The funds raised from the Sukuk bonds will be used for funding Emaar's ongoing real estate projects and will enter in its balance sheet as long-term debt. “The funds from Sukuk forms 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, chief executive officer of Emaar.
The issuer's (LMC Emaar) initial assets are created through the transfer of three commercial properties by Emaar to the issuer. The properties thus transferred will be leased back to Emaar through a lease agreement (Ijra contract) for five years for ten 6-month rental periods, and the lease proceeds from these assets will be distributed to the bond holders.
The net periodical return (Ijra return) is payable at the end of each Ijra period on rental of the assets. In this case the Ijra return will be equal to the Ijra Return Margin of Libor plus 0.70 per cent multiplied by the purchase price of assets at the beginning of the relevant Ijra period (in number of days).
In the sale and lease back arrangement, the issuer will act as the trustee on behalf of the bondholders and has direct recourse to the leased assets on behalf of the bondholders, in the unlikely event of default by Emaar Properties.
The initial assets transferred to the issuer will include the Gold & Diamond Park phase 1 located at the Al Goze Industrial Area valued at Dh72 million; Emaar Business Park -Building 1 at Emirates Hills valued at Dh75 million and the Emaar Business Park, Building 3, Emirates Hills second valued at Dh96.5 million.
Prior to the Sukuk Emaar has been operating on zero leverage with liabilities constituting of mainly of trade payables and unearned revenue. The amount raised through this issue will result in a debt equity ratio of only 0.036. The company has a wide shareholder base of more than 42,000 individuals with a capital base of 2.65 billion. Out of this 32 per cent is held by Government of Dubai; 34 per cent by the founding shareholders and 34 per cent by general public.
The Emaar Sukuk bond is the first corporate Islamic Sukuk offerings that may be listed on the regional stock exchanges, Dubai Financial Market and the Bahrain stock exchange and is expected to become a benchmark for future corporate Islamic Sukuk offerings.
"The enormous documentation and legal work that went into the issue will become a template for other companies intending to issue Sukuk or any other mode of raising finance from the market," said Suresh Kumar, General Manager, Emirate Bank.
