Thoughts on the Proposed GE Sukuk Program

General Electric (GE) intends to launch a Sukuk program thereby issuing sukuks over the course of the next few years. The first tranche is expected before the end of 2009, or in early 2010. It is anticipated to be at least $500 million in terms of size, and GE is looking to diversify its borrowing base by getting into the sukuk markets.

GE is the world's largest borrower of corporate debt, and uses GE Capital Finance, which is 100% owned by GE, to tap the debt markets on their behalf.
GE and GE Capital Finance both have ratings of AA / A2

GE Capital Finance as of Sept 30, 2009 had assets of USD 551 billion, revenues of USD 12.16 billion in 3Q and profits of USD 263 million. They lost USD 538 million in impairing / writing off real estate assets. As of 3Q 2009, the total debt on GE Capital Finance stood at USD 508 billion. The break up for the same is as follows:

Temporary Liquidity Guarantee Program $55

Non Guaranteed Long Term Debt $349

Deposits / COD $50

Commercial Paper $50

Total $504

Cash on Hand $57

Bank Lines $52

The proposed sukuk will be an Ijarah structure and will be backed by operating lease receivables of GE Capital Finance's Aviation Leasing business. They have nearly 1500 aircrafts in their ownership, leased to leading global airlines, with average lease terms of 7 years. The aircrafts that will be leased will be wide bodied aircrafts like Boeing 777's and Airbus A330's.

The sukuk will have an asset coverage between 125% to 140% which will be based on the feedback of the participants. The sukuk will also have a cash reserve of 10% in the case where an aircraft falls below the threshold; it will be replaced with another operating asset.