Kuala Lumpur, 15 August, 2006. Kuwait Finance House (Malaysia) Berhad (KFHMB) a wholly-owned subsidiary of Kuwait Finance House (KFH) and Malaysia's first foreign Islamic bank today entered into an Understanding with AirAsia Berhad to provide global treasury solutions for its aircraft financing facility. At the signing ceremony, Jamelah Jamaluddin, Deputy Chief Executive Officer of Kuwait Finance House (Malaysia) Berhad signed on behalf of KFHMB and Dato' Kamarudin Bin Meranun, Group Deputy Chief Executive Officer signed on behalf of AirAsia Berhad. Witnessing the signing was Y.B. Datuk Dr Awang Adek Hussin, Deputy Minister of Finance II.
KFHMB has been mandated together with another bank to lead arrange the financing of six Airbus A320-200 aircrafts. The financing of each aircraft will be for a tenure of 12 years and is arranged under the principle of Ijarah Muntahiah Bitamlik.
KFHMB is developing globally acceptable Shariah products that comply with the stringent Shariah requirements of both Malaysia's National Shariah Council and the Shariah Committee of Kuwait Finance House in Kuwait and introducing them to Malaysia. In this instance the global treasury solutions will enable Air Asia to hedge its foreign exchange rate risk exposure and its Ijarah floating rate commitments.
KFHMB's Promissory FX Contract-i is a long awaited product that offers a hedging mechanism to protect customers against fluctuations in foreign exchange rates. Utilizing the concept of Wa'ad, the bank enters into a foreign exchange contract for delivery on a specific future date as determined by the customer.
"The introduction of KFH Promissory FX Contract-i by KFHMB is a major step forward in Islamic banking, as for the first time, corporations like AirAsia have the option to hedge their foreign currency exposure by using Shariah compliant solutions," said Jamelah Jamaluddin.
Additionally KFHMB has also proposed a solution that will enable AirAsia to hedge its Ijarah floating rate commitments. This will enable Air Asia to convert its floating rate commitments into a fixed rate exposure thus negating the possibility of any negative impact to volatility and uncertainty in rates over the twelve year facility period.
The product will allow customers holding an obligation to pay an Ijarah rental payment benchmarked against a floating rate (such as a spread above LIBOR) to exchange the payment obligation into fixed rate payment. This would help to mitigate the uncertainty in the amount payable or receivable when the settlement is due.
"The partnership is indeed very timely, as KFH has experience in the aviation business and therefore been able to meet the requirements of AirAsia. We are very familiar with aircraft risks, as we have an aviation fund known as Millenium Aviation Leasing Company (MALC), as well as an aviation arm within the KFH Group in Kuwait called Aviation Leasing and Financing Company (ALAFCO) where we acquire a number of aircrafts and lease them to airlines," said Mr K. Salman Younis, Managing Director of KFHMB.
"AirAsia has been a catalyst in leading the push for the development of Shariah compliant financial instruments due to its requirement in financing its aircraft purchase. Prior to this, corporates did not have access to such Islamic instruments and AirAsia is proud to be the pioneer to spearhead the development of such innovation.
The aviation industry involves global players which include aircraft manufacturers, airline operators, aircraft parts suppliers, financiers etc. This innovation will create awareness of such Islamic instruments. AirAsia has also been instrumental with KFH in pushing for reduction of complexities that is usually associated with Islamic financing. This should encourage corporates to use Islamic products in meeting their financing requirements," said Dato' Kamarudin Meranun, Deputy Group CEO, AirAsia.