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Friday, 20 July 2007

UAE lender prices Islamic asset-backed securities that will revolutionise Islamic debt market


Dubai-based mortgage lender Tamweel said on Thursday it had priced asset-backed securities that comply with Islamic law, a new instrument arrangers say will revolutionise the Islamic debt market. The bonds, like traditional Islamic bonds known as sukuk, are asset-backed. But unlike sukuk, they allow buyers direct access to the underlying asset. These are kept separate from the borrower, arranger Morgan Stanley said. The assets used to back Tamweel's bonds were lease-to-purchase contracts on residential properties -- a method of buying homes that complies with Islamic law. This type of bond can fetch a higher credit rating than the issuer, especially when the bonds are based on strong underlying revenue-generating assets. The arrangement also insulates the issuer from creditors should volatility hit the assets, and the bondholders are not exposed to the issuer's future actions, said a Morgan Stanley official who did not want to be identified. "This transaction has paved the way for many similar transactions going forward, particularly for companies that have strong cash-flow generating assets that can ... be funded against," the official said. Tamweel priced its debut asset-backed securitisation at 35 basis points over the one-month London Interbank Offered Rate, the firm said in a statement. The eight-year bonds were marketed in the Gulf, Asia and Europe, where demand was strongest. They are expected to receive investment-grade ratings of Aa2 by Moody's Investors Service and AA by Fitch Ratings, Tamweel said, which intends to use the money raised to finance expansion. Islamic law, also known as sharia, bans the charging of interest and any investment in businesses involving alcohol, gambling, pork, weapons and pornography. - (Reuters, 19 July 07)

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