March 1, 2014
An established Islamic bank, represented by Dentons Rodyk (formerly Rodyk), enforced its mortgages and obtained judgment on Islamic banking facilities against 2 vessels arrested and sold judicially in Singapore. The Islamic financing facilities involved commodity murabaha financing and Islamic letters of credit.
Commodity Murabaha explained
The diagram below sets out a typical commodity murabaha financing structure and the stages involved:
- Bank purchases commodity from seller at cost price (CP)
- Bank sells commodity to Customer at sale price (CP + Profit) on deferred payment basis
- Customer on-sells commodity (through agency of Bank) to Commodity Buyer at CP and Customer receives CP from the Bank
- Customer pays Bank the sale price on deferred payment basis over a period of time
The eventual outcome of the above commodity financing structure is that the customer obtains the benefit of the cost price now (i.e. a loan in conventional financing terms) and it will repay the Bank, over a period of time, the sale price inclusive of the pre-agreed profit (regarded in conventional financing as the interest).
The Bank represented by Dentons Rodyk (formerly Rodyk) not only successfully enforced the mortgages in the Singapore court and obtained judgment for the principal sum outstanding under the various Islamic financing facilities but also obtained judgment of Ta’widh (compensation for late payment) at the prevailing Islamic Interbank Money Market rates. The success of the cases highlight the firm’s increased capability and expertise in handling cross-border vessel mortgagee enforcement and judicial sale matters involving innovative and non-conventional underlying financial transactions