Rodney Dukes is Head of finance at international law firm Taylor Wessing, sitting on both the management board and the international management board. Rodney advises UK and international banks in relation to structured finance and workout situations. Over the years he has acted for a number of banks and sponsors in a variety of asset classes. Rodney's specialist areas include: finance (asset acquisition and project finance), restructuring, and Islamic finance.
Dorothée Queyroux: The past 2 years have been unique. Has the way in which you work with lenders changed?
Rodney Dukes: It certainly has changed. The last two years have seen so much change. Immediately post Lehman you began to wonder if you would ever see a new deal again. Now there are assets owned pre-recession that have either been lost through loan default, held in limbo, or ring-fenced waiting for a market revival.
Then there is the post-recession market overshadowed by a swathe of distressed assets and threatened by massive debt overhang, a limited supply of new debt and uncertainty over economic growth and interest rates. The effect of recession is certainly a challenge for all our clients be they banks, investment funds, developers or individuals. The fact that the Pfandbrief continued to operate gave a number of the German banks an advantage for some time whilst the usual players were raising capital and restructuring. Our work with lenders therefore changed from rolling out new investment and development funding to advising on restructuring and enforcement.
DQ: On the subject of restructuring, i have spent much time recently discussing this issue with clients and lenders. Have you found an increasing proportion of your workload focus on workout situations rather than the closing of fresh transactions?
RD: Yes. There was a hiatus for a period whilst those banks heavily burdened with property determined what they wanted to continue to work with, enforce and sell or enforce and hold. We are working with the banks, insolvency practitioners and NAMA on a variety of situations both here in the UK and in mainland Europe.
However a number of our bank clients continued, and still continue to lend, although the LTV's are somewhat different and development funding is hard to find but senior and mezzanine debt is out there as you know.
DQ: Particularly given cases of mainstream European lenders' criteria tightening have you become increasingly involved in Islamic funding?
RD: Yes, we were and are at the forefront of the development of Sharia compliant funding in the real estate sector in the UK and in mainland Europe. The availability of equity from Islamic investors has meant that a number of the conventional banks are now willing to consider these types of transactions. The use of a variety of products from lease Ijara to conventional or commodity Murabaha has increased. As long as the transaction successfully marries conventional returns and security to Sharia compliant procedures all parties' requirements can be met.
DQ: Is there any type of transactions that Islamic lenders would not be prepared to consider?
RD: It is well known that Islamic law does not permit investors to derive income from interest paid on loans, excessive uncertainty or speculation, the sale of pork, or from pornography, gambling or alcohol. So you might think there is little investors would wish to invest in here!
However the interpretation of the Sharia is not a strict science and scholars are consulted to ensure compliance and consequently flexibility can be given to hotels, supermarkets and office buildings provided that the relevant scholar is satisfied.
DQ: Voltaire Financial is positive about the general trend of increasing liquidity it has seen witnessed so far in the 2009 commercial property market. How do you see the remainder of 2010 developing, and into 2011?
RD: This has been a difficult time for all of us managing businesses. We have all had to make difficult decisions about our markets and our people. I am reasonably optimistic as the banks , whilst a number still need to raise new capital, have made those decisions too. Overall economic uncertainty may cloud the immediate private equity and corporate merger market but the build up to do corporate transactions is certainly apparent. Pressure is also building to fund projects from the private sector for health, waste and energy.
In the real estate sector investment funds are looking for product across the UK and mainland Europe. The expectation is to see demand for modern sustainable housing and offices increase. The banks will see and seize these opportunities and i do mean all banks throughout the world. The dynamics of the banking world have changed and the growth of BRIC banks will be a challenge to the European banks in this sector over the next ten years.