Islamic Bond to finance Aston Martin LBO

[Gordon Gekko]

For a little while ago, sportscarmaker Aston Martin was sold from Ford to a private consortium. The interesting part of this deal, called leveraged-buy-out*, is that it is being financed through a Sukuk issue (Islamic bond) in order to create a Shari'a adhering financial vehicle. Although the fame and maturity of Islamic bonds is widely acknowledged, a german state and an american oil company are two notable Sukuk issuers, this is said to be the first time that an Islamic product is being used for financing an LBO in Europe and the market for Islamic bonds is set to pass the one for conventional western bonds (interest based) in a couple of years.

 

*http://en.wikipedia.org/wiki/Leveraged_buyout

 

I say the race for becoming the new Michael Milken is on. Looks like a new era of corporate raiders using Islamic junk bonds to acquire western companies is in the horizon.

 

 

Islamic bonds power consortium's $1.2bn Aston Martin buy

Gillian Tett, London

March 19, 2007

 

THE name is Bond. Islamic bond.

Or rather it should be, considering the consortium that has bought Aston Martin, the maker of James Bond's favourite sports car, is going to finance the purchase according to strict Islamic principles.

Ford Motor agreed last week to sell Aston Martin for £479 million ($1.2 billion) to a leveraged buy-out (LBO) consortium organised out of London by motor-racing entrepreneur Dave Richards.

 

German bank WestLB has been appointed to arrange £225 million of quasi-debt finance to back the LBO and it must accord with the Koran's opposition to interest and speculation.

 

"This will be financed in an exclusively shariah-compliant way," WestLB executive director David Testa said.

 

Mr Testa believes this is the first time Islamic finance has been used for an LBO in Britain, and probably the western world.

 

The Islamic financial focus has arisen partly because two key financiers behind the LBO, Kuwaiti groups Investment Dar and Adeem Investment Company, only invest in accordance with Islamic principles.

 

The move comes at a time of rapid growth in the Islamic finance sector, estimated to have assets of more than $US300 billion ($376 billion) worldwide, a reflection of growing religious sentiment in the Muslim world and high oil prices putting more finance in the hands of groups such as Investment Dar.

 

Meanwhile, western investment banks such as WestLB, Deutsche Bank, Citigroup and Barclays are becoming more involved in Islamic finance.

 

WestLB expects to syndicate the Aston Martin LBO finance among Islamic banks in the Gulf and London, as well as to non-Islamic groups, such as European banks.

 

The finance package will initially be structured in a manner comparable to a syndicated bank loan, with total debt of about 4.5 times earnings before interest, tax and depreciation - a relatively low level compared with recent European LBOs.

 

The LBO consortium is expected to issue so-called Islamic bonds, sukuk, in the future to take advantage of planned changes in British law that will make it more attractive, in tax terms, for British companies to issue these instruments.

 

This additional financing is expected partly because the company has ambitious plans that are likely to meet warm approval among Middle Eastern financiers, given the Gulf's love affair with fast cars.

 

But it remains to be seen whether these financiers will ban other factors also that might be deemed non-Koranic, such as the use of martini-swilling spies to market the brand.

[FatB]

by replacing the word "interest" to "wage" will not pass the sharia test!..... Islamic banking is a myth that is exploited....

[N.O.R.F]

I live in Islamic Banking Capital aka Dubai. I hear these things ie Sukuks to finance takeover/projects on a daily basis and bank with the oldest Islamic Bank in the world. I was lost in it all at first now its just a case of accepting it as an alternative to conventional banking. I will leave the rest to the experts and sheikhs.

[YoniZ]

Originally posted by tHe oNe aNd OnLy:

by replacing the word "interest" to "wage" will not pass the sharia test!..... Islamic banking is a myth that is exploited....

You should try to do better than the western bankers' simplistic idea that Islamic banking is an other name for interest, or exploiting the relegious bliefs.

 

If you look back to the success of the conventional banks, the most important factor in that success is their product/service differentiation and innovation in a rapid base.

The more innovative the bank is, the more it generates income and attracts new customers.

 

That is exactly what the Islamic Banks are doing recently,and the same reason why the Western Banks are panicking.

 

The legality side of the IB products is more complicated than a simple black-and-white issue, so, let us leave that to the professional Isalmic Scholars in that sector.

 

One last word about Sukuk or (Islamic Bonds) as it is marketed, according to Islamic Finance Qualification IFQ edition 2, p.177

"Sukuk always linked to underlying assets(whether tangible or intangible assets).

Holding A Sakk(the singlur term of Sukuk), represent a partial ownership in assets. This means the Sukuk are neither share nor bonds, they represent a little of each".

 

in page 179 "Sukuk holders have the right to profits but also bear losses"

 

This is the future of raising money for my white elephent projects, so don't spoil it .

[N.O.R.F]

^^I see you are famaliar with IB terms. I'm just beginning to differentiate between them.

 

Previous SOL discussion on Islamic Finance/Banking

[YoniZ]

Northerner, shame on you man . You are in Dubai, the birth place of DIB, one of the most successful IB in the world and saying not fimiliar with IB terms.

 

IB is a lucrative business, genous economic philosophy and more than that, it is an answer to the western banks' dominance in our daily life.

There is a long way to go challenging those well established banks. However, they are gradually reaching the standards of the western banks or exceeding in some places like Dubai.

 

IBs are more than avoiding interest(riba), it is a nationalist idea and the heart of the economic self-relience.

It is exactly what Malcom X proposed in the April 12, 1964 in his Ballot or the Bullet speach. "The economic philosophy of Black Nationalism only means that we should own and operate and control the economy of our community."

 

This is what all the fuzz is about.

[N.O.R.F]

I'm a very busy man saxib. Although i'm with DIB many of the terms just go over my head. I understand differences between 'Ijaara' and 'Murabaha' etc but not every other service they provide.