Investment Dar Co’s agreement to change Shariah-compliant debt terms last week may help revive sukuk sales after their 2010 tumble.
The Kuwaiti owner of half of Aston Martin Lagonda reached an accord with creditors to pay KD1bn ($3.6bn) of Islamic bonds and loans over as long as eight years. The company’s debt climbed to a bid price of 38 cents on the dollar from 33 cents before the agreement was reached, according to London-based investment bank Exotix Ltd. Moody’s Investors Service says the case sets a “good precedent” for Islamic bond restructurings worldwide.
Gulf Cooperation Council sales of Shariah-compliant debt, which pay asset returns to comply with Islam’s ban on interest, dropped 32 percent last year to $4.53bn, according to data compiled by Bloomberg.
Global sales declined 15 percent in 2010 and reached a record $31bn in 2007. Abu Dhabi’s National Central Cooling Co said last week it made progress in changing debt terms.
“Once we see some tangible progress on these restructurings then it does create a better landscape for sukuk issuance,” John Bates, the head of fixed income at Silk Invest in London, said in a telephone interview on February 15. The global economic slowdown and the dominance of Malaysia, the world’s biggest market for Islamic debt, in the industry are also to blame for the drop in regional new issuance, he said.
Investment Dar, the Kuwaiti financial services company that is part owner of Aston Martin, the British luxury sports-car maker, will pay KD405m in three to four years with 11 percent annual profit.
Of the 11 percent, 5 percent will be paid in cash and the rest will be payment in kind. The remaining KD600m will be paid in years four to eight, according to a company statement February 8.
Investment Dar’s $150m floating rate sukuk maturing in September had returns payable every six months ranging from 6.7 percent to the current return of 2.2 percent, according to data compiled by Bloomberg. The $100m sukuk matured in October.
The company’s plan converts part of the creditors’ debt claims into equity of Investment Dar and “shareholders can reclaim part of this equity if debt repayments are honored in full,” according to the statement.
Under the plan, 10 percent of the company’s shares will pass to the banks and investors. In addition, as much as KD20m in fresh equity will be injected by Investment Dar’s shareholders in the first 12 months of the plan.
“At last we have one way out of a defaulted sukuk,” Anouar Hassoune, an Islamic finance analyst at Moody’s in Paris, said in a response to e-mailed questions on Tuesday. “Before Investment Dar, we had no idea whether courts and Shariah scholars would prefer liquidation and partial settlement, asset swaps, zero recovery or any other option. At least now we know that asset swaps is a viable option.”