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W14084

EMIRATES AIRLINE: A BILLION-DOLLAR SUKUK-BOND ISSUE1

Emir Hrnjić, Harun Kapetanović and David Reeb wrote this case solely to provide material for class discussion. The authors do not
intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names
and other identifying information to protect confidentiality.

This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@[Link]; [Link].

Copyright © 2014, National University of Singapore and Richard Ivey School of Business Foundation Version: 2014-04-08

On June 19, 2013, Skytrax consulting agency conferred the “World’s Best Airline” award to Emirates
Airline (EA) based on the largest airline passenger-satisfaction survey to date.2 While executives of EA
received the prestigious accolade, the company’s treasury department focused on preparing a presentation
on the next round of financing for the incoming batch of A380 aircraft. A key aspect of EA’s continuing
success would be finding creative ways to finance the ongoing stream of new airplanes.

A STRONG START

Founded in March 1985, EA initiated operations with $10 million3 in start-up capital and two aircraft
from Dubai’s royal family.4 In the following years, the airline continuously expanded both its fleet and
destinations. Emirates began developing flights into Asia, starting with flights to Bangkok, Hong Kong,
Manila and Singapore. The company then systematically built market share between South Asia and
Europe, providing alternative routes to London, Frankfurt and Paris. Wholly owned by the Government of
Dubai and operating as an independent business entity, EA grew in scale and stature through competition
with a number of international carriers.

EA doubled in size approximately every four years, quickly becoming one of the largest airlines in the
world, with over 60,000 employees, more than 200 aircraft and flights to 140 destinations in more than 70
countries on six continents.5 The airline ranked amongst the largest carriers in the world in both revenue
and passenger-miles and recorded an annual profit each year from 1988 to 2012. EA also operated four of
the world’s 10 longest non-stop commercial flights from Dubai to Dallas, Houston, Los Angeles and San
Francisco. The airline had the world’s largest fleets of Airbus A380 and Boeing 777. According to its
website, EA served 34 million passengers and carried 1.8 million tons of cargo in fiscal year 2011/12.6

Sponsorships formed a vital aspect of the airline’s marketing strategy. “We believe sponsorships are one
of the best ways to connect with our passengers,” said EA’s chairman.7 In that spirit, on April 15, 2013,
EA signed a sponsorship deal with Real Madrid (a well-known Spanish soccer team) in addition to
existing sponsorships with Arsenal Football Club in the United Kingdom, Paris Saint Germain Football

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Club in France and A.C. Milan in Italy. Beyond the world of soccer, EA had sponsorship agreements with
tennis, golf, horse racing, Formula One racing and other major sports and cultural events.8

DUBAI, UAE

Dubai and five other Emirates formed the United Arab Emirates (UAE) after gaining independence in
1971.9 Voted as the city with the best quality of living in the Middle East in 2012,10 it earned worldwide
recognition for its iconic architectural achievements, such as the world’s tallest building (Burj Khalifa),
the world’s largest man-made island (Palm Jumeirah) and the world’s only “seven-star” hotel (Burj al-
Arab).

Dubai’s early development strategy appeared closer to that of an “entrepôt,”11 similar to Singapore in its
early days. When oil was discovered in Dubai in 1963, the emirate’s leaders used the oil revenues to spur
infrastructure development and invest in schools, hospitals, roads, modern telecommunications,
transportation facilities and the largest man-made harbour in the world with a “free zone” around it.12 In
2013, Dubai’s economy appeared well diversified and its main revenues came from trade, tourism, real
estate and financial services, while oil revenues accounted for less than 3 per cent of its gross domestic
product (GDP).13

In line with its strategy of heavy investments into infrastructure, Dubai built International Airport
Terminal 3 exclusively for the use of EA at a cost of $4.5 billion — the largest building in the world by
floor space, with over 1.7 million square metres (18.4 million square feet) of space. Dubai developed
heralded hotels, world-class entertainment and major sporting events to become a major tourism
destination. By 2013, Dubai also became a hub for information technology (IT), media and finance, with
industry-specific free zones Dubai Internet City (with IT firms such as Oracle, Microsoft and IBM) and
Dubai Media City (with media organizations such as CNN, BBC and Reuters). Dubai International
Financial Centre hosted major global financial institutions such as Citibank, Barclays and BNP Paribas as
well as NASDAQ Dubai—one of three stock exchanges in the UAE.14

GLOBAL FINANCIAL CRISIS

Dubai experienced major problems during the global financial crisis of 2009, due to a mismatch between
the maturities of its assets and liabilities. Government-related entities (GREs) with aggressive business
strategies and fragile cash flows relied on short-term debt, leading to substantive financial difficulties.
Arguably, one reason for the reliance on short-term debt stemmed from the nascent development of
Dubai’s financial markets by global standards, potentially impeding the economic progress of Dubai and
the UAE. Once international capital markets tightened as a result of the financial crisis and access to debt
refinance was denied, Dubai’s economy experienced a major decline. Dubai’s crisis looked like a
corporate refinancing problem as multiple construction projects were half-finished and firms across
sectors started massive layoffs. As a result, Dubai’s GREs’ debt traded at a deep discount. However,
when GREs’ obligations became due, Abu Dhabi came to the rescue by providing $10 billion to the
Dubai Financial Stability Fund.

The story of Dubai World, a GRE that owned some of the most prominent corporations in Dubai,
exemplified the crisis. On November 25, 2009, Dubai World asked for a restructuring of its debt worth
$26 billion. Dubai World’s developer, Nakheel, known for the construction of the Dubai Palm Islands,
announced the delay in the repayment of the $4 billion “sukuk” (Islamic bond).15 Nakheel’s bonds were

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soon trading at 45 per cent of their face value. The well-reported $10 billion bailout, including the direct
provision of $4.1 billion from Abu Dhabi, calmed the markets.

In 2012, Abu Dhabi came to the rescue again when it partly bankrolled the acquisition of a struggling
Dubai Bank by Emirates NBD, Dubai’s largest bank.16 As the controlling shareholder, the Dubai
government directed Emirates NBD to take over loss-making Islamic lender Dubai Bank, which had been
rescued by the emirate’s government in 2011. Emirates NBD, whose fourth-quarter results were hit by its
exposure to Dubai-linked entities, announced that the UAE finance ministry gave it an eight-year loan of
$762 million at below market rates to facilitate the deal. The support was a further sign that Abu Dhabi
would stand by its debt-ridden neighbour.

While Dubai and Abu Dhabi were both part of the UAE, they had very different financial standings. Abu
Dhabi had a much stronger credit rating on the back of large oil reserves and substantial wealth managed
by its sovereign wealth funds. The biggest contributor to the UAE treasury, Abu Dhabi sat on 10 per cent
of global oil reserves and accounted for 90 per cent of the UAE’s oil output. Its government practiced a
more conservative and less aggressive business approach, resulting in an “AA” credit rating. Dubai did
not have credit rating.

GLOBAL HUB FOR ISLAMIC FINANCE

Dubai became an international hub for Islamic finance. Its Islamic finance industry comprised a
diversified network of service providers to include commercial banking, asset management, Shari’ah
consulting, insurance, endowments, etc. In 2013, Islamic assets were growing at 15 per cent per annum
and represented about 16.7 per cent of market share.17 Unlike some other jurisdictions, Dubai stayed away
from the more traditional path of industry development with strong government intervention and support
via regulatory and fiscal incentives; Dubai invested into institutional development instead. Still, its
Islamic finance industry flourished and recorded impressive growth and diversification rates.

In 2013, Dubai made public its plans to become a global capital of the Islamic economy by developing a
more comprehensive and holistic Islamic economic ecosystem.18 This reflected a new paradigm in Islamic
finance that aimed at integration into wider economic development as opposed to more narrow
convergence with conventional financial solutions.

AIRLINE INDUSTRY

Studies by Oxford Economics quantified the significant economic impact that aviation generated across
major markets in the Middle East.19 For example, in the UAE in 2009, aviation directly contributed
141,000 jobs (4.5 per cent of employment) and made a value-added contribution to GDP of $10 billion
(3.5 per cent of GDP). Moreover, forecasts indicated that aviation’s contribution to the region’s GDP
would increase by 6.3 per cent per annum in real terms with creation of an additional 294,000 jobs across
the Middle East by 2030. The projected growth rate for international traffic in the Middle East was 7.9 per
cent — higher than any other region in the world.

With huge losses for European airlines and growth in the Asia-Pacific region, airline industry power
shifted towards the Middle East.20 For instance, Turkish Airlines, well situated between Europe, Asia and
Africa, continued to aggressively expand its operations. Other Middle Eastern Airlines such as Etihad and
Qatar followed suit.

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However, not everyone was impressed with the expansion of these airlines. Lufthansa chief executive
officer Christoph Franz was the most vocal opponent of Emirates, Etihad Airways and Qatar Airways,
criticizing them for being state-owned, government-subsidized and reliant on unfair advantages such as
access to export financing, low or no taxes and cheap labour. Emirates quickly responded to these
accusations. According to its report, the company was completely unsubsidized and, in fact, campaigned
against airline subsidies.21 It had been buying fuel from BP, Shell and Chevron in Dubai and worldwide at
market rates.

GROWTH

EA announced plans to acquire 30 more Airbus A380s, in addition to the 34 the company had in service
and the 56 on order. With these purchases, the EA fleet would contain 120 of the largest commercial
planes available (at about $390 million per plane).

The Airbus A380 was the world’s largest passenger airliner, providing 49 per cent more floor space than
the next-largest airliner as well as seating for 525 people in a typical three-class cabin layout over a range
of up to 15,700 kilometres (almost 10,000 miles).22 Airlines could customize A380 aircraft with various
features. For instance, EA included shower spas in its first-class area, along with the two lounges on the
upper deck.23 Other airlines had comparable innovations: Qantas offered a lounge area, Air France
introduced a digital gallery and Singapore Airlines’ first-class suites offered standalone beds (i.e., not
converted from seats).24

FINANCING GROWTH

On March 11, 2013, EA announced plans to issue a 10-year amortizing Islamic bond, known as a sukuk.
The sukuk, maturing in 2023, had an amortizing structure with an average weighted life of five years.25 In
other words, the sukuk gradually would reduce the value of the bond over a period of time; hence, the full
amount would be paid before the final maturity date. Lead arrangers released initial profit rate guidance at
a spread ranging between 300 basis points to 350 basis points relative to five-year mid-swaps.26 In
February of 2013, EA’s $750 million amortizing bond received a muted response due to weak market
sentiment at the time.27

The government-owned airline picked Citigroup and Standard Chartered as global lead managers. Other
joint lead underwriters for the proposed sale were Abu Dhabi Commercial Bank, Abu Dhabi Islamic
Bank, Dubai Islamic Bank and Emirates NBD Capital.28

ISLAMIC FINANCE

The Islamic economic model emerged in the 1970s, after which, the growth and popularity of Islamic
bonds was exponential. The primary tenets of Islamic law and finance encouraged risk sharing rather than
risk shifting and prohibited interest and speculation. Islamic banking assets with commercial banks
surpassed the $1.5 trillion mark in 2012, and estimates projected the industry to hit between $2 trillion
and $3 trillion by 2015.29 Furthermore, Asian countries were increasingly using Islamic finance to fund
infrastructure projects. The Asian Development Bank estimated that Asian countries would need more
than $8 trillion of infrastructure investment between 2010 and 2020.30

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In the 2000’s, Islamic finance emerged as a mainstream component in many parts of the global finance
industry. Conventional finance powerhouses such as Citigroup, Deutsche Bank and JP Morgan
established “Islamic windows” that offered retail and corporate banking services. Mutual funds created by
major financial institutions, such as HSBC, UBS and UOB, offered wealth-management services in
accordance with Islamic principles. At the same time, there was a major global expansion of Islamic real
estate investment trusts, Islamic insurance and Islamic project financing, as well as financial institutions
specialized in housing and consumer banking. The introduction of Islamic equity market indices, such as
the Dow Jones Islamic Market and the Islamic Bonds League tables, contributed to the visibility and
globalization of the industry. Islamic finance had made a strong foray into the Western world as well.
Along with the growth of the Islamic financial sector, numerous innovations had resulted in well-
structured and competitive Islamic products and services.

ISLAMIC BONDS

Typically, firms issued bonds to raise debt finance and the bondholder received interest that was paid
before dividends and a principal at the end of the contract. However, interest was prohibited under Islamic
law. Instead, Islamic investment certificates (i.e., Islamic bonds or sukuk) were linked to an underlying
asset so that a sukuk holder was entitled to proceeds of the performance of the underlying asset or
business activity. In other words, a sukuk holder would participate in the business activity of the company
issuing the sukuk and had a right to profits resulting from that activity (but, at the same time, was equally
bound to bear its share of any losses).

The main features of Islamic bonds were the following:

 Islamic securities must neither directly nor indirectly include interest payments.
 Income from securities would include profit- and loss-sharing components and not simply comprise
interest.
 Islamic securities cannot be structured as a company’s general obligation and, hence, may not be
strictly regarded as fixed-income instruments. In the case of asset-based structures, sukuk bonds
resemble conventional securitization structures.
 Sukuk structures must not be based on sale of debt, which is prohibited by Islamic law. Sale of debt
or discounting gives rise to interest payments.31
 Islamic securities must directly relate to the purpose of financing with real underlying assets and/or
business activity on which the transaction is based.
 The securities should not be based on speculation nor include excessive uncertainty.
 Sukuk structure and documentation must be approved by a committee composed of Islamic scholars.
 Transparency and clarity of rights and obligations is a mandatory aspect of all legal documents.32

Comparatively, bonds were treated as senior to sukuk and bondholders’ rights were better protected.33
Also, bonds were tradable in conventional markets, whereas not all sukuk were tradable (depending on
the type of sukuk).

As with conventional bond issuance, issuing sukuk followed the same process and the same role for
investment banks. A key decision in engaging lead managers was whether they would underwrite the
issue or act on a best-effort basis. Underwriting implied guaranteed placement of any remaining portion
of the issue by the underwriting bank. On the other hand, in best-effort engagement the lead manager (or
book runner) would build the book of offers from the investors. A book runner typically provided price
guidance and a pricing range of the issue, and collected offers from the investors at different price points.

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Once the book of orders was built, the lead manager would price the issue — typically as a spread to key
benchmarks such as U.S. bonds or mid-swaps. Subsequently, the issue would be allocated to investors
based on issuer placement strategy.

TRENDS IN ISLAMIC BONDS’ ISSUANCE

Islamic bonds emerged as a significant asset class in international markets. Importantly, sukuk bonds
allowed conventional and Islamic investors to access significant liquidity pools available in Gulf
Cooperation Council countries34 without compromising risk-return objectives. Furthermore, major
exchanges such as London, Luxembourg, Dubai and Kuala Lumpur expanded offering of Islamic bonds,
which further added transparency and credibility to any sukuk issues and ensured investors’ confidence.
Sukuk bonds on the Dubai Mercantile Exchange primarily consisted of “ijara,” (sale and lease back)
“murabaha” (cost-plus financing) and “musharaka” (partnership) types (see Exhibit 1).

Following the Dubai crisis in 2009, sukuk issuance strongly rebounded, with $52 billion in 2010, $84
billion in 2011 and $131 billion in 2012.35 Based on growth forecast in 2013, Ernst & Young estimated
that the market demand for sukuk (for liquidity management purposes of Islamic financial institutions)
would outstrip sukuk supply by at least $221 billion by 2015 (see Exhibit 2). Corporate sukuk represented
roughly half of the total global sukuk issuance from 2001 to 2010; the other half consisted of sovereign
and quasi-sovereign issues. More recently, corporate sukuk share fell to 19 per cent between 2011 and
2013.36

Islamic bonds quickly expanded in the West as well. For example, the German state of Saxony-Anhalt
issued €100 million ($138.23 million) in sukuk in 2004, tapping into global Islamic capital markets. In
2013, the U.K. government was contemplating issuing sovereign sukuk.37

THE BILLION-DOLLAR SUKUK ISSUE

In June 2012, Emirates Airline repaid a $550 million sukuk bond used to finance plane purchases in 2005.
In February and March of 2013, EA raised $1.75 billion from issuing Islamic and conventional bonds; by
March 2014, the company needed to raise around $5 billion in order to pay for its existing aircraft orders.

The sale of 10-year amortizing Islamic bonds at a profit rate of 3.875 per cent accounted for $1 billion of
EA’s funds raised in early 2013. The remaining $750 million came from 12-year amortizing regular
bonds at a coupon of 4.5 per cent. Islamic bonds due on March 19, 2023 were issued at the offer price of
99.331. Interestingly, the yield curve at issuance suggested these bonds should have similar rates, yet the
sukuk bonds yielded 48.6 basis point lower profits than the yield on the regular bonds. This lower
financing cost might have been one of the key reasons for issuing sukuk bonds (see Exhibits 3 to 6).

FINANCIAL AND RISK CHARACTERISTICS

Exhibits 7 to10 provide basic data about Emirates’ financial situation.

EA was exposed to fluctuations in jet fuel costs, but the hedging activity during the fiscal year ending on
March 31, 2012 was not significant. It was also exposed to fluctuations in currency exchange. Debt
obligations were mostly in AED (UAE dirhams) or US$, to which the AED was pegged. A small portion
of debt obligation was in Singapore dollars, which was pegged to a basket of currencies (including US$).

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Finally, there was exposure to fluctuations in prevailing interest rates, with the key reference rates being
London Interbank Offered Rate (LIBOR), Emirates IBOR and Singapore IBOR.

In 2013, Dubai government international bonds denominated in US$ expiring in 2015, with the coupon
rate of 6.7 per cent and modified duration of 2.31 years, were yielding 2.34 per cent. Yields on similar
bonds with longer maturities were used to plot a yield curve (see Exhibit 11). The characteristics and
yields of selected bonds and sukuk selling in Middle East and North Africa region were also compiled by
Emirates NBD (see Exhibit 12).

How should EA finance the next set of planes? Analysts were conflicted as to the best alternative. Some
favoured repeating the sukuk issue, some appeared focused on exploring other types of sukuk bonds and
others leaned toward conventional financing arrangements. The EA treasury department faced a difficult
decision in determining the best way to finance these new planes.

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EXHIBIT 1: SUKUK TYPES

Ijara is comparable to lease finance. Under this concept, the bank makes available to the customer the
use of assets or equipment such as plant or motor vehicles for a fixed period and price. Ijara
specifications include following:
 the use of the leased asset must be specified in the contract
 the lessor (the bank) is liable for the maintenance of the underlying assets
 the lessee is held responsible for maintaining the asset in proper order.
An Islamic lease is similar to an operating lease but the redemption features may be structured like a
finance lease.

Murabaha is a form of trade credit or loan (a.k.a. cost-plus financing). The key distinction between a
murabaha and a classic loan is that in a conventional loan, the bank lends the money to the borrower to
buy the product, while in murabaha, the bank will buy and take actual physical ownership of the asset.
The asset is then resold to the ‘borrower’ or ‘buyer’ for agreed mark-up, but the buyer is allowed to pay
the bank over a set number of installments. The period of the repayments could be extended but there
are no late payment penalties. The contract does not allow for early payment discounts.

Musharaka (partnership) is an agreement in which two or more parties (for example an Islamic bank and
its clients) agree to contribute to the capital of the partnership to establish a new project or share in an
existing one. Musharaka could be constant (i.e., the partners’ shares in the capital remain constant
throughout the period as specified in the musharaka contract) or diminishing (i.e., the Islamic bank agrees
to transfer its share gradually to the other partner, so that the Islamic bank’s share diminishes and the
other partner’s share increases until the latter becomes the sole proprietor of the venture). Musharaka
partners share profit and loss.

Mudaraba is an equity-based partnership arrangement in which one partner provides capital (the rab al-
maal) and the other provides managerial skills (the mudarib). Mudaraba sukuks are very useful if the
issuer does not have tangible assets to back sukuk issuance. The investor in the sukuk is effectively the
rab- al-maal, whereas the issuer is the mudarib. Profits are shared in accordance to pre-agreed ratio
whereas losses are born only by the rab-al-maal, save for cases of gross negligence on the part of
mudarib.

Wakala is an agreement whereby the principal appoints an agent (wakeel) to invest funds into a pool of
investments. The wakeel manages the investments on behalf of the principal in order to generate profit.
The portfolio of assets may comprise different Shari’ah-compliant assets including equities, other sukuk
or even derivative products. However, at least 30 per cent of the assets should comprise tangible assets.
The principal can receive only agreed-upon profit, while any excess profit will be kept by the wakeel as a
performance fee. Sukuk al-wakala are rather infrequent in the market.

Source: Dubai International Financial Centre Sukuk Guidebook, 2009.

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EXHIBIT 2: SUKUK SUPPLY AND DEMAND

OUTSTANDING SUKUK MATURITY PROFILE AND ESTIMATED DEMAND BY ISLAMIC BANKS

450
400
400

350

300
GAP
250

200

150

100

50

0
2012 2013 2014 2015 2016 2017+ TOTAL O/S EST DEM
11 '15

Source: IFIS, Standard & Poor’s, Bloomberg, ThomsonReuters, EY Analysis.

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EXHIBIT 3: SIMPLIFIED STRUCTURE DIAGRAM AND CASH FLOWS

Third Parties

Sale of Allotted Revenue from sale of

Rights to Travel Allotted Rights to
(materialised Travel (materialized
through sale of through sale of
tickets) tickets)

Emirates
(as Agent)
Emirates Emirates
(as Seller) (as Obligor)
Base Price
plus excess

Purchase
Price SERVICE
Reserve Collection PURCHASE/
AGENCY
Account Account SALE
AGREEMENT
Sale of UNDERTAKING
Rights to
Travel Exercise
Periodic Price
(measured distribution
in ATKMs) PURCHASE amounts and
OF SERVICES dissolution
AGREEMENT amounts

The Issuer
Sale of Outstanding
Rights to Travel
Key TRUST Sukuk Periodic distribution amounts
CERTIFICATES Proceeds and dissolution amounts
= Cash flows

= Sale

= Contract or Certificate holders

agreement

Source: Emirates Airline Sukuk Prospectus.

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EXHIBIT 4: KEY TERMS SUMMARY

Regular Bonds Key terms Sukuk Key Terms

Obligor Emirates Emirates
Issue Ratings Not Rated Not Rated
Ranking Senior Unsecured Senior Unsecured
Principal Amount US$750 million US$1 billion
Issue Date February 6, 2013 March 12, 2013
Final Maturity Date February 6, 2025 March 19, 2023
Coupon 4.50% per annum 3.875%
Issue Price 99.941% 99.331%
Yield 4.51% 4.024%
Listing Irish Stock Exchange Nasdaq Dubai
Global
Citigroup and Standard Chartered Bank Citigroup and Standard Chartered Bank
Coordinators
Citigroup, Deutsche Bank, Emirates Citigroup, Abu Dhabi Commercial Bank,
Joint Lead NBD Capital Limited, J.P. Morgan, Abu Dhabi Islamic Bank, Dubai Islamic
Managers Morgan Stanley, Standard Chartered Bank, Emirates NBD, Standard Chartered
Bank Bank

Source: Emirates Airline Sukuk Prospectus and Bloomberg.

EXHIBIT 5: INVESTOR DISTRIBUTION BY TYPE

Note: Regular bond is on the left, sukuk on the right.

Source: Bloomberg.

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EXHIBIT 6: INVESTOR DISTRIBUTION BY GEOGRAPHY

Note: Regular bond is on the left, sukuk on the right.

Source: Bloomberg.

EXHIBIT 7: CONSOLIDATED INCOME STATEMENT

Source: Emirates Airline Sukuk Prospectus.

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EXHIBIT 8: CONSOLIDATED CASH FLOW STATEMENT

Source: Emirates Airline Sukuk Prospectus.

EXHIBIT 9: CONSOLIDATED STATEMENT OF FINANCIAL POSITION

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EXHIBIT 9 (CONTINUED)

Source: Emirates Airline Sukuk Prospectus.

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EXHIBIT 10: INDUSTRY RELEVANT DATA

Source: Emirates Airline Sukuk Prospectus.

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EXHIBIT 11: YIELD CURVE: DUBAI GOVERNMENT INTERNATIONAL BONDS

MENA Bonds
and Sukuk List 3-Apr-13 Coupon Purchase Floater Modified Issue
Name Type CCY S&P Moodys Coupon Type Freq Yield % Price Maturity Spread Duration size
Dubai Govt Int’l
Bonds USD - - 6.7 Fixed 2 2.34 110.5 10/5/2015 NR 2.31 500
Dubai Govt Int’l
Bonds USD - - 7.75 Fixed 2 3.94 124.5 10/5/2020 NR 5.89 750
Dubai Govt Int’l
Bonds USD - - 5.59 Fixed 2 3.9 111.75 6/22/2021 NR 6.56 500
Dubai Govt Int’l Sukuk Al
Bonds Ijara USD - - 5.25 Fixed 2 5.37 98.25 1/30/2043 NR 14.67 500

Yield Curve
Dubai govt bonds %
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
0 5 10 15 20 25 30 35

Source: [Link]/assets/cms/docs/privateBanking/MenaBonds_SukukList/[Link], accessed October 10, 2013.

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EXHIBIT 12: MENA BONDS AND SUKUK LIST

MENA Bonds and Purchas Modi-

3-Apr-13 Coupon Floater Issue
Sukuk List e fied
Dura-
Name Type CCY S&P Moodys Coupon Type Yield % Price Maturity Spread Size(M)
tion
Abu Dhabi
Commerc Bnk USD A- A2 /*- 1.39 Floating 1.95 98.28 5/9/2016 110 0.08 400
Abu Dhabi National Sukuk Al
Energ Ijara USD A- A3 3.63 Fixed 3.47 101.25 1/12/2023 NR 8.08 1,250
ADIB Capital Invest Sukuk Al
1 LT Ijara USD - - 6.38 Variable 6.04 107.18 - NR 4.55 1,000
Step
Atlantic Finance Ltd USD B+ B3 /*+ 10.75 Cpn 3.57 107.91 5/27/2014 NR 1.05 1,250
Bahrain Mumtalakat
Hldng USD BBB - 5 Fixed 2.5 105.39 6/30/2015 NR 2.08 750
BBK USD - Baa2 4.5 Fixed 2.76 104.26 10/28/2015 NR 2.36 500
CBQ Finance Ltd USD BBB+ A2 /*- 7.5 Fixed 3.41 124 11/18/2019 NR 5.26 600
Asset
Dolphin Energy Ltd Backed USD - A1 5.89 Fixed 3.36 114 6/15/2019 NR 5.17 1,250
DP World Ltd USD NR Baa3 6.85 Fixed 5.73 114.63 7/2/2037 NR 12.34 1,750
Dubai DOF Sukuk Sukuk Al
Ltd Ijara USD - - 3.88 Fixed 3.94 99.5 1/30/2023 NR 8.03 750
EIB Sukuk Ltd USD - Baa1 4.72 Fixed 3.09 105.75 1/18/2017 - 3.43 500
Emaar Sukuk Ltd USD BB B1 8.5 Fixed 3.58 115.25 8/3/2016 - 2.9 500

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 Page 18 9B14N002

EXHIBIT 12 (CONTINUED)

MENA Bonds Coupo Floate Modi-

3-Apr-13 Purchase Issue
and Sukuk list n r fied
Sprea Dura-
Name Type CCY S&P Moodys Coupon Type Yield % Price Maturity Size(M)
d tion
EA USD - - 5.13 Fixed 3.2 105.75 6/8/2016 NR 2.87 1,000
Sukuk Al
EA Ijara USD - - 4.5 Fixed 4.61 99 2/6/2025 NR 9 750
Sukuk Al
Investcorp SA Ijara USD - Ba2 8.25 Fixed 6.56 106.58 11/1/2017 NR 3.67 250
Kuwait Projects
Co USD BBB- Baa3 9.38 Fixed 4.65 128.83 7/15/2020 NR 5.45 500
Nakilat INC USD AA- Aa3 6.07 Fixed 4.47 121.5 12/31/2033 NR 12.45 850
QIIB Sukuk Sukuk Al
Funding Ltd Ijara USD - A3 2.69 Fixed 2.6 100.38 10/18/2017 NR 4.18 700
Qtel International
Fin USD A A2 5 Fixed 3.95 110.25 10/19/2025 NR 9.25 750
RAS Laffan LNG
II USD A Aa3 5.3 Fixed 3.59 111.1 9/30/2020 NR 6.23 1,400
Dubai Holding
Comm OP EUR NR B2 4.75 Fixed 3.54 100.94 1/30/2014 - 0.79 750
Dubai Holding
Comm OP GBP NR B2 6 Fixed 5.48 101.73 2/1/2017 - 3.31 500
Sukuk Al
IPIC Gmtn Ltd Ijara EUR AA Aa3 3.63 Fixed 3.1 104.51 5/30/2023 NR 8.33 850
Sabic Capital I BV EUR A+ A1 4.5 Fixed 0 102.89 11/28/2013 - 0.64 750
Taqa Abu Dhabi
Natl Ener EUR A- A3 4.38 Fixed 0.48 102.16 10/28/2013 - 0.55 750

Source: [Link]/assets/cms/docs/privateBanking/MenaBonds_SukukList/[Link], accessed October 10, 2013.

This document is authorized for use only by Rayan Alkhonain in Fin 463 C taught by muhannad alameel, King Saud University from Mar 2024 to Sep 2024.
For the exclusive use of R. Alkhonain, 2024.
 For the exclusive use of R. Alkhonain, 2024.

Page 19 9B14N002

ENDNOTES
1
This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives
presented in this case are not necessarily those of Emirates Airline or any of its employees.
2
[Link], accessed October 10, 2013.
3
All figures are in US$ unless otherwise indicated.
4
[Link], accessed October 10, 2013.
5
Ibid., accessed January 26, 2014.
6
Ibid., accessed October 10, 2013.
7
Ibid.
8
Ibid., accessed January 26, 2014.
9
Founding Emirates were Dubai, Abu Dhabi, Sharjah, Ajman, Fujairah and Umm Al Quwain. Ras Al Khaima joined in 1972.
[Link]/, accessed January 26, 2014.
10
2014 Quality of Living Worldwide City Rankings – Mercer Survey, [Link]/press-releases/quality-of-living-report-
2014, accessed March 31, 2014.
11
An entrepôt is a trading post where merchandise can be imported and exported without paying import duties, often at a
profit. [Link]/world_economy/dubai, accessed January 26, 2014.
12
This free zone included 100 per cent foreign ownership, exemption from corporate tax for fifty years, no personal income
tax, no import or export duties, no restriction on currency, and easy labour recruitment;
[Link]/fz_jebel_ali.html, accessed January 26, 2014.
13
Dubai Statistics Centre, [Link]/en/pages/[Link], accessed March 31, 2014.
14
[Link]/story/Dubai_International_Financial_Centre_grows_6_in_first_half_2012-ZAWYA20120909082249/,
accessed January 26, 2014.
15
Dubai World Asks for Debt “Standstill,” Financial Times, November 25, 2009. Technically, the word “sukuk” is plural in
Arabic. However, we adopt the terminology used in business press and use it for singular and plural. Also, we will use
“sukuk,” “sukuk bond(s)” and “Islamic bond(s)” interchangeably throughout the case.
16
“Abu Dhabi Helps Dubai Again with Bank Bailout,” Reuters, February 15, 2012.
17
The World Islamic Banking Competitiveness Report 2012-2013, Ernst & Young, [Link]
content/uploads/downloads/2013/05/EY_IBCR13.pdf, accessed March 31, 2014.
18
Dubai Aims To Be Hub of Islamic Banking, The National, January 9, 2013.
19
Regional and Group Analysis / Middle East, “Air Transport Supports 2.7 Million Jobs and $129 billion in GDP in the Middle
East,”
[Link]
[Link], accessed March 31, 2014.
20
Jens Flottau, Adrian Schofield, Bradley Perrett, “Airline Industry Power Shifts Toward Middle East,” Aviation Week &
Space Technology, June 18, 2012.
21
“Airlines and Subsidy: Our position,” Emirates, [Link]/, accessed March 31, 2014.
22
[Link]/aircraftfamilies/passengeraircraft/a380family/performance/, accessed on December 11, 2013.
23
[Link]/sg/english/flying/our_fleet/emirates_a380/emirates_a380.aspx, accessed on December 11, 2013.
24
[Link]/news/airbus-a380-the-layouts, accessed on December 11, 2013.
25
Rachna Uppal, “Emirates Airline Eyes 10-year Amortizing Sukuk Issue This Week,” Reuters, March 11, 2013.
26
Ibid.
27
Ibid.
28
Emirates Airline Sukuk Prospectus, March 14, 2013,
[Link]/Documents/Regulatory%20Announcement%202013/Takeoff_Emirates%20USD%
201%20billion%20sukuk%20issue%[Link], accessed March 31, 2014.
29
The Ernst and Young World Islamic Banking Competitiveness Report; Standard and Poor’s estimates,
[Link] accessed March 31, 2014,
accessed March 31, 2014.
30
Asian Development Bank Institute, Infrastructure for Asian Development and Integration,
[Link]/public/neaef/files/documents/publications_pdf/young_leaders/5th/Detert%[Link], accessed March 31,
2014.
31
A notable exception is Malaysia, which allows sukuk structures that are based on sale of debt. Saiful Azhar Rosly and
Mahmood M Sanusi, “The Application of Bai-al-Inah and Bai-al-Dayn in Malaysian Islamic Bonds: An Islamic Analysis,”
International Journal of Islamic Financial Services, Vol. 1 No.2, July-September 1999.
32
Rodney Wilson, “Overview of the Sukuk Market,” Islamic Bonds: Your Guide to Issuing, Structuring and Investing in
Sukuk,” edited by Nathif J. Adam and Abdulkader Thomas, Euromoney Books, London, U.K., 2004, pp. 3 – 15.
33
Thomson Reuters, “Zawya Sukuk Perceptions and Forecast Study,” December 2012.
34
Gulf Cooperation Council includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE;
[Link]/EBchecked/topic/249154/Gulf-Cooperation-Council-GCC, accessed January 26, 2014.
35
“Sukuk Report,” International Islamic Financial Market, 3rd Edition, May 28, 2013.
36
Ibid.
37
Bernardo Vizcaino, Britain aims to be first Western country to issue sovereign Islamic bond, Reuters, October 29, 2013.

This document is authorized for use only by Rayan Alkhonain in Fin 463 C taught by muhannad alameel, King Saud University from Mar 2024 to Sep 2024.