Walkers, the global offshore law firm of choice for companies, financial organizations, and international law firms, reported today that their Dubai office has seen an increase in the use of sukuk, Shari'ah-compliant bonds, as a means of raising finance and accessing debt markets while still adhering to Islamic religious principles.
"While the sukuk market is still very small compared to the conventional debt market, there is enormous potential for growth from both local investors and international markets," said Robert Varley, a partner in Walkers' Dubai office. "As local institutions in the Middle East partner with conventional Western banks to issue these types of bonds with increasing frequency, it is certain that banks outside the region are watching the sukuk market with great interest."
With new regulations for sukuk transactions and securitization introduced by the Capital Markets Authority, and the launching of the Dow Jones Citigroup Sukuk Index earlier this year, it seems that sukuks are filling a number of gaps left in the Islamic market. General business and acquisition finance, project finance, and securitizations have all been funded with sukuk.
The largest sukuk in history was issued earlier this year, a USD$3.5 billion bond issue by Dubai Ports. In July 2006, a USD$200 million issue from Tabreed became the first sukuk to be listed on the London Stock Exchange and rated by Standard & Poors. Walkers has seen a significant increase in the number of USD$150 million to $1 billion deals for these vehicles. The range in deal size underscores the flexibility of the structures. While they can be complicated structures to construct, sukuk can play an important role in accessing debt without violating Shari'ah rules.
"As the sukuk market continues to grow, we are seeing more innovative sukuk structures being developed such as Sukuk Al-Musharakah and Sukuk Al-Mudharabah," Rod Palmer, Managing Partner of Walkers' Dubai office said. "Recently Dubai Civil Aviation announced that it would raise roughly USD$1.6 billion through sukuk to fund the first phase of the new Jebel Ali International Airport. Almost every day we see a new deal being developed."
Walkers has advised on several high-profile sukuk deals in recent months, and expects to see more offerings soon.
"Investor demand remains enormous," continued Mr Varley. "Offerings are hugely oversubscribed. The recent listing of Cayman Islands-issued sukuk on both the London Stock Exchange and the Dubai International Financial Exchange will only strengthen that demand."
Sukuk that are developed and marketed in the Middle East predominantly use Cayman Islands-domiciled issuers over other jurisdictions. Cayman's established trusts law regime, lower costs, relatively fast turnaround, and flexibility in structuring with a Cayman issuer are strong incentives. The Cayman Islands' strong reputation in the world of global finance can also make listing and rating Cayman-issued bonds much easier compared to bonds issued from other jurisdictions.
About Walkers and Walkers SPV
Based in the Cayman Islands with offices in the British Virgin Islands, Dubai, Hong Kong, Jersey, and London, Walkers offers high-level skills across the legal spectrum for Cayman, BVI, and Jersey law. Walkers was named by HedgeWorld Limited as the top law firm for hedge funds by total assets of funds and assets of non-U.S. funds, as well as the 2006 Who's Who Legal Law Firm of the Year: Cayman Islands, the PLC Which Lawyer? Yearbook 2006 Leading Cayman Islands Law Firm, and The Lawyer's 2006 Offshore Law Firm of the Year. We act for a wide range of clients including major financial institutions, investment banks, leading law and accounting firms, major corporations of all kinds, partnerships, trust companies and other fiduciaries representing almost every country in the world. Our aim is to provide clear, concise and practical advice based on an in-depth knowledge of the legal, regulatory and commercial environment in the Cayman Islands and the BVI. We are experienced in all types of international and cross-border transactions and we welcome a close working relationship with our clients and their other professional advisers.
Walkers SPV Limited is a licensed trust company and mutual fund administrator, wholly-owned by Walkers, with a branch office in Tokyo. It provides experienced and expert management and administration of Special Purpose Vehicles (SPVs), Directorship and Trustee services to Cayman-domiciled investment funds, as well as registered office and secretarial services for many companies and partnerships of all types.