DCA uses Islamic funds to help finance the airport

Dubai Islamic Bank to lead manage US $750 million Islamic sukuk

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By  Eudore Chand Published  June 26, 2004

The Dubai Department of Civil Aviation, overseeing the US $4.1 billion final expansion of the Dubai International Airport, has turned to private sector financing in June as was first revealed by Construction Week in issue 8 in January. DCA has appointed Dubai Islamic Bank to manage what will be the world’s largest Sukuk (Islamic secured bond) offering at US $750 million. DIB will be lead manager, arranger and book-runner for the issue that will have a five-year maturity and is likely to be listed and traded on the Dubai Financial Market. The funds are being raised to part finance the next building phase of the expansion Dubai International Airport. Sheikh Ahmed bin Saeed Al Maktoum, president of Dubai Department of Civil Aviation and chairman of Emirates Group; and Dr. Mohammed Khalfan bin Kharbash, UAE Minister of State for Finance & Industry and chairman of Dubai Islamic Bank, recently signed an agreement to this effect. Construction Week first revealed that government funding of the project might be stopped from June onwards. It had also reported that banks and other financial institutions had shown an eagerness to supply the financing. As previously reported “DCA is committed to finance the project from external sources and repay it from income generated by the airport operation. The sukuk … will raise funds for DCA to support its Phase II expansion of the Dubai International Airport,” said Sheikh Ahmed. “The mandate awarded by the DCA reconfirms its ability to independently finance its own projects,” DIB said. Sheikh Ahmed said the DCA has been considering several funding options for Phase II and decided to work with DIB because of its expertise in Islamic finance and ability to work closely with local, regional and international banks. ”The sukuk route is going to be more and more preferred because the Islamic markets are deeper. There is a lot of liquidity and the sukuk is superior to conventional unsecured bonds,” said Suresh Kumar, general manager of Emirates Bank’s Emirates Financial Services. Dr. Kharbash emphasised the need for other UAE-based entities to further strengthen the country’s financial markets by resorting to financial instruments such as sukuks, which serve to bolster domestic liquidity and attract foreign direct investment in regional capital markets. There are many planned projects in UAE and it is hoped that this issue will encourage similar ones and help expand the pool of interested investors. In recent times sukuks have been one of the most innovative forms of securities, acceptable to both conventional and Islamic investors, in the global capital markets. DCA’s decision to issue sukuk should encourage further international deals to help development of mature Islamic capital market. The second phase of the airport’s expansion programme was begun in the first quarter of 2002 and is scheduled to finish by 2008. It includes construction of Terminal 3, Concourse 2 and Concourse 3, Mega Cargo Terminal, Flower Centre, Runway, taxiways & other infrastructure and special airport systems.

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