Historic deal for Middle Eastern finance
NORTH East law firm Hay & Kilner helped Gateshead technology company IIT make history by raising £6.4m with the UK's first Islamic bond.
International Innovative Technologies, which is based in the Team Valley, made contact with Dubai’s Millennium Private Equity through WPIL, who provided the North East fund with seed funding in 2006.
While Millennium was interested in investing in IIT’s energy-efficient milling and power-generation technologies, any fundraising deal had to comply with Shariah law, which prohibits traditional features of Western deals such as charging interest, as well as association with activities such as gambling or drinking alcohol.
Professional advisers such as Hay and Kilner’s Newcastle-based partner Nick James helped IIT and Millennium devised a convertible Sukuk with Millennium as the sole investor. Sukuk investment instruments have become more popular globally in recent years, but the deal was a first in the UK.
London has recently become a key centre for Islamic finance, and this transaction potentially opens the door for similar deals to take place in the UK market.
The Government removed some of the tax law obstacles to completing Sukuk deals with the introduction of the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2010 in February. Travel firm Thomas Cook subsequently failed in a bid to raise $50m from Gulf investors with a Sukuk in July.
Nick James at Hay and Kilner said: “All the legal documentation had to be Shariah compliant. The requirements are many and complex.
“For example, the charging of interest in commercial contracts is forbidden under Shariah law. Consequently the transaction involved a number of challenging aspects.”
IIT managing director George Ord said the cash would be used to help implement the company’s business plan, as well as the testing of a product which improves the combustion efficiency of coal-fired power stations.
Norton Rose LLP also acted for IIT, while Millennium PE was advised by the Dubai office of Herbert Smith LLP with support from Michelmores.