When Emirates Airline Taps Islamic Finance

Shuvam Dutta

This case study accompanies Chapter 13 of International Corporate Finance.

Sheikh Ahmed bin Saeed Al Maktoum, chairman of Emirates Airline, rang the bell at the NASDAQ Dubai Stock Exchange to signal the start of trading for a secondary share offering issued by the carrier. At the back of his mind, he wondered whether the airline should raise debt capital on the back of this share offering to fund a US$24 billion aircraft acquisition program over the next five years. For this size of financing requirement, careful planning and timing of fund-raising were required to maximize investor interest and minimize funding costs.

Qatar Airways, another Gulf-based carrier, had issued an Islamic bond (sukuk) that had been performing quite well. The company had just raised $1 billion from the sale of 10-year amortizing Islamic bonds at a rate of 3.875 percent and $750 million from 12-year amortizing bonds at a coupon of 4.5 percent. That was not a big return for investors. However, investors stood to make a much bigger profit if the yields were compressed still further in the marketplace below the issue coupon. Then the value of the bond itself would rise in mathematical proportion, delivering a profit to the owner rather like a rising share price.

Everybody was wondering how long the currently low interest rates, partially driven by quantitative easing by central banks in response to the global financial crisis, would ...

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