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AirAsia in 230 million dollar Islamic financing deal

The deal with the Malaysian subsidiary of the Kuwait Finance House (KFHMB) will see AirAsia hedging against interest rate and currency fluctuations by using two Islamic financing instruments.

AirAsia’s deputy chief executive officer Kamarudin Meranun said the carrier had been using a combination of commercial and export credit agency loans to fund acquisitions, but was looking further afield for financing options.

“Having a combination of financing structures would give us a much broader option going forward,” Kamarudin told AFP.

“We would also like to promote Islamic finance and Islamic financing products,” he added.

Under the terms, the Kuwaiti government-controlled Kuwait Finance House will be the lead arranger along with a Malaysian bank for financing the six planes over a period of 12 years, a joint statement said.

“The total facility which will be syndicated out is 230 million US or thereabouts,” KFHMB’s treasury director Mohamed Iqbal Mohamed Iqbal said at a joint press conference with AirAsia.

The Islamic financing will swap a floating interest rate over the 12-year loan period for a pegged one, and also hedge against currency fluctuations between the ringgit and the US dollar, bringing financial certainty to the carrier, he said.

“It is actually making sure that we know the quantum that we will be paying,” Kamarudin said.

The six aircraft are part of a first order of 33 A320s from Airbus, to be delivered by December 2007. The airline has placed an order for 100 in total, with an option for 30 more as it expands its domestic network in Malaysia and its ventures in Thailand and Indonesia become more successful.

Kamarudin said AirAsia would look at a combination of commercial and credit agency loans, Islamic financing and ringgit loans to fund its further A320 purchases.

KFHMB officials said the finance house had developed the Islamic hedging mechanisms, the first seen in Malaysia, specially for AirAsia but it hoped to offer the instruments to other Asian carriers.