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Sukuk to be used in Europe buys
Dubai company to use Islamic financing for venture capital, after first UK purchase
- Staff Report
- Published: 00:00 September 3, 2010
- Image Credit: Megan Hirons Mahon/Gulf News
- A bank teller counts dirham notes in the main branch of Dubai Islamic Bank in Deira. Investors in the Gulf are looking at using Islamic finance for venture capital in Europe.
Dubai : Millennium Private Equity Ltd, a Dubai government-linked investment company with about $5 billion (Dh18.3 billion) in capital, plans to use Islamic financing for venture capital in Europe after buying the first corporate sukuk in the UK
Millennium, part-owned by Dubai Islamic Bank PJSC, the UAE's largest Sharia-compliant bank, bought $10 million of four-year convertible notes in July that were sold by International Innovative Technologies Ltd, a clean energy company in Gateshead.
"We are looking at transactions in Europe and other areas," Vally Khamisani, a director at Millennium said in an interview in Dubai yesterday. "They can tap into capital which is focused on Sharia principles. The structures can fly well here."
Gulf investors are exploring opportunities outside the region, taking advantage of tightened lending in Europe to diversify. Middle East and North Africa private equity funds have about $10 billion available to invest after raising a record $5.4 billion in 2008, Gulf Venture Capital Association said on July 20.
European companies may turn to the Middle East, which has more than 400,000 millionaires, Cap Gemini SA and Bank of America Corp.'s Merrill Lynch unit said in a world wealth report in June. Their combined wealth grew 5.1 per cent in 2009 to $1.5 trillion, the report said.
Sukuk sales
International Innovative sold sukuk due in 2014 that pay an annual return of 10 per cent in a private placement, said George Ord, the managing director of the maker of industrial milling machines in northeast England. The bonds will be converted to an equity stake in the coming weeks, he said in an interview from Gateshead on Wednesday, declining to disclose the size.
"We wouldn't hesitate to go back into the market," Executive Chairman Thomas Wilkinson said yesterday. "Our funding streams at the moment are fine, so we have no immediate need to go back into the market. If we want to do further expansion, that may change."
Policies to promote assets that follow Islamic law, such as easing of taxation and the sale of government sukuk, are spreading to Europe from Asia. The German state of Saxony-Anhalt became the first European borrower to sell bonds adhering to Islamic law in August 2004 with 100 million euros (Dh470 million) of five-year sukuk, according to data compiled by Bloomberg. Luxembourg is considering selling Islamic bonds, central bank Governor Yves Mersch said in Bahrain in May.
Sales of Islamic bonds, which are based on the exchange of asset flows rather than interest, may reach about $30 billion this year as the global economy recovers and nations build infrastructure, Kuwait Finance House KSC, the nation's biggest Islamic bank, said on August 22. Global sales of sukuk fell 12 per cent to $10.3 billion so far in 2010, according to data compiled by Bloomberg.
"We have had a lot of inquires coming in from European corporates across sectors, from energy to utility, to telecommunication companies," said Mohammad Dawood, the Dubai- based director of debt capital markets at HSBC Holdings Plc, the second-largest underwriter of Islamic bonds. "They're looking at ways to diversify funding. Islamic bonds may be an option."
Middle East and North Africa private equity investments declined to $561 million last year from $2.72 billion in 2008, hit by the global credit crisis, according to Manama, Bahrain-based Gulf Venture Capital.
Take-off unlikely
Sales of Islamic bonds from borrowers in Europe are unlikely to take off, according to UBS AG of Switzerland.
"You may see selectively some lower-rated borrowers issuing in Islamic format, but it's going to depend on the credit profile and name recognition of the borrower," London- based James Sadler, a director for Middle East and Africa debt capital markets at UBS, said.
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