Emaar raises US $65 million with Sukuk offering

Funds are to part finance the developer's current and future projects

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By  Eudore Chand Published  June 19, 2004

Emaar properties has announced the offer of US $65 million Islamic Sukuk bonds to institutional investors through its Bahrain-registered special purpose firm, LMC Emaar Sukuk Company. The issue is to part finance the property major’s ongoing and future projects. “The funds from Sukuk form just a small portion of the cash reserves of the company and will be utilised for the capital expenditure requirement of the company,” said A.J Jaganathan, Emaar CEO. Emaar has transferred three commercial properties - the Gold & Diamond Park phase 1 which is valued at Dhs72 million; Emaar Business Park -Building 1 at Emirates Hills valued at Dhs75 million and the Emaar Business Park, Building 3, Emirates Hills II valued at Dhs96.5 million. These form the assets of LMC Emaar. These will be leased back to Emaar Properties under an Ijara (lease) contract for five years for ten 6-month rental periods. The lease proceeds will be distributed to bond holders. “The distinguishing feature between this and other sukuks is the quality of the structure and the documentation,” said Suresh Kumar, general manager of Emirates Financial Services, which is managing the offer. “The airport too has gone the sukuk route. This is going to be a more and more preferred route to finance real estate because it is superior to conventional bonds and are a preferred secured alternative. What we need to look at now is how to rate the sukuks,” Kumar added. The net periodical return will be equal to Libor plus 0.70% multiplied by the purchase price of assets at the beginning of the relevant Ijara period (in number of days). The bond is secured as in the sale and lease back arrangement, the issuer will act as the trustee on behalf of bondholders and has direct recourse to the leased assets on behalf of the bondholders, in the unlikely event of default. The amount raised will result in a debt equity ratio of just 0.036. The company has more than 42 000 shareholders and a capital base of Dhs2.65 billion, of which 32% is held by the Government of Dubai; 34% by founding shareholders and 34% by the general public. The Emaar Sukuk may be listed on regional stock exchanges, Dubai Financial Market and the Bahrain stock exchange.

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