries, we must protect our income in a multitude of currencies by arranging finance in UK sterling, euros, US dollars and Japanese yen."

He concluded: "Over the last few years, Islamic finance has become more important. It has become clear that Islamic finance tools provide us with more options and give us access to a large pool of liquidity available to individual and institutional investors who deal exclusively in Islamic tools."

By the end of the last financial year, the total of Emirates long term debt finance stood at Dhs 7.6 billion, including the two previous bond issues - one local, in UAE dirhams, the other in US dollars. Meanwhile, from Islamic financing, Emirates derived USD $600 million to acquire aircraft over the last eight years, equivalent to some 10 per cent of all finance it obtained during that period. The carrier applied these funds to finance the acquisition of seven aircraft in its fleet.

The Dubai Islamic Bank, in its capacity as mandated lead manager, together with HSBC and Standard Chartered bank as Joint Book Runners, will supervise the issue of the Sukuk bonds. Also taking part in the management of the issue will be the National Bank of Abu Dhabi, UBS Investment Bank and Gulf International Bank. The issue will be listed on the Luxembourg Stock Exchange, and institutional and individual investors in the GCC, Europe and Asia will be entitled to subscribe to the issue, pegged at a minimum subscription of one million US dollars.

Based on the response to the first two issues, Sheikh Ahmed said he's confident that the Sukuk issue will be met with high demand and will be easily subscribed, once it is launched next month.

The first bond issue in 2001, which marked Emirates' first entry into the regional finance markets, was oversubscribed more than 2.5 times and closed at Dhs 1.5 billion. The issue was the first bond issue by a national company in the UAE, and the first such issue to be listed in the Dubai Financial Market.

Last year, Emirates launched a Eurobond issue that was listed on the Luxembourg Stock Exchange. It was oversubscribed by 50 per cent and closed at USD $500 million. Over a third of that issue was subscribed by investors outside the GCC countries and was the largest unsecured/unrated bond issue by an airline.

Emirates excellent financial performance has contributed to bolstering the confidence of investors and to promoting subscription of its bonds. Despite the sharp rise in fuel prices, the airline announced Dhs 2.35 billion net profits for the past financial year ending on March 31st. 2005 - a 49 per cent growth over the previous financial year.

The proceeds of the Islamic Sukuk Bonds issue will be used to finance Emirates new Engineering Centre, now under construction at a cost of Dhs 1.3 billion for completion early in 2006, and the new Emirates Group headquarters, estimated to cost Dhs 700 million and expected to be inaugurated by the end of next year.