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PCFC sukuk shows Dubai's support for Sharia funds Sohain Zubairi, Special to Gulf News

The structure of PCFC sukuk is based on the Islamic principles of musharaka.

On Monday, the shareholders of P&O approved the proposed acquisition of the company by DP World in an overwhelming manner, expressing confidence in the professionalism and ability of DP World to own and manage the company.

The above success brings to fore the two important points: a) the high credibility of Dubai Inc. as a leading contender of good investment opportunities on an international scale and b) the increasingly important role played by Islamic finance in the development projects of Dubai in particular and the UAE in general.

Without doubt, Dubai has been a vanguard in successfully adopting the instrument of sukuk as a means of tapping the needed liquidity for its various projects. Sukuks launched with the direct or indirect involvement of the Government of Dubai include Nakheel sukuk, DCA sukuk, DMCC sukuk, Emirates sukuk and of course the PCFC sukuk.

Lion's share

The aggregate value of these sukuks is an enormous $5.6 billion. This amount is about half the value of all sukuks launched globally so far and clearly conveys Dubai's resolve to promote Islamic way of financing for its projects. On the other hand, it has provided Islamic banks in Dubai with a valuable opportunity to develop the high-level expertise in structuring various types of sukuk, which have been internationally acclaimed.

Although, strictly speaking, the PCFC sukuk was not linked to support the acquisition of P&O, it was meant to augment the company's overall financial resources in a Sharia-compliant manner so as to enable it to undertake several major development initiatives, which included, apart from P&O acquisition plan, the development of Jafza South Zone with eight business and industrial sub-zones.

The gigantic South Zone will consist of Dubai Distribution Centre for shipping, warehousing, transportation and distribution; Pharma-Med Park to cater to the growing needs of medical products, equipment and services sector; Construction Square for architects, developers, cement manufacturers and building fitters; Food & Beverage Park for food processing and packaging; Digital Valley of consumer electronics, electric appliances and telecommunication products; Chemical & Plastic Field for plastics, rubber and chemicals sectors; Paper Pack Zone to enhance Dubai's status as an emerging major supplier of stationery, packaging and printing products; and Fragrance, Beauty and Fashion Park for the perfumes and cosmetics sector.

The PCFC sukuk is based on contractual partnership where an agreement is entered into between two or more parties to combine their equity for the purpose of investing the same in a Sharia-compliant manner for earning profits.

The musharaka equity could be either in cash or in kind. However, scholars say that if a partner is contributing the equity in kind, its value should be independently assessed (for example by a professional surveyor) in order to avoid any conflict between the partners. Another way acceptable to Sharia is the unanimous approval by all partners of the value of the asset being contributed as the musharaka equity.

While musharaka profits can be distributed between the partners in any ratio agreed to between them irrespective of their equity contribution ratio, the losses if any, will be borne by them pro rata to their equity contribution ratio. This is only fair since the loss sustaining capacity of each partner has a direct relationship to the capital contributed by it.

The writer is the vice-president and head of sharia structuring, documentation and product development at Dubai Islamic Bank.

http://archive.gulfnews.com/business/Banking_and_Finance/10018795.html