Sri Lanka’s Peoples’ Leasing Company (PLC), the island’s top vehicle financier, plans to raise more than 500 million rupees through Shariah compliant asset-backed securities, officials said.
“There is tremendous potential for this type of product,” says People’s Leasing chief D P Kumarage. “We have been involved in Shariah compliant products since 1995.”
The issue called ‘Sukuk’ will be structured with the help of Islamic finance specialist First Global Securities and Investec capital. In the first tranche the firms are hoping to raise between 250 to 500 million rupees.
“The meaning of ‘Sukuk’ is that it is a Shariah compliant bond or an Islamic bond, which is issued in a securitized basis,” Muhammed Thowfeek, managing director of First Global Group said.
“The Sukuk is structured in such a manner where there is an underlying asset. The return for the investor comes in from the lease rental which comes in from the asset base.”
People’s Leasing says it has already built up a portfolio of around one billion rupees of Shariah compliant assets which could be securitized.
The Colombia branch of the Deutsche Bank has been appointed as the trustee to manage the securities issue.
In recent years the global Sukuk market has grown and Thowfeek says a surge is expected in 2008 as Shariah compliant banks seek capital to match the assets.
In the 2007 third quarter alone, around 77.3 billion dollars of Sukuk issues had taken place which was double the amount compared to the same period of 2006.
A recent estimate by rating agency Standard and Poors said the demand for Islamic finance would increase to four trillion dollars in the next five years.
Thowfeek says Sri Lanka could use the process to raise funds for large infrastructure projects.
“There is a lot of liquidity in the Middle East,” he says. “Oil prices are now 100 dollars so there are opportunities to raise funds with Shariah compliant products.”
First Global says even ‘sovereign Sukuks’ could be issued.
First Global says the market remains untapped mainly due to the lack of awareness and attitude that Islamic finance is confined to Muslim or Islamic countries.