28/09/2004

$120M DURRAT SUKUK ISSUE OFFICIALLY LAUNCHED – BAHRAIN

A $120 million Durrat Sukuk issue was officially launched in the market yesterday. The first of its kind sukuk provides for the partial financing of the $1 billion construction of the Durrat Al Bahrain project. The Durrat Sukuk was presented to investors, banking and business executives yesterday by top executives from the Liquidity Management Centre and the Kuwait Finance House.

LMC is the key arranger and placement agent for Durrat Sukuk with KFH as partial underwriters. The Durrat Sukuk eyes key investors specifically from three GCC regions: Kuwait, Dubai and Bahrain.

"This is the first of its kind, we believe, in terms of coming out with a sukuk based on the Istisna'a-Ijarah, involving a reclaimed-land project," said KFH General Manager Abdulhakeem Al Khayyat. The sukuk based on an Istisna'a-Ijarah sukuk comprising of a total of 12,000 sukuk certificates, each with a face value of $10,000.

The investment will have a variable return rate which will be based on the US dollar, three-month LIBOR (London interbank offer rate) plus a fixed-profit margin. KFH has already underwritten $50 million of the Durrat sukuk. The Durrat sukuk is intended to be issued during the last quarter of this year and will mature in 2009.

At yesterday's presentation were Durrat Khaleej Al Bahrain Company BSC Chairman Yousif Taqi, LMC Chairman Hussain Salem Al Meeza and LMC acting Chief Executive Ahmed Abbas. The Durrat Al Bahrain Project is the largest development project in Bahrain at present.

It involves a 20-square-kilometre parcel of land located on the lower southeastern coast of the country. Durrat Khaleej Al Bahrain, as project company, is responsible for the overall management and completion of the Durrat Al Bahrain Project.

The project company is owned in equal shares by the government of Bahrain and KFH-Bahrain, a wholly owned subsidiary of the KFH KSC in Kuwait. The Durrat sukuk is structured in accordance with Shari'ah principles as approved by the LMC and KFH Shari'ah boards.

The transaction structure is based on Istinsna'a (construction) agreements operating in tandem with ijara (lease) agreements over completed project parcels. Endorsement for the transaction has also been provided by the international Islamic financial market.

LMC and KFH have established a special-purpose vehicle called the Durrat Sukuk Company BSC (c) to act as sukuk issuer, hence overseeing the operation of the sukuk on behalf of all investing sukuk holders. Initial intent has been received from both Ernst and Young Bahrain and KPMG, Bahrain, to act as the sukuk trustee and auditor of the issuer, respectively. Qays H. Zu'bi is the transaction counsel for the Durrat sukuk.

Substantial work has been done on the Durrat Al Bahrain Project, a world-class residential and leisure destination. The government has already started constructing the 22-kilometre-long highway at the area. Work on the power station has also started.

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