• Issuers use intangible assets to underpin sukuk
• Market innovation to allow others to follow
Market participants are predicting an increase in sukuk
issuance in the Gulf region over the next two years, as
innovative structures expand the range of assets that can
be used as underlying sources of profit.
Qatari state-owned telecoms firm Ooredoo, for instance,
made its debut in Islamic bonds last month, pricing a
US$1.25bn 3.039% 2018 sukuk.
Unusually, the company used phone airtime as the
underlying asset, paving the way for other
telecommunications firms to follow.
Dubai's flagship airlines carrier Emirates, meanwhile,
issued a US$1bn 3.875% 10-year amortising sukuk using
revenues per passenger as the underlying asset.
The tactic to use an intangible asset may serve to widen
the base of borrowers that could access the market.
Rather than paying a coupon, sukuk offer investors a share
of the profit generated by an asset held by the issuer.
Traditionally, issuers have used land or property leases
as the underlying asset.
This limits the issuer base because not every company
holds assets extensive enough to issue on a regular
basis.
Ooredoo, for example, may not have sufficient property
assets to underpin more than a couple of sukuk.
"Ooredoo could have issued a sukuk without using this
structure, but using airtime for the purposes of
structuring allows the company to issue on a regular basis
in the future," said Hani Ibrahim, head of DCM at QInvest,
a bookrunner on the transaction along with DBS, Deutsche
Bank, HSBC and QNB Capital.
The fact that two well-recognised companies have issued
deals of this nature will encourage others to take the
same path.
"Anything innovative tends to be done by very good
credits, household names if you like. When an Emirates or
a Ooredoo does a deal like this, it opens the doors for
others," said Noel Lourdes, an executive director for
Amanie Advisors, an Islamic financial advisory firm.
Ooredoo is not the first company to use mobile phone
airtime to complete an Islamic finance deal. Malaysia's
Axiata has used the structure in the past, while Saudi
Arabia's Mobily used airtime as an underlying asset in the
loan market in March 2008.
UAE's Etisalat considered a similar structure as well, but
the deal did not come to fruition.
As a result, Ooredoo's is the first sukuk of its kind in
the Gulf, and the first such sukuk or loan in the region
since the crisis.
This shows that some innovation is returning to the
market, said Farmida Bi, a partner and European head of
Islamic finance at Norton Rose Fulbright.
"If you look back at the Islamic market in 2006-7, there
were some interesting structures pushing the boundaries,
such as a pre-IPO convertible sukuk [by Nakheel], but the
crisis forced people to become more cautious," she
said.
"It now feels there is more scope to tap into the broader
market, and issuers are becoming braver in the type of
assets they are using as underlying securities," she
added.
This will open the potential pool of issuers coming into
market, she said.
However, one banker sounded a note of caution, saying that
a balance has to be found between innovation and getting
too far away from the Islamic principles that govern the
asset class.
"Generally in the GCC, in Saudi Arabia and Qatar in
particular there is a move towards trying to do more
things in Islamic finance," said Ibrahim of QInvest.
"I think we will see more innovation but there has to be a
balance – Sharia compliance is very important and the
Islamic scholars are conscious not to let people push the
boundaries too far," he said.