Emirates Airline: a billion dollar Sukuk bond issue Harvard Case Solution & Analysis

Question # 01

The global crises took place in 2008, which had posed severe and drastic impact on the worldwide economy. People started seeking for alternative forms of financing that were based on Shariah financing and were more ethical and met the requirements of the Shariah. Based on thepeople’s demand, the Islamic financing started growing very rapidly. The financial institutions andIslamic banks marked theirexistenceby locating their offices in various Muslim countries such as Middle Eastern, GCC and North Africa regions, Indonesia, Malaysia, Brunei, Qatar, Oman, United Arab Emirates, Pakistan and many others.

In addition to this, innovation has played an effective part in driving the growth of Islamic based financing. For this instance, the Sukuk market was tenor less than five years and was relatively small, couple of years back.

The Islamic banks have launched hybrid capital Sukuk and perpetual Sukuk as the Sukuk became a more innovative feature withlonger maturity terms. So it was launched in order to attract a maximum number of investors.

Emirates Airline a billion dollar Sukuk bond issue Harvard Case Solution & Analysis

The difference in yield associated with both Sukuk andconventional bond, the risk associated with both bonds are same in terms of rate of return risk. The fixed return on Sukuk bond could not be raisedalthough the market rate has increased, this might pose lower earning on Sukuk than conventional bond. Thus, the rate of return is not unique to Sukuk as it can be found in conventional bond as well (Jamaldeen, 2017)

Importantly, the bond price decreases when rate of interest increases, so it might lead to increase in bond yield, however, both types of bonds had the same yield level. It is surely stated that demand for Sukuk bond is fairly higher than conventional bond. Moreover, 12 year conventional bond was issued whose maturity period was longer and increasedyield and high risk. In contrast, the yield of Sukuk bond waslower, i.e.4.024% and lower price, i.e.99.331%, it makes the bond a cheaper financing source for emirates to purchase aircrafts. The maturity term of 10 and 12 years hasaffected the yield between conventional and Sukuk bonds. It might bring different levels of risk which might result in impacting the yield and price of the bond (Mohammed, 2014).

Question # 02

Sukuk is a better way to finance large projects as compared to other projects. The Sukuk bond provides a better way to finance the business without falling into debt based on interest obligations. In the case, Sukuk is supposed to be important for the achievement of social justice and distribution of wealth. In order to fund the projects, the use of Sukuk is based on Islamic finance, on the principles of justice andfairness which can easily be achieved through avoiding Riba.

Investors that are looking for an investment that can be easily liquidated in the secondary market have found Sukuk ideal. The banks can also take benefits from Sukuk through purchasing Islamic securities and easily selling them when the banks need liquid assets.

Furthermore, for the management of risk, Sukuk is perfect. Uncertainty is a part of the invested money................

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