Different banks such as Citi group, JP Morgan, Deutsche bank, Morgan Stanley, Emigrates NBD Capital Limited and Standard Chartered Bank were involved in providing Islamic banking services to the customers for the purpose of maximum Sukuk or Islamic bonds to the customers. In order to improve the Islamic banking service industry, the banks came as service providers in a diversified network. As the demand for the Islamic bondswas increasing amongst people, one bank was not liable to fulfil the demand for Islamic bonds, however, the company needed $5 billion to purchase the next batch of aircrafts, which became possible after the involvement of six different banks.
EA has intended to sell securities at a profit rate of 3.875% with the funds raise amounted to $1 billion, which is very risky for one bank, so they have decided to share the risk amongst six banks. As it can be seen in Exhibit 12 that according to Standards and Poor’s, the rating is given to the highest fees. The AA category such as IPIC Gmtn Limited and Nakilat INC have given the highest rating. Whereas, the B category such as Kuwait Project Company, Emaar Sukuk Limited, Bahrain Mumtalakat and AtlanticFinance Limited have given low rating.
The Sukuk bond tends to be an attractive instrumentin the Islamic financial market for the investors in terms of competitive investment. Even though the Sukuk bond’s largest block has fallen in the Ijara category, the company has issued Sukuk bond of the Wakala variety, because it allowed conventional and Islamic investors to easily access its liquidity poolwithout compromising on risk and return objectives. In addition to this, it has also incurredlow financing cost which is a key reason behind issuing the Sukuk bond.
Besides, Emirates Airline has issued Sukuk bondswith Wakala, which is the right structure. Under this structure, interest is prohibited while following Islamic law. In addition to this, it is very important for Emirates Airlines in terms of underlying assets while the Sukuk bond is sanctioned to proceed the underlying asset performance.
The previous bonds were issued with an intent to raise debt finance and at the end of the contract, the bondholders were allowed to receive interest before principle and dividend. But the Wakala allowed the investorsto receive profit return which is agreed by outset and parties. In case of any excess profit, it would be kept as incentive fees. It comprises ofa broader range with complaint assets.Also, the Shariah board has to approve the criteria of the assets.
Based on the information given in the case, Emirates Airlinewould have to finance its next batch of planes through repeating the issue of Sukuk bonds. If Emirates Airlinewould keep repeating the Sukuk bond issuance, Emirates Airlinemight be entitled to proceed with the performance of the business activity and underlying assets, additionally, it would have a right to earn profit from the business activity as well.
In addition to this, Emirates Airline should keep issuing Sukuk bond because it has already been engaged in this practice and the funds might be raised so that it would pay for the existing order made for the aircrafts……………………
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