Perhaps kicking off a wave of future deals, Islam recently saw its first securitization, $150 million in Sukuk (trust certificates) and Al Ijara (leases) from Malaysian agricultural conglomerate Kumpulan Guthrie Berhad.

The deal was brought to the Malaysian market by arranger Bank Islam, via First Global Sukuk, a Labuan special purpose vehicle (SPV). Al Ijara are the Islamic-financing equivalent to leases and permit one party to use another party's property.

Allen & Overy acted as legal adviser to Kumpulan Guthrie Berhad and Bank Islam, and the deal closed on Dec. 24. It is rated BBB+ IS (Islamic Security) by local rating agency Marc International. Kumpulan Guthrie sold palm oil plantations in Malaysia to an SPV, which then leased them back to Kumpulan Guthrie. The SPV's interest in the land was sold to a trust, which issued Sukuk. The payments on the leases are the primary source of payments to Sukuk holders.

"Sukuk are similar to trust certificates, in that the owner of the instrument has a beneficial ownership of underlying assets, together with profits attributable to the underlying assets," explained Kenneth Aboud, partner at Allen & Overy in Singapore. "The Sukuk is not a note or other debt instrument where interest is being paid. Interest payments are not compliant with Shariah requirements."

Other Islamic financings might follow from Malaysia and other states. "There is potential for more such deals in Malaysia," commented Aboud. "Bank Negara, Malaysia's central bank, would like to see the market grow.

There is also the possibility that such deals may be completed in the Arab and Gulf States: the Gulf States are familiar with Islamic investments and would certainly provide an investor base." Indonesia, where securitizations have already taken place, would be a possible candidate for Islamic financings in the Asia Pacific region.

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