18 August 2004 Legal news, law news, law firm news & research at LAWFUEL The international legal practice of Allen & Overy advised Citigroup Global Markets as Lead Arranger on the first capital market issue by the German Land of Saxony-Anhalt to comply with the requirements of Islamic law. With an overall volume of approximately €100 million and a term of five years, this issue was the first of its kind to be effected by a European issuer. Allen & Overy was instructed to structure and prepare the documentation and the prospectus. There were no other law firms involved; the Land of Saxony-Anhalt was represented by in-house legal officials.
The transaction was led by Frankfurt partner Dr Johannes Bruski, together with senior associate Dr Gabriele Röhl, who were supported by partners Philip Smith (capital markets), Eugen Bogenschütz and Asmus Mihm (tax), and associate Christoph Enderstein (all of whom are Frankfurt-based), as well as Amsterdam partners Niels van de Vijver (capital markets) and John Brouwer (tax).
Although the issued instrument is referred to in the market as an “Islamic Bond”, it is not actually a bond. Islamic law does not permit the taking of interest; therefore, a special structure was developed under which the Land of Saxony-Anhalt transfers rights of use relating to real property owned by the Land to a Netherlands-based foundation against payment of a one-off compensation. The foundation then rents the real property concerned. The necessary funds are made available to the foundation through the issuing of trust certificates granting to the investors a pro-rata participation in the rental proceeds. In order to reflect the prohibition against taking interest existing under Islamic law in a practicable structure for an issue which, at comparable costs, is awarded the same rating as a customary bond, numerous legal and tax questions relating to both Germany and the Netherlands had to be resolved.
Dr Johannes Bruski comments: “We are of course delighted that Citigroup, as one of the leading banks world-wide, chose Allen & Overy as adviser in connection with this issue which has been unique in Europe to date. The Land and Citigroup have successfully shown that European issuers, too, are now in a position to attract Islamic investors at competitive costs. We have shown that we are the advisers of choice for this kind of deal.”