LOLC Finance PLC last week announced it has successfully issued a Rs. 500 million (US$3.37 million) Sukuk from the domestic market, setting a precedent for corporate Sukuk issuances in South Asia. Sukuk is commonly referred to as ‘Sharia’h compliant’ securitisations which are a fast emerging source of alternative funding often referred to as Islamic securitisation. The Sukuk Al Ijarah issuance of LOLC Finance was subscribed entirely by the Bank of Ceylon.

“The three-year Ijarah facility proceeds will contribute to further develop the Islamic Finance capital market, by not only opening a new window for companies seeking Islamic Finance but also provide a viable investment instrument for any potential Islamic investor,” the firm said in a statement.

The Trustee to the issuance was HNB Custodial Services while Trillion Securities (Pvt) Limited acted as the financial adviser, arranger and lead manager. The Legal aspect was handled by Nithya Partners.

Elaborating on Sri Lanka’s first Sukuk Al Ijarah issuance, Krishan Thilakaratne, the Group Head of Islamic Finance of LOLC said, “As there has never been a Sukuk issuance in Sri Lanka, we had the challenge of drafting the agreements and arranging the parties. Further, we are building a fairly substantial Ijarah base and we have the capacity to go with a larger issue in the future. Ideally, we would like to get off shore investors but there are hurdles to overcome such as exchange risk options.

Thilakaratne further said, “There is a great appetite for investment in the company but we lacked a proper Sukuk structure or product that we could bring to the capital market. The focus for us now is to fine-tune what we have now for the international market. I would also like to make special mention of the members of Al-Falaah’sShari’ah Supervisory Board, Ash-Shaikh Fazil Farook, Ash-Shaikh Murshid Mulaffer and Mufti Shafiq Jakhura, who are all well-known, eminent Scholars in the industry for their pivotal role in structuring and drafting the agreements according to the precepts of Islamic Finance”.
Meanwhile, Sampath Kulatunga, Director/CEO of Trillion Securities (Pvt) Limited (TSL), the arranger and lead manager of the issue said, “The challenge to us was that this issue was the first ever Sukuk Al Ijarah receivable securitization transaction, structured in the Sri Lankan capital market. The first ever Sukuk Al Ijarah securitisation transaction became a reality due to the effort of all stakeholders who worked tirelessly to ensure the successful launch of this issue”.

Having successfully raised Islamic capital from the domestic market, LOLC Finance is focusing on capturing foreign funds, in a Sharia’h compliant manner. Backed by Japan’s multinational conglomerate ORIX Corporation, the LOLC Group is renowned for its strong international funding base.