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Friday, 12 September 2008

Securitisation could save Islamic structures

11 September 2008
Rachel Evans
Islamic securitisation could provide a solution to industry doubts about sukuk. This week, Sorouh Real Estate completed the world's largest shariah-compliant securitisation in what could become a model for future Islamic financings.
The deal, which closed on Thursday, built on the Middle East's first true-sale Islamic securitisation, Tamweel, last year. But as Debashis Dey, one of Clifford Chance's lead partners on the transaction explains, Sorouh's deal innovated further:
"Tamweel broke new ground in 2007, but shariah structures evolve and some aspects of that structure may be viewed as outdated. This deal is an evolution of shariah structures generally and other true-sale securitisations on a grand scale."
Sorouh's transaction was also the first to securitise instalment sales receivables (from the sale of land), the first asset-backed securitisation from Abu Dhabi and the highest rated issuance from a non-sovereign in the region.
Scholars and trade associations such as Aaoifi (the Accounting and Auditing Organisation for Islamic Finance Institutions) should be pleased. Aaoifi recently criticised some sukuk structures for using intangibles and not passing on sufficient risk to investors.
Shariah-compliant true-sale securitisations offer a more palatable source of funding: "Scholars would like fully asset-backed non-recourse financings," said Dey "Currently, many traditional sukuk are really corporate credit. A true-sale Islamic securitisation is different and is fully asset-backed."
But while scholars seem keen on securitisation, commercial constraints may limit the structure's success in the short term.
"Only sophisticated investors understand the risk and reward of the assets underlying securitisations and a lot of Middle Eastern investors prefer the credit name of an obligor, not a pool of assets," said Dey. "In addition to these two factors, a lot of companies don't have the type or volume of assets required for a securitisation so initially I still see only one or two deals a year."
Debashis Dey and Qudeer Latif led the Clifford Chance team advising the global coordinator, Citigroup. The firm also represented the joint lead managers and bookrunners, Abu Dhabi Commercial Bank, Citi, First Gulf Bank, National Bank of Abu Dhabi and Noor Islamic Bank.
Freshfields Bruckhaus Deringer, led by Chris Barratt, David Trott and Walid Hegazy, assisted Sorouh. Afridi & Angell provided local counsel while Bedell Cristin advised on Jersey law.

(Source: IFLR)
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