Nakheel Troubles Not Tied to Islamic Banking, ADIB Chief Says
By Vivian Salama: Available at: http://www.businessweek.com/news/2010-02-15/nakheel-troubles-not-tied-to-islamic-banking-adib-chief-says.html
Feb. 15 (Bloomberg) – Nakheel PJSC’s struggle to repay a $4.1 billion Islamic bond in December wasn’t a reflection of any special risks attached to Islamic banking, the chief executive officer of Abu Dhabi Islamic Bank said. “Was there an extraordinary weakness in the Islamic structure? No,” Tirad Mahmoud said in an interview late yesterday in Abu Dhabi. “Maybe people thought if it is Islamic, it is zero risk. But Islamic banks never promise guaranteed outcomes.”
Dubai World, the state-owned company that owns Nakheel, said Nov. 25 it would seek to freeze or delay debt payments until at least May 30. The company repaid $4.1 billion on an Islamic bond from Nakheel, which is building palm tree-shaped islands off the emirate’s coast after Dubai received a $10 billion loan from the Abu Dhabi government in December.
Islamic bonds, known as sukuk, are governed by Shariah laws, which ban the payment of interest and stipulates agreements be based on the transfer of goods or services. “When you put a deposit with the bank, we don’t say, ‘This rate is what you are going to get.’ We say, ‘This is the expected profit rate,’” Mahmoud said. “If anyone says there is profit without risks, they are not telling you the truth.”
Sukuk sales rose to $20.15 billion last year from $14.13 billion in 2008, according to data compiled by Bloomberg. Abu Dhabi Islamic Bank, the United Arab Emirates’ second- biggest lender complying with Muslim banking rules, has no plans to sell bonds this year because there is “no need,” Mahmoud said. The lender has an $800 million bond maturing at the end of 2011.
“The biggest cause of trouble in the world today is that the stupid people are so sure about things and the intelligent folks are so full of doubts.” Bertrand Russell
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