OPINION - SUKUK - UK firm to launch first European corporate sukuk (earlier post)

original post :  http://islamicfinanceindonesia.blogspot.com/2010/08/uk-firm-to-launch-first-european.html

My mind has been pondering a bit on this news item.

Trad-able Sukuk with 4 years maturity (regular) with a prospect return of 10 % per annum (acceptable) for a UK SME (rather strange, but exciting news for the Indonesian SME), for 10 million USD (interesting small amount for a Sukuk - again interesting for the Indonesian SME).

And then : because of the size, probably no rating - so difficult to place - though a secured structure (as Sukuk Ijara) would probably be helpful.

And then : a "private equity house" lending the money.  Why would they do that ?  Their excess liquidity is needed for additional injections (if needed) to the target companies and hardly to extend temporary finance to third parties.  Extending loans through Sukuk structures is not really their line of business.  Except maybe, if they already own a stake in that company and want to extend additional leverage without introducing external lending (banks), at the same time.  Or except when they consider Sukuk structures to be "private equity" investments (in a way they are) with a (often) fixed return.  Or except when the Sukuk structure is REALLY risk bearing (hardly imaginable though - looking at the fixed return condition).

I could however not find more info out there on the internet, only that the borrower "recently" moved to new premises.

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It therefor LOOKS like an additional Shariah compliant "loan" (framed in a Sukuk structure) with a fixed return to a company that already is part of the portfolio (in this case Millennium Private Equity).  It could be a Sukuk Ijara (or "leasing" sukuk) with the new real estate (see above the "recent move to new premises") lifted out of the targets' capital structure.

Why all this :

- advantage target company : new liquidity available for operations

- advantage PE investor : additional exposure, BUT "fixed" return (lease payments) and capital guarantee in the form of preferred, exclusive rights on the underlying real estate

- advantage PE investor : could off load - if needed - the  sukuk on the stock exchange, without hurting its proportion of equity in the target company - and thus creating new liquidity

- advantage for both target company and PE investor : the present equity ratio in the partnership stays the same - the effect is the same as a "loan" from an outside party

there are several scenarios imaginable - and several solutions  so one can be"creative" playing with ideas, whilst staying Shariah-compliant

anybody an additional idea or information ?

the way of thinking however could open ways for additional financing for local SME that still have some "dead capital" (in the form of real estate ...) lying around ...