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Emirates To Issue $550 Million In "Islamic Bonds"  
User currently offlineLeelaw From , joined Dec 1969, posts, RR:
Posted (9 years 4 months 1 day 8 hours ago) and read 5304 times:

DOW JONES - May 21, 2005:

"MANAMA, Bahrain -- Emirates Airlines (EA.YY) said Saturday that it will launch a $550 million Islamic sukuk issue, or bonds compliant with the Islamic banking principles, in June.

It would be the first time the company issues such an Islamic bonds. The issue will have a seven-year duration.

"It will be issued in June and will be offered to institutional investors in the Gulf Cooperation Council, as well as in Europe and Asia," Riyaz Peermohamed, Emirates senior vice-president Corporate Treasury, said in a statement..."

"...The issue will be initially listed on the Luxembourg Stock Exchange.

"The money raised from the bond will be used to finance the new Emirates Engineering Center and its new headquarters building, both currently under construction," Peermohamed said.

Emirates the national carrier of Dubai emirates in the United Arab Emirates."

21 replies: All unread, jump to last
 
User currently offlineGuyBetsy1 From Canada, joined Aug 2001, 840 posts, RR: 6
Reply 1, posted (9 years 4 months 1 day 8 hours ago) and read 5270 times:

And your point in this is....?

User currently offlineMariner From New Zealand, joined Nov 2001, 25260 posts, RR: 85
Reply 2, posted (9 years 4 months 1 day 8 hours ago) and read 5257 times:
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Okay, I'm a little bit confused, and I'm not sure if anyone here can help.

Strict interpretations of Islamic law forbid the payment of interest (on a loan).

But apparently "sukuk" - a form of bonds - does not violate Islamic principles.

http://www.noriba.com/sukuk.htm

I guess "sukuk" is the solution because it is hard to imagine how the Muslim world can function withgout bank loans.

I'm just not sure how it works.

cheers

mariner



aeternum nauta
User currently offlineArkhem From Ghana, joined Jul 2004, 128 posts, RR: 0
Reply 3, posted (9 years 4 months 1 day 8 hours ago) and read 5226 times:

News article:
http://www.ameinfo.com/60589.html

Quoting Mariner (Reply 2):
Strict interpretations of Islamic law forbid the payment of interest (on a loan).

But apparently "sukuk" - a form of bonds - does not violate Islamic principles.

It is not interest, it is a 'floating lease payment'. This site offers a good explanation.
http://www.gtnews.com/article/5509.cfm


User currently offlineMariner From New Zealand, joined Nov 2001, 25260 posts, RR: 85
Reply 4, posted (9 years 4 months 1 day 7 hours ago) and read 5193 times:
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Quoting Arkhem (Reply 3):
It is not interest, it is a 'floating lease payment'.

Thank you. Very interesting.

cheers

mariner



aeternum nauta
User currently offlineMrniji From , joined Dec 1969, posts, RR:
Reply 5, posted (9 years 4 months 1 day 7 hours ago) and read 5184 times:

Quoting Mariner (Reply 2):
Strict interpretations of Islamic law forbid the payment of interest (on a loan).

But apparently "sukuk" - a form of bonds - does not violate Islamic principles.

I once worked on "Islamic Banking" and will give you a very short survey. As you say correctly' "riba" (interest) is pohibited by the Koran. Hence, the lender has most of the risk - i.e. when the investment turns out to be a loss, the lender carries the debth. When the investment becomes profitable, the borrower shares the profit with the lender. Hence, riba (interest) in "the conventional monetary sense does not exist.

However, as in every discipline, the are many different interpretations of islamic banking. From liberal to ultra-conservative. So please see my few lines really only as an attempt to introduce you to the concept per se rather than as an overall analysis.

Trends in islamic banking: it is a very attractive area (cash and $$$$ in the Middle East). Indonesia and Malaysia, and Singapore ae bargaining for the leading position, while many Western Banks want to become engaged in this field.

Let me just mention: the concept of Islamic Banking per se is a very social concept, as the borrower does not carry that much risk, and the lender is not obliged to make a contact but is properly rewarded for entering profitable businesses. Maybe a global concept?  Wink


User currently offlineN79969 From , joined Dec 1969, posts, RR:
Reply 6, posted (9 years 4 months 1 day 5 hours ago) and read 5054 times:

I had the same question as Mariner. Thanks Arkhem for posting that. I am curious as to the substantive difference between Sukuk and an ordinary corporate bond. In both cases, investors are compensated for risk and the time value of money in some sense. The news clip above makes no mention of specific asset(s) that Emirates is acquiring...I wonder what they are exactly.

That this is the first time that Emirates has issued bonds is remarkable in and of itself. Despite having deposits and options on an enormous number of airplanes, plans for a $250M hotel, and years of breakneck growth, they have not had to borrow money?

I think that fact alone is strongly indicative of the kind of financial backing that EK enjoys.


User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 35
Reply 7, posted (9 years 4 months 1 day 4 hours ago) and read 4991 times:

Looks as if 'Sukuk' is just another name for an old-fashioned hire purchase agreement.

Haven't taken on one of those for about thirty years. Only did it when I didn't have the money to buy the thing outright.

Surely Emirates can't finally be running short of cash? But, on the other hand, why else would they start borrowing?



"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
User currently offlinePM From Germany, joined Feb 2005, 6918 posts, RR: 63
Reply 8, posted (9 years 4 months 1 day 4 hours ago) and read 4974 times:

Quoting NAV20 (Reply 7):
Surely Emirates can't finally be running short of cash? But, on the other hand, why else would they start borrowing?

They're about to drop the pretence and buy Airbus outright?  Wink


User currently offlineMariner From New Zealand, joined Nov 2001, 25260 posts, RR: 85
Reply 9, posted (9 years 4 months 1 day 4 hours ago) and read 4972 times:
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Quoting NAV20 (Reply 7):
Haven't taken on one of those for about thirty years. Only did it when I didn't have the money to buy the thing outright.

Well, gosh, look'ee here, I just did it in New Zealand - buying on credit that is - although I had no need.

I didn't have to do it, I paid for everything else, my house, my cars, with cash.

I did it to establish a credit rating in this country. If I did move back to Australia, I assume I would have to do something similar there since my stellar American credit rating does not apply down under.

So there may be all sorts of reasons why Emirates does it - very few of which may have anything to do with "running out of money."

If nothing else, perhaps they have adopted a principle of Western business - use other people's money, not your own.

mariner



aeternum nauta
User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 35
Reply 10, posted (9 years 4 months 1 day 3 hours ago) and read 4961 times:

Good one, PM  Smile

Or maybe they've seen that Airbus have gone into the lending business and want those 45 A380s on the 'never-never'?  Smile

You'd be all right in Oz, mariner - the usual 'innocent until proven guilty' thing applies!



"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
User currently offlineMariner From New Zealand, joined Nov 2001, 25260 posts, RR: 85
Reply 11, posted (9 years 4 months 1 day 3 hours ago) and read 4944 times:
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Quoting NAV20 (Reply 10):
You'd be all right in Oz, mariner - the usual 'innocent until proven guilty' thing applies!

You are wrong.

mariner



aeternum nauta
User currently offlineSabenapilot From Belgium, joined Feb 2000, 2714 posts, RR: 46
Reply 12, posted (9 years 4 months 1 day 2 hours ago) and read 4879 times:

Quoting NAV20 (Reply 7):
Surely Emirates can't finally be running short of cash?

Found another straw to hang onto in your daily quest to convince this community of the doom scenario waiting to happen???

You're starting to sound more and more like some kind of religious sectarian leader every day! You're not the reincarnation of David Coresh (sp?) in some sort are you? Big grin


User currently offlineBill142 From Australia, joined Aug 2004, 8451 posts, RR: 8
Reply 13, posted (9 years 4 months 1 day 2 hours ago) and read 4853 times:

Quoting NAV20 (Reply 7):
Surely Emirates can't finally be running short of cash? But, on the other hand, why else would they start borrowing?

Maybe the Sheik left his cheque book at home?


User currently offlineLJ From Netherlands, joined Nov 1999, 4429 posts, RR: 0
Reply 14, posted (9 years 4 months 1 day 2 hours ago) and read 4853 times:

Quoting N79969 (Reply 6):
I am curious as to the substantive difference between Sukuk and an ordinary corporate bond.

There isn't any. In the non-Islamic world these kind of bond exist (they usually have some sort of exotic name) aswell, but aren't really marketed as Sukuk. Moreover it's very easy to bypass the no-intrest requirement (which isn't only for Islamic customers) as in todays world it's you can construct almost everything you like (as long as you pay).


User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 35
Reply 15, posted (9 years 4 months 1 day 2 hours ago) and read 4809 times:

Quoting Sabenapilot (Reply 12):
You're starting to sound more and more like some kind of religious sectarian leader every day!

I'll shut up when you repent, Sabenapilot  

It's probably that my bullshit detector is a bit more highly developed than most people's. As soon as people start saying things like 'X Co. is expanding fast' or 'Y Corporation seems to have lots of money to spread around', the detector buzzes and I start checking the detail.

Years ago I had to risk my professional future by recommending to people not to do business with an earlier prominent 'big spender' who could apparently do no wrong. That was Alan Bond of the Bond Corporation. The episode ended happily - earned me a few grateful clients for life. Better still, through not doing business with Bond, they could still afford to pay me.  

You may not see anything odd about Emirates, with their multi-billion-dollar capital commitments, suddenly starting to borrow a few bob. I do.

[Edited 2005-05-22 15:09:58]


"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
User currently offlineLJ From Netherlands, joined Nov 1999, 4429 posts, RR: 0
Reply 16, posted (9 years 4 months 1 day 1 hour ago) and read 4790 times:

Quoting NAV20 (Reply 15):
You may not see anything odd about Emirates, with their multi-billion-dollar capital commitments, suddenly starting to borrow a few bob. I do.

`
Forgive if I'm wrong are you sure this is the first time EK Group issued a corporate bond? If I look at their balance sheet data 9as provided on their website) in do see a lot of FRNs.


User currently offlineAirFrnt From United States of America, joined Jul 2004, 2826 posts, RR: 42
Reply 17, posted (9 years 4 months 1 day ago) and read 4691 times:

Quoting NAV20 (Reply 15):
Years ago I had to risk my professional future by recommending to people not to do business with an earlier prominent 'big spender' who could apparently do no wrong. That was Alan Bond of the Bond Corporation. The episode ended happily - earned me a few grateful clients for life. Better still, through not doing business with Bond, they could still afford to pay me.

You may not see anything odd about Emirates, with their multi-billion-dollar capital commitments, suddenly starting to borrow a few bob. I do.

It doesn't take a genius to wonder about EK's business plan. Their entire attitude seems to be that they don't have to worry about problems that have plauged the rest of the airline industry simply because of the location, ethnicity and capital. This includes problems like LCC competition on profitable routes once market systems are liberalized, overcapacity, and terrorism.

They do seem to have fairly cheap access to oil money, and the (unwarranted by market conditions) high price of oil is really helping the liquidity right now, but if, for example, any of the other oil alternative projects come online (for example shale, or hydrogen cars) the crash will affect both the amount of capital floating around in the middle east as well as any advantage EK has there.

In short, any investment in EK right now seems to carry a lot of risk to me.


User currently offlineSabenapilot From Belgium, joined Feb 2000, 2714 posts, RR: 46
Reply 18, posted (9 years 4 months 1 day ago) and read 4669 times:

Quoting LJ (Reply 16):
Are you sure this is the first time EK Group issued a corporate bond? If I look at their balance sheet data as provided on their website I do see a lot of FRNs.

vs.

Quoting NAV20 (Reply 15):
It's probably that my bullshit detector is a bit more highly developed than most people's and [here] the detector buzzes and I start checking the detail.

Oops, seems your buzzer sounded more than just a bit too early then, because once more you forgot to check the most elementary FACTS available... and they were just a mouseclick away...
You've just demonstrated once more the only thing you have more highly developed than most people is your obsession with the A380 at Emirates leading you to make the wildest assumptions.


User currently offlineSabenapilot From Belgium, joined Feb 2000, 2714 posts, RR: 46
Reply 19, posted (9 years 4 months 1 day ago) and read 4651 times:

Quoting AirFrnt (Reply 17):
an investment in EK right now seems to carry a lot of risk to me.

An investment in ANY airline carries a lot of risk, but putting your eggs in the basket of Emirates, (or Cathay, Singapore Airlines etc) so far seems to be a better investment then putting them in at any other airline...


User currently offlineGothamSpotter From United States of America, joined Jan 2005, 586 posts, RR: 0
Reply 20, posted (9 years 4 months 14 hours ago) and read 3529 times:

This is very interesting to me. In the event the money borrowed results in a profit for the borrower, how much does the lender expect to receive? Is it equivalent to the amount of interest the borrower would pay on a conventional loan?

[Edited 2005-05-23 02:21:30]

User currently offlineLJ From Netherlands, joined Nov 1999, 4429 posts, RR: 0
Reply 21, posted (9 years 3 months 4 weeks 1 day 18 hours ago) and read 2825 times:

Quoting LJ (Reply 16):
Forgive if I'm wrong are you sure this is the first time EK Group issued a corporate bond? If I look at their balance sheet data 9as provided on their website) in do see a lot of FRNs.

I checked today on my Bloomberg terminal and there are indeed two floating rates notes (one in the name of Emirates Airlines and one in the name of Emirates). In total Emirates Group issued AED 1billion and USD 500million.

Quoting GothamSpotter (Reply 20):
This is very interesting to me. In the event the money borrowed results in a profit for the borrower, how much does the lender expect to receive? Is it equivalent to the amount of interest the borrower would pay on a conventional loan?

You can be sure the profit of the borrower reflects the risk the borrow has on the issuer (Emirates) thus in essence it's the equivalent of the intrest it should have paid 9as there just isn't any free lunch when issuing paper).


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