In the third quarter of last year, Ethiopian Airlines successfully concluded a US$100 million financing deal with Bahrain-based Ibdar Bank for the lease of four Bombardier Q400 NextGen planes. Speaking to Mohammed Kettani, the executive director of private equity at Ibdar Bank, NABILAH ANNUAR takes a closer look at this historical transaction.
Concluding the deal on the 28th September 2014, Ibdar leases the aircraft to Ethiopian Airlines for 12 years. Out of the US$100 million, US$22 million is financed through an equity deal while the remaining amount is covered by a funding agreement with Export Development Canada. Employing the Ijarah structure, the aircraft were acquired by finance SPVs which leased them onwards to lease SPVs via a head lease agreement. The lease SPVs later sub-leased the aircraft to Ethiopian Airlines.
According to Kettani, the purpose of the transaction was to meet the bank’s investor demand for asset-backed yielding products. Kettani said: “This transaction provides adequate returns and exposure to Africa’s leading airline. Our aim was also to establish ourselves as a serious player in the aircraft leasing space, an area where we see great potential for Islamic finance due to its asset-based nature.” Among the challenges that were faced during the transaction was the comprehension of Islamic finance for both teams at Export Development Canada and Ethiopian Airlines, over and above ensuring that each contract was Shariah compliant. “This transaction was definitely the most challenging given that there were four aircraft involved and numerous parties were working simultaneously in different time zones to close the deal,” added Kettani.
US$100 million 28th September 2014
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Issuer | Ibdar Bank |
Obligor | Ethiopian Airlines |
Issuance price | US$10 per share |
Purpose of issuance | To acquire four brand new Bombardier Q400 NEXTGEN aircraft which are leased to Ethiopian Airlines on a dry lease for 12 years with terms expiring in 2026 |
Trustee | Bank of Utah |
Tenor | 12 years |
Coupon rate/return | 10% coupon, 11% investment return rate |
Payment | Quarterly |
Currency | US dollars |
Maturity date | 28th September 2026 |
Lead manager | Ibdar Bank |
Governing law | Kingdom of Bahrain |
Legal advisor | Allen & Overy |
Underlying assets | Four brand new Bombardier Q400 NEXTGEN Aircraft |
Shariah advisors |
The Shariah Supervisory Board of Ibdar being:
1. Dr Abdul Sattar Abdul Kareem Abu-Ghuddah
2. Shaikh Adnan Abdulla Al Qattan
3. Shaikh Nidham Mohammed Saleh Yaquby
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Tradability | Yes |
Investor breakdown | GCC investors |
Face value / minimum investment | US$250,000 |