Published: March 16, 2009
In January, the Bank of London and the Middle East (BLME) arranged a £10mn (€10.7mn) shariah financing facility for Ocado, an independent online grocer in the UK. The facility is used by Ocado to finance a new automated picking line for its Hatfield distribution centre.
“We had not considered Islamic financing before, but found BLME’s competitive offering and experienced management team attractive,” says Tim Steiner, CEO of Ocado.
It is a rare example of a UK company raising debt through Islamic finance, and is the first time BLME, a UK-based Islamic bank, has financed a UK retail company with Islamic debt.
Humphrey Percy, CEO of BLME comments, “For such a strong household name to make this choice reflects the growing appeal that shariah finance has in the global market,” added Humphrey Percy, CEO of BLME. “It illustrates clearly how we can offer financing solutions to a broad base of clients – from those who regularly use Islamic finance through to those who have so far not considered it as a viable alternative.”
The deal comes at a time when many British companies are struggling to raise or roll-over debt, and it indicates that Islamic finance could be an alternative source of financing during the credit crunch.
However, market experts say they do not expect a flood of Islamic deals for western firms. Andrew Roberts, capital markets partner at Linklaters, says: ““Big money is hard to get – on the Islamic side as it would be anywhere else. There is no bottomless well of money which is to be lent on a shariah-compliant basis.”
He adds: “There was a thought that with oil prices at US$150 a barrel there would be a vast amount of oil money flooding onto the market and there would be a never-ending stream of Islamic finance transactions. But on the one hand, the oil price has decreased and on the other, a lot of the Islamic funding has moved into the western real estate sector, which is suffering.”
And as well as the issue of the availability of funding there was a certain degree of disagreement among the scholars as to the appropriate structures to be used for a number of the Islamic finance facilities. “That hasn’t helped for the development of the market, either,” says Roberts. “As well as suffering from a global liquidity crunch, Islamic finance has had slight difficulties since it is a growing area of finance and many areas have yet to have formal documentation and operation”.
Roberts says that sukuk issuance is down 50% year-on-year.