RBC Plans to Enter Islamic Finance Market
The Globe and Mail, Sonia Verma, 7 July 2008When Ford Motor Co. sold the iconic British Aston Martin luxury car maker to a consortium led by British racing entrepreneur David Richards last year, the deal hinged on some unusual conditions.Mr. Richards’ Kuwaiti partners, Investment Dar and Adeem Investment, would only back the $848-million (U.S.) deal if it were done according to Islamic principals. So, in accordance with the Koran, 40 per cent of the deal was structured to avoid directly paying interest on a loan.But to do their deal, Mr. Richards and his partners didn’t turn to a Middle Eastern bank with an extensive background in Islamic, or sharia, finance. Instead, the buyers of Aston Martin – most famous as James Bond’s car – went to a German bank, WestLB AG, for $450-million in sharia financing, through a structure known as murabaha.
The Aston Martin deal, as the first sharia leveraged buyout in Britain, was a watershed for Islamic finance and highlighted the growing influence of sharia banking in Western finance.After a few years of strong growth focused largely in the Middle East, a new generation of Islamic bank startups is setting its sights on the West.And as the wealth of Gulf countries swells with skyrocketing oil prices, more Western banks, including some Canadian banks, are looking to those pools of capital.
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