Innovations in Islamic Finance 2015: Amlak
$2.7 billion restructuring
Advisers: Allen & Overy, Clifford Chance
Islamic finance needs to be a viable tool not only for capital raising, but for resolution and restructuring. It’s not as simple as it sounds, because of the requirement for an equal sharing of risk, which has to be observed throughout any corporate restructuring.
Amlak Finance is an Islamic mortgage provider in Dubai that ran into trouble during the global financial crisis and has been under restructuring advice since 2008. Why so long? Partly because the whole process has nearly 30 commercial participants and involved the restructuring of several different Islamic financing and deposit structures, including murabahas, mudarabas, and both bilateral and syndicated wakalas.
“One of the challenges of the restructuring was the need to right-size the balance sheet of Amlak Finance to reduce the total debt,” explains Allen & Overy, one of the law firms on the deal, alongside Clifford Chance. All participants converted part of their debt into an interest in a convertible contingent instrument, tied to a mudaraba arrangement through which participants will benefit from value growth in Amlak’s property portfolio over the life of the instrument.