Biggest sukuk issue attracts huge demand (DP World debt issue. BIG PICTURE background)

An important issue worth mentioning is that the establishment of DP World as a top 3 container terminal operator will contribute to the UAEs strategic goal of cementing the UAE as a central buisness center in the Middle East. This deal has great significance to the new UAE Stock Exchange, DIFX. Islamic law bans interest and risk on financial instruments. The inability to issue debt as a finance tool is obvious as a disadvantage, especially in context of the UAEs strategic goals.

Instead they use something instead called a 'sukuk', sort of a contract. This will be the largest sukuk ever issued and it paves the way for all sorts of other IPOs and finanical deals to continue to develop the UAE into a world class buisness destination. There are massive construction projects going on right now in the UAE, all geared towards high end buisness and living.

All of this is the sign of a country trying to modernize and attract legitimate buisness, not spread Islamic fundamentalism.

good background on the 'sukuk' here

http://www.islamicfinance.de/sukukrisks.pdf

MANAGING FINANCIAL RISKS OF SUKUK STRUCTURES

II. ISLAMIC FINANCIAL ASSETS: OVERVIEW OF THE THEORETICAL ASPECTS

Islamic finance offers an alternative financial paradigm. It is unique in that religious doctrines are avowed in the commercial and financial behaviours, transactions and sectors. The presumption that finance and economics are independent of religious considerations is challenged to the extent that an Islamic financial industry is thriving.

2.1 PROHIBITIONS
The Islamic finance paradigm is based on the following set of prohibitions:

i. Transactions in unethical goods and services;
ii. Earning returns from a loan contract (Riba/Interest);
iii. Compensation-based restructuring of debts;
iv. Excessive uncertainty in contracts (Gharar);
v. Gambling and chance-based games (Qimar);
vi. Trading in debt contracts at discount, and;
vii. Forward foreign exchange transactions.

These have important implications for the nature of financial assets, trading in these assets, for the risks of the assets and their mitigation and for management of Islamic financial assets. We need to elaborate on some of these aspects before continuing. The other points will be referred to in the research at appropriate sections.

2.1.1 Prohibition of Riba (Interest)

Riba (Interest) is any return/reward or compensation charged on a loan contract as well as charged in rescheduling debts. Riba is strongly prohibited in Islam. Muslim scholars and jurists have rigorously discussed the rationale of the prohibition and its alternatives (see, Siddiqi 2004 for more detail). The economic implication is that money is considered as a medium of exchange effectively created to be sought not in itself but for other commodities. Thus, charging interest on loans is considered unjust since money is considered to be simply an intermediary between goods. Recently scholars have also placed increased scrutiny on not only the rationale for the prohibition of interest but also on the lack of theory in support of interest. Mirakhor (1995) provides an overview of recent discussions concerning this theme. He refutes numerous arguments that lend support for the existence of interest as a backbone for conventional financial markets. It is maintained that when money is loaned, the funds are used to create either a debt (in which case there is no warrantable rationale why the lender should accept a return) or an asset (in which case there is no justifiable reason why an unconditional assurance of interest should be imposed by the market).

2.1.2 Prohibition of Gharar (Excessive Uncertainty)

There are many strong references in Islam admonitory of aleatory transactions. The main justification is that gambling (maysir) invokes enmity among the parties. However, the definition of Gharar involves a sense of legal trepidation. Commercial gain in itself is not illicit but one would be hard-pressed to find instances of modern day business that did not involve a sense of uncertainty. Of imminent concern to Shari’ah scholars and practitioners alike is the scope of uncertainty that transforms commercial gain into unlawful Gharar.

Gharar is a by product of uncertainty. In an uncertain world of financial and commercial transaction, the issue becomes how one can take economic initiatives that can be free of Gharar. There is an inherent lack of studies concerning decisions under uncertainty from an Islamic perspective. Al-Suwailem (2000), attempts to deal with this problem by putting forth a suggestive study addressing the need to differentiate between ‘gambles’, and ‘decision under uncertainty’. It is argued that decisions under uncertainty, as opposed to gambles, imply evaluating the market value of causality such that the value of these causes will offset any potential losses. Gambling is overwhelmingly considered as amounting to Gharar since it is a zero-sum game. However, if the situation is such that the players are providing a prize and that there is one ‘neutral’ player who does not contribute to funding that prize then the arrangement would become Shari’ah compliant. The neutral player transforms the arrangement from a ‘zero-sum game’ into one that is not. This dimension of Gharar will be discussed further when discussing the applicability of embedded options and synthetic derivatives within Sukuk structures. Similarly, a distinction can be made between gambling and investing in stock markets. Buying a lottery ticket may not be readily comparable to investing in the stock of a company. Whereas in a lottery the participant gains at the ultimate expense of everyone else, in a stock market or any other legitimate trade everybody can be a ‘winner’ if systemic economic conditions allow it to be so. Therefore, the lottery ticket amounts to a ‘zero-sum game’ but the stock market or any other legitimate trade does not necessarily.

2.1.3 Avoidance of Unethical Investments and Services

Shari’ah scholars have been unanimous in disapproving of investments in business sectors that may be deemed as ‘unethical’ such as casinos, tobacco companies, wineries, sex-business etc. Market discipline has transformed these ethical issues into stock screening methods. The screening methods of the Dow Jones and Financial Time’s Islamic Markets Indices exemplify this. Muslims consider religion as more than just a prescribed set of rituals. It is a way of life embraced in the wisdom that there is no more comfortable approach to life. Accordingly, the definition of a Muslim is all-encompassing and is reflected by the individual’s attitudes outside of places and periods of worship.

EVOLUTION AND PROFILE OF SUKUK STRUCTURES AND MARKETS

Generally, Sukuk are asset-backed, stable income, tradable and Shari’ah compatible trust certificates. The primary condition of issuance of Sukuk is the existence of assets on the balance sheet of the government, the monetary authority, the corporate body, the banking and financial institution or any entity which wants to mobilize the financial resources. The identification of suitable assets is the first, and arguably most integral, step in the process of issuing Sukuk certificates. Shari’ah considerations dictate that the pool of assets should not solely be comprised of debts from Islamic financial contracts (e.g. Murabaha, Istisna).

All of this is the sign of a country trying to modernize and attract legitimate buisness, not spread Islamic fundamentalism.

It's a sign the country is trying to develop financial markets governed under Islamic Law. You're not uncomfortable with that? To me, it's enough of a reason in and of itself to crush this deal.

As an aside, the lack of functioning financial markets is precisely why Muslim countries are still in the 12th century, for the most part.

Great posts. Very interesting info.

I absolutely agree with Bubba. While the Sukuk is simply a euphemism to get around an inconvenient religious prohibition, it certainly doesn't mean that Islam has gone modern. As for the ports, I think it is insane to have ANY foreign company managing key elements of our infrastructure. Doesn't a Chinese company manage Long Beach, and we're supposed to be comfortable with that?

It's a sign the country is trying to develop financial markets governed under Islamic Law. You're not uncomfortable with that? To me, it's enough of a reason in and of itself to crush this deal. As an aside, the lack of functioning financial markets is precisely why Muslim countries are still in the 12th century, for the most part

I see it as an integration of their culture with the 21st century. I see it as a positive step good for the interests of the modern world, including the US and Israel. BTW, there have been reports of unofficial buisness deals and secret diplomatic ties between Israel and the UAE.

You would prefer the UAE remains entirely in the 12th century? If it takes small steps, I have no problem with the UAE retaining their religious culture, even if it does emcompass some beliefs and practices you and me both find distasteful and backwards. For instance, do you prefer the current Afghanistan, warts and all, or the Taliban run Afghanistan?

It's not just a Chinese company, it's a Chinese government owned shipping company.

As an aside, the lack of functioning financial markets is precisely why Muslim countries are still in the 12th century, for the most part.

They had a couple of hunderd decent years after old Mo died ... but they never made it as far as the 12th century

See my tag line ..

http://www.polb.com/about/overview/who_we_are.asp

The Port of Long Beach operates as a landlord. The Board of Harbor Commissioners leases port shipping terminals and other facilities to private firms. Port revenues are reinvested in new facilities and improvements.

SSA Marine, A PRIVATE COMPANY, operates container terminals in Long Beach, Oaklan, San Pedro

http://www.ssamarine.com/company/history.html

2001 SSA Terminals (Long Beach), LLC was formed as a Limited Liability Company jointly owned by SSAT and Terminals Investment Limited, an affiliate of the Mediterranean Shipping Company, to operate the 170-acre Long Beach container terminal facility at Pier A. Operations commenced in December 2002.
SSA formed the joint venture Pacific Maritime Services, LLC ("PMS") with China Ocean Shipping Company, to operate a major container facility in the Port of Long Beach. SSA manages the facility day to day, and operations commenced July 1, 2001.
http://www.fmc.gov/reading/ChinaOceanShippingCompany.asp
China Ocean Shipping Company ("Cosco") is a state -owned enterprise of the People's Republic of China ("China"). It was established in 1961 utilizing four ships with a combined tonnage of 30,000 deadweight tons. The company operates a worldwide network service with five operating branches: Guangzhou Ocean Shipping Company, Shanghai Ocean Shipping Company, Tianjin Shipping Company, Quindao and Dalin Shipping Companies. Cosco, now one of the world's largest shipping companies, was reorganized in 1993 through a merger of four companies, China Ocean Shipping Company, China Ocean Shipping Agency (Penavico), China Marine Bulker Supply Company, and China Road Transportation Company. The reorganized company was named China Ocean Shipping Companies Group and is known both as "Cosco" and "Cosco Group" (hereinafter "Cosco").

from another article

Foreigners are already major operators in U.S. ports. Thirteen of 14 container terminal operators at the Los Angeles-Long Beach port complex are foreign-owned, including companies from China, Japan, Taiwan, Singapore and Denmark.

I see it as an integration of their culture with the 21st century. I see it as a positive step good for the interests of the modern world, including the US and Israel.

I see it as merely one more way in which they are practicing the Islamic dictate of world domination. Some Muslims are doing it by killing our troops on the field, while others do it by bringing financial markets under the control of Islamic Law. In the big picture, both are equally destructive - unless you are comfortable with the concept of a global Islamic caliphate.

You would prefer the UAE remains entirely in the 12th century?

They aren't coming out of the 12th century until they get rid of Islam, or at least reduce it to a form that doesn't have the current requirements to #1 avoid modern financial instruments and #2 kill all the Jews and infidels.

"All of this is the sign of a country trying to modernize and attract legitimate buisness, not spread Islamic fundamentalism."

LOL....getting desperate, aren't we? LOL....

Check out these links and tell me if you still see signs of "modernity" in this radical Islamic country (which was one of the three countries that helped establish, aided, and abetted the Taliban).

http://www.freerepublic.com/focus/f-backroom/1582942/posts?page=1759#1759
http://www.freerepublic.com/focus/f-backroom/1582942/posts?page=1912#1912
http://www.freerepublic.com/focus/f-backroom/1582942/posts?page=1805#1805

"...continue to develop the UAE into a world class buisness destination."

I'm very, very curious as to how this is in our nation's interest.

LOL....getting desperate, aren't we? LOL....

Desperate? No.

Note, these are not mosques they are building with their cash unlike the Iranians.

http://images.google.com/images?hl=en&q=dubai%20construction&sa=N&tab=wi

Maybe I'm old Fashioned but I hate all these Free Trade Global Economy NAFTA, CAFTA, etc policies. I abhor outsourcing, illegal immigration, open borders, open ports, etc. These things are destroying our country. I believe we should keep our nose out of other countries and take care of our own homeland, jobs and people. If we secure our selves and anyone tries to attack us then we should kill them all. Use our money to secure the homeland and stop outsourcing our jobs and our security. Why can't we take care of our own security protection and trade with ourselves? Am I just naive?

I forgot

The iranians are not just building mosques

http://www.google.com/search?hl=en&lr=&c2coff=1&q=iran+construction+nuclear+facilities

Maybe I'm old Fashioned but I hate all these Free Trade Global Economy NAFTA, CAFTA, etc policies. I abhor outsourcing, illegal immigration, open borders, open ports, etc. These things are destroying our country. I believe we should keep our nose out of other countries and take care of our own homeland, jobs and people. If we secure our selves and anyone tries to attack us then we should kill them all. Use our money to secure the homeland and stop outsourcing our jobs and our security. Why can't we take care of our own security protection and trade with ourselves? Am I just naive?
Why don't you start your own container terminal buisness if it's so easy?

Why don't you start your own container terminal buisness if it's so easy?

Name me as the theocratic dictator of an oil-rich middle eastern country, and I'd be happy to oblige.

And economic jihad through control is a lot less messy than the WTC was.

Interersting tidbit.

The HAMAS statement included a special tribute: "One can never forget the generous donations of the late Sheikh Zayed Bin Sultan,” the father of the current UAE president. Sheikh Zayed bin Sultan al Nahayan of Abu Dhabi, was the first Arab leader to understand the importance of waging economic Jihad against the West,

Welcoming Terror to U.S. Ports (From David Horowitz's Frontpagemag.com)

The German government has managerial control over two cargo airlines in the US (ASTAR and ABX) as they are virtually the sole customer of both publicaly held companies (DHL which is owned by Deutsche Post). Not to mention DHL Logistics (air and ocean freight forwarder as well as owning multiple warehouses in the US). Japan Post is privatizing and has boatloads of cash to spend. China Post will do the same. This is not an unusual deal by any stretch. The only difference is that DWP is owned by an Arab state.

Great, informative posts. Thanks.