Sukuk

Report
Sukuk : A Viable Funding Option
HIGH-LEVEL WORKSHOP ON SUKUK
Moscow, Russia
15-17 December 2014
Presented by:
Arshad Ismail
Strictly Private & Confidential
CONTENT
SECTION
1.
INTRODUCTION TO ISLAMIC CAPITAL MARKETS
2.
SUKUK
3.
2

PART I
: OVERVIEW

PART II : DEVELOPING THE SUKUK MARKET

PART III : STRUCTURING ANALYSIS

PART IV : COMMON SUKUK STRUCTURES

PART V : GLOBAL MARKET TRENDS

PART VI : MALAYSIA AS CROSS BORDER SUKUK MARKETPLACE
SELECTED SUKUK TRANSACTION HIGHLIGHTS
2
Introduction to Islamic Capital Markets
What are Islamic Capital Markets?
Shariah essentially allows all economic activities unless clearly prohibited
•
•
•
Islamic Capital Markets operate in line with Shariah principles. Shariah is basically
Islamic law that is derived primarily from the Quran and Sunnah.
Shariah essentially allows all economic activities unless there is a clear prohibition. The
prohibited activities include:-
Financial services
based on riba
(interest)
Gambling and
gaming which are
not permitted by
Shariah
Manufacture or sale
of non-halal
prohibited
commodities
Conventional
insurance
Entertainment
activities which are
not permitted by
Shariah
Stock-broking or
share trading in
securities not
approved by Shariah
The legal relationships in Islamic finance are NOT about “LENDING” and “BORROWING”
but instead about trade and/or equity participation including “SALE”, “PURCHASE”,
“LEASE”, “CONSTRUCTION”, “INVESTMENT”, “AGENCY” and “PARTNERSHIP”.
4
What are Shariah Principles?
Shariah principles form the basis of Shariah-compliant financial transactions
• Various products are available in the Islamic Capital Markets including Shariah-compliant
equities, Sukuk, unit trusts, Shariah indices, exchange traded funds and crude palm oil
futures contracts.
• The products can be structured based on one or more Shariah principles:
LEASE CONTRACT
AGENCY CONTRACT
IJARAH
(Leasing)
WAKALAH BIL
ISTITHMAR
(Investment Agency)
PARTNERSHIP CONTRACTS
MUDHARABAH
(Profit-Sharing)
MUSHARAKAH
(Joint Ventures)
SALE AND PURCHASE CONTRACTS
MURABAHAH
(Cost Plus Sale)
ISTISNA’
(Purchase Order)
5
Sukuk
PART I : OVERVIEW
What are Sukuk?
Bonds are financial obligations arising from conventional borrowing and
lending, whereas Sukuk represent ownership/interest in an asset
 Sukuk have various definitions depending on jurisdiction including:
 “A document or certificate which represents the value of an asset.” – Securities Commission
Malaysia
 “An Islamic investment certificate which represents an undivided beneficial ownership of an
underlying asset…which grants investors a share of an asset along with the cash flows and risk
commensurate with such ownership.” – Accounting and Auditing Organization for Islamic Financial
Institutions (AAOIFI)
 Regardless of the jurisdiction or technical definition, the concept of Sukuk is universal and differs from
a conventional bond in the following respects:
Features
Sukuk
Conventional Bonds
Issuer
Issuer’s principal activities or the use
of proceeds must not contradict
Shariah
No restriction
Approvals
Must be approved by the relevant
regulatory body and Shariah Adviser.
In certain jurisdictions, together
with the Shariah regulatory body
Must be approved by the relevant
regulatory body
Form
Based
on
trade
transaction,
represented by sale, lease, investment
or joint venture contracts
Based on model of borrowing/lending
7
What are Sukuk? (Cont’d)
Features
Sukuk
Conventional Bonds
Utilisation of
Proceeds
Should not contradict Shariah
No restriction
Asset
requirement
Yes
Typically no, except for Asset
Backed Securities and secured
transactions
Security
Can be structured as clean or secured
Credit
Enhancement /
Ring-fencing
Can be included as features of both instruments
Use of Special
Purpose Vehicle
(SPV) as issuing
conduit
Required under selected structures to
facilitate the underlying Shariah contracts and
target investors
Typically not required except for
Asset
Backed
Securities
transactions
when
bankruptcy
remoteness is required
Exposure to
Bigger Market
Sukuk enjoy a wider investor base from both
sets of investors – Islamic & conventional,
thereby maximizing demand for the securities
Conventional
bonds
are
not
acceptable to Islamic investors. As
such,
limited
exposure
to
conventional investors only
Sukuk
may
also
lead
to
better
profiling/exposure for issuers and enhance
their credit profile in new markets
8
What are Sukuk? (Cont’d)
Features
Programme/
Issuance Cost
Sukuk
Lead Manager/Lead Arranger fees are similar
to conventional bonds transactions
Conventional Bonds
No additional Shariah Advisory Fee
Documentation costs could be marginally
higher
Shariah Advisory fee
Documentation
In addition to the common issue documents,
additional documents to evidence the Islamic
transactions
Common issue documents such as
Programme Agreement/ Facility
Agreement,
Subscription
Agreement, etc
Tax Incentives
(in Malaysia)
Tax deductibility on issuance expenses for
selected structures: Ijarah and Wakalah
No tax incentives on issuance
expenses
Risk
Both conventional bonds and Sukuk are exposed to credit risk and market risk
9
Why Sukuk?
Key Advantages of Issuing Sukuk
 To tap into a new and wider investor base (Islamic and conventional funds)
 Potential pricing competitiveness vis-a-vis conventional bonds
 Diversification of investors
 Alternative source of funding - Provides issuers option to tap a new funding source
(in addition to the bank market and conventional fixed income investors)
 Tax Incentive in Malaysia – Tax deductibility on issuance expenses for selected
structures
10
Sukuk
PART II : DEVELOPING THE SUKUK MARKET
Developing the Sukuk Market
Making Islamic Capital Markets effective, efficient and conducive
 Depending on a country’s existing regulations on capital market transactions and its legal and tax
framework, the development of Sukuk in a new market would typically involve the following:
Policy
Principles
Creating a
"level playing
field"
Regulation for
Shariah
Advisory
What should be done?
•
Sukuk structures typically involve purchase or lease of, or investment into,
underlying assets which may attract tax and/or stamp duties, depending on the
jurisdiction
•
Regulators have to look at the economic substance of the Islamic financial
transactions and make the necessary amendments to the tax legislation in order
to ensure Sukuk will be at par with bonds
•
Drawing on the Malaysian experience, all taxes, levies and duties that would
otherwise be payable on the underlying transactions have been neutralised.
Thereby placing Sukuk on a level paying field vis-à-vis bonds
•
Also, profits/returns payable under Sukuk are treated similar to “interest” for tax
purposes.
•
In Malaysia, the Shariah Advisory Council of Securities Commission Malaysia acts as
the sole authoritative body to advise on Shariah matters pertaining to Islamic
capital market products
•
Alternatively, other jurisdictions including United Kingdom and Hong Kong have
taken the approach to be guided by the resolutions of Shariah advisor(s)
appointed for the respective Sukuk transactions
Developing the Sukuk Market (Cont’d)
Making Islamic Capital Markets effective, efficient and conducive
Policy
Principles
What should be done?
•
The Islamic Finance industry is still growing and evolving, as such the regulatory
framework in Malaysia does not encompass all known Islamic structures in the
industry. Securities Commission Malaysia provides the flexibility to new Shariah
structures which may not be covered under current regulations
•
Broadening the local investors base is fundamental to create demand in
investment into local Sukuk issuances by the government, government linked
agencies, state owned enterprises and corporate
•
In order to encourage growth of the Sukuk market in Malaysia, the government
introduced incentives such as tax deduction/exemptions to issuers/investors in
order to boost issuance of/investment in Sukuk e.g. no withholding tax for
profit/coupon for non-resident investors under Malaysia’s Income Tax Act
Evolving
Regulatory
Landscape
Broadening the
Investor Base
Incentives to
Encourage
Growth of the
Market
Sukuk
PART III : STRUCTURING ANALYSIS
Structuring Sukuk
Typical Terms and Conditions of a Reg S USD Sukuk Transaction
Parameters
Example
Issuer
 Typically, a special purpose vehicle
Facility
•
Islamic Structure
 Including Musharakah, Ijarah, Wakalah or such other structure as advised by the Shariah Adviser
Rating
 Ratings issued by international rating agencies namely, S&P’s, Moody’s and Fitch
Utilisation of Proceeds
 Capital expenditure, general corporate purposes and working capital, all for purposes which do not
contradict Shariah
Mode of Issue
 Bought deal/Private Placement/Bookbuilding. International Sukuk transactions (Reg S/Rule 144A) are
typically issued via bookbuilding
Conditions Precedent
 Standard bond documentation conditions precedent including execution of legal documentation, regulatory
approvals, and statutory documents
Representations and Warranties
 Standard bond documentation representations and warranties including the issuer having the capacity to
enter into the transactions, the issuer being in compliance with applicable laws and regulations, and not
being in breach of the Transaction Documents
Events of Default
 Including a default in payment obligations and a breach of any conditions of the Transaction Documents
Positive Covenants
 Perform certain obligations including complying with all terms and conditions under the Transaction
Documents, and with all applicable laws and regulations
Negative Covenants
 Not do certain things e.g. amending its statutory documents which would be inconsistent with the
Transaction Documents, reducing its issued and paid-up capital, and pledge or secure assets after the
securities have been issued
Information Covenants
 Including submission of audited accounts
Transaction Documents
 Including but not limited to the Programme Agreement, Trust Deed and other asset related documents
Governing Law
 English Law. Asset related documents are typically governed by local law
Trust Certificates Programme
15
Structuring Sukuk
Execution process: Typical timeline is approximately 12 - 16 weeks
Weeks
• Appointment of Parties
• Legal, financial & technical
due diligence
A
Financial/Legal/
Technical Due
Diligence
B
Cashflow
Preparation &
Review
C
Ratings Process
D
Shariah Review &
Approval
• Shariah approval on T&Cs
• Shariah approval on
documentation
E
Regulatory
Approval
• Submissions to regulatory
authorities
Documentation
• Programme Agreement,
Trust Deed & asset related
documents
F
G
Marketing &
Distribution
H
Issuance
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
• Preparation & review of
cashflow projections
• Engaging with relevant
rating agencies
• Prepare marketing material
• Marketing of offering,
including roadshow
• Launch
• Final OC & Listing
• Compliance with CPs
• Settlement
16
Structuring Sukuk
Indicative Fees and Expenses for Reg S USD Sukuk Transactions
Indicative Upfront Fees
Arranger/Manager/Bookrunners Fees
Indicative Amount (USD)
Depending on credit of the issuer
Legal Fees
International Legal Counsel – Issuer
175,000 – 220,000
International Legal Counsel – Arranger
150,000 – 170,000
Domestic Legal Counsel – Issuer
Depending on the jurisdictions
Domestic Legal Counsel – Arranger
Depending on the jurisdictions
Reporting Accountant Fee
150,000 – 200,000
Shariah Advisory Fee
25,000
Listing Agent Fee
10,000
Fiscal Agent Fee
30,000
SPV’s Establishment Expenses
Miscellaneous (e.g. out-of-pocket expenses)
TOTAL (USD)
(excluding Arranger/Manager/Bookrunners Fees, Regulatory Fees*
and Rating Fees**)
Depending on the jurisdictions
30,000
690,000 – 845,000
*if applicable
**Corporate rating flat fee of USD 70,000 and issuance rating of 0.05% to 0.07% of issuance size or USD 50,000, whichever is
higher.
Indicative Annual Recurring Fees
Fiscal Agent Fee
Rating Surveillance Fee
SPV Corporate Services Expenses
TOTAL
(USD)
Note: For programme size of up to USD1.0 billion in nominal value (or its equivalent in any other currencies)
Indicative Amount (USD)
30,000
60,000
Depending on the jurisdictions
90,000
17
Structuring Sukuk
Indicative Fees and Expenses for MYR Bonds and Sukuk
Indicative Upfront Fees
Conventional Bonds
Sukuk
Indicative Amount (MYR)
Indicative Amount (MYR)
130,000 – 180,000
200,000 – 250,000
100,000 – 150,000
100,000 – 150,000
51,000
51,000
600,000
N/A
600,000
75,000
Trustee Fee
10,000
10,000
Agency Fee
75,000
75,000
BNM Depository Fees
30,000
30,000
1,400
1,400
30,000
30,000
1,027,400 - 1,127,400
1,172,400 – 1,272,400
Legal Counsel Fee (Arranger)
Reporting Accountant Fee (if applicable)
Securities Commission Fee
Rating Fee
Shariah Advisory Fee
FAST Charges & RENTAS Annual Fees
Miscellaneous (e.g. out-of-pocket expenses)
TOTAL (MYR)
(excluding Arranger/Manager/Bookbuilding
Fees*)
Indicative Annual Recurring Fees
Indicative Amount (MYR)
Agency Fees
75,000
75,000
400,000
400,000
50,000
50,000
4,000
4,000
529,000
529,000
Rating Surveillance Fees
Trustee
RENTAS Annual Fees
TOTAL (MYR)
Note: For Islamic MTN programme size of up to MYR1.0 billion in nominal value, 1 st issue in 2tranches
18
Structuring Sukuk
Modes of Issuance
The issuance of Sukuk is managed by the lead managers via the following modes:
Bookbuilding
Private
Placement
Modes
of
Issuance
Bought Deal
19
Structuring Sukuk
Bookbuilding – Typical Global Roadshow Destinations for Reg S USD Sukuk
transactions
 Marketing typically includes a “deal” roadshow to generate higher interest amongst
investors
 The roadshow would usually cover key financial centres in Switzerland, Germany, South
Korea, Hong Kong, Singapore, Kuala Lumpur, Abu Dhabi, Dubai, Riyadh, Bahrain and
London, among others. It would enable issuers to engage potential key/anchor investors
for the offering
Proposed Roadshow Locations
Roadshow Schedule Illustration
London
Location
Duration
Kuala Lumpur
1 day
Singapore
1 day
Middle East
Hong Kong
Kuala Lumpur
Singapore
Hong
Kong/South
Korea
Middle East
(Abu Dhabi /
Dubai / Riyadh /
Bahrain)
Europe
2 days
Format
1-1
Meetings/Group
Presentation
1-1
Meetings/Group
Presentation
1-1
Meetings/Group
Presentation
3 days
1-1
Meetings/Group
Presentation
2 days
1-1
Meetings/Group
Presentation
20
Common Islamic Structures for Sukuk Issuances
Proposed Islamic structures depend on the issuer’s nature of business and the
availability of tangible assets, amongst other considerations
Murabahah
(Cost Plus Mark up Sale)
Wakalah
(Agency)
Ijarah
(Lease)
 Contract for a sale and
purchase of asset(s)
 Cost and profit margins
are
made
known
upfront and agreed by
parties involved
 Investment agency contract
whereby a party authorises
another party to act on behalf
of the former based on the
agreed terms and conditions
of
Malaysia
 Government
issued the first sovereign USD
Sukuk structured under the
Shariah principle of Wakala in
2011
 Lease-based contract whereby a
lessor (asset owner) leases out an
asset to a lessee at an agreed
lease rental for a predetermined
lease period. The ownership of
the leased asset shall always
remain with the lessor
 Most common and popular Islamic
structure for issuers globally,
either on sale-and-leaseback or
head-lease and sub-lease basis
Nature of
Issuer’s
Business
 Commonly adopted by
companies which are
asset
light
or
restrictions on transfer
of tangible assets
adopted
by
 Commonly
companies which are asset
light
or
restrictions
on
transfer of tangible assets
 Commonly adopted by companies
which have sufficient fixed assets
to allocate for the proposed
issuance as the underlying assets
will be locked up to maturity of
the Sukuk
Issuing
Entity
 International Sukuk typically involves setting up of a special purpose vehicle as the issuing entity,
whereas in Malaysia, the fundraising entity itself also assume the role of the issuer.
Description
21
Common Islamic Structures for Sukuk Issuances
Proposed Islamic structures depend on the issuer’s nature of business and the
availability of tangible assets, amongst other considerations
Murabahah
(Cost Plus Mark-up Sale)
Low
Underlying
Assets
Marketability
Notable
Issuances
Wakalah
(Agency)
Ijarah
(Lease)
Dependence on Issuer’s Tangible Assets
High
asset
is
 Tangible
required,
but
not
Issuer’s own assets
 Typically involves use of
commodity(ies)
purchased from, and
sold
to
commodity
brokers
 Required, subject to minimum
of 51% of the value of the
assets portfolio
 Leasable asset required to
match 100% of the issuance size
 Legal title of asset typically
remains with the original
registered owner. Investors as
beneficial owner of the assets
 Gaining prominence in
the Malaysian sukuk
market.
restriction
 Tradability
for certain investors as
the Sukuk represent
debt/receivables
 Acceptable to the majority of
global Shariah scholars.
 Most common and popular
Islamic structure for both
issuers and investors globally
including
GCC
(Gulf
Cooperation Council)
Berhad
 Cagamas
(2013)(RM)
Assets
 Golden
International
Finance
(2012)(RM)
Plantations
 TH
(2012)(RM)
Islamic
Bank
 Qatar
(2013)(USD)
 Islamic Development Bank
(2012, 2011)(USD)
of
Malaysia
 Government
(2011)(USD)
 Kuveyt Turk (2014)(USD)
 Government of Turkey (2013,
2012)(USD)
of
Indonesia
 Government
(2013, 2012)(USD)
 Government of Dubai (2013,
2012)(USD)
of
Qatar
 Government
(2012)(USD)
22
Sukuk
PART IV : COMMON SUKUK STRUCTURES
Sukuk Ijarah (Lease)
Company
(Lessee/ Obligor/
Servicing Agent)
3
4
2
Purchase Assets
2
Asset Purchase Price
Lease Assets
Purchase Undertaking
5
Rental
5
Servicing Agency Agreement
6
6
SPV
(Trustee)
Declare
Trust &
Issue
Sukuk
Ijarah
1
Sukukholders
1
Proceeds
Sale Agreement
Exercise Price
2424
Sukuk Ijarah (Lease)
Case Study: Government of UK GBP200million Certificates
This structure diagram was extracted from the prospectus dated 30 June 2014
2525
Sukuk Wakalah (Agency)
Tangible > 51%
Leases 3
Assets
Commodities < 49%
Company
(Wakeel/Original
Owner/Lessee/ Obligor)
8
Substitution
Undertaking
1(a)
Exercise
Appoint as
Price
Wakeel
4
2
Company
(Purchaser)
5(i)
Purchase
Assets
Order
sale of commodities
at Sale Price
5(ii)
Issuer
Purchase
Undertaking
8
Exercise
Price
1(b)
1(b)
Issue
Sukuk
Sukuk
proceeds
Commodity
Buyer
Sale of
commodities
on spot
5(iii)
SPV
(Trustee)
6
5(iv)
Purchase of
commodities
on spot
Bursa Suq
Al-Sila’
Commodity
Suppliers
7
Periodic
Distributions
Sukukholders
26
Sukuk Wakalah (Agency)
Case Study: Government of Malaysia USD2,000million Certificates
This structure diagram was extracted from the prospectus dated 28 June 2011.
27
Sukuk Wakalah (Agency)
Case Study: Exim Sukuk Malaysia Berhad’s USD1.0 billion Multi-Currency Sukuk
Issuance Programme
Structure and Diagram of Cashflows
Islamic Structure Challenges and Highlights


MEXIM’s Sukuk issuance was designed to raise Islamic
funding to build MEXIM’s Islamic banking and finance
business.
MEXIM’s Sukuk were widely marketed to Middle Eastern
based investors to promote and develop Malaysia’s global
Sukuk market.

Majority of Middle Eastern based investors only permit
Sukuk with asset based Sukuk structures such as Ijarah,
Musharakah, Mudarabah and Wakalah to be tradable.

The following challenges were faced when
MEXIM’s Sukuk:



structuring
Sukukholders
MEXIM (Wakeel)
Periodic Distribution
Amount and Distribution
Amount
Sukuk Issue
Proceeds
EXIM Sukuk Malaysia Berhad
Purchase of
Tangible Assets
and NonTangible Assets
Purchase
Price
Exercise
Price
Sale of
Tangible Assets
and NonTangible Assets
The Wakalah structure (as illustrated on the right)
conceived for this exercise addressed the key issues
faced by MEXIM with the following:

MEXIM will only require to source/identify tangible
assets of 34% of the Sukuk issuance proceeds;

The tangible asset component can first be sourced
externally and gradually substituted with MEXIM’s
growing Islamic banking assets business through a
substitution undertaking agreement; and

The intangible asset component of the Wakalah
portfolio (Commodity Murabahah) supports the
remaining portion of Wakalah portfolio to reduce the
required tangible assets.
Non-Cash
Movements
Incentive Fee
(Issuer, Trustee and Purchaser and Seller of Tangible and Non-Tangible Assets)
Islamic investors tradability requirements, requiring
asset based Sukuk (backed by tangible assets); and
MEXIM’s lack of tangible assets to provide for its
Sukuk given that it is a conventional bank.
Wakalah
Agreement
Cash
Movements
Substitution
Undertaking
Agreement
Cost price of
purchase of
commodities
Purchase of
Commodities
Bursa Malaysia
Islamic
Services
Sdn Bhd
Sale of
Commodities
Deferred Sale
Price
MEXIM
(Obligor)
Sale of
Commodities
Proceeds from
Sale Price
MEXIM
(Purchaser and Seller of Tangible Assets)
Tangible Asset
(>34% outstanding Sukuk proceeds at all times)
This structure diagram was extracted from the prospectus dated 27 September 2013.
Bursa Suq Al-Sila’
Intangible Asset (Commodity
Murabahah) (<66% outstanding Sukuk
proceeds at all times)
28
Sukuk Murabahah (Cost Plus Mark-up Sale)
Sukuk Proceeds
Sale of Commodities on spot
4
6
Issue Sukuk
Company
4
(as Purchaser/
Issuer)
Sukukholders
represented
by Trustee
Sale of
Commodities
7
Sale Price =
Purchase Price + profit
margin
Agency Agreement
Commodity
Buyer
2
5
1
6
Selling Price =
Sukuk
Proceeds
Commodity
Trading
Participant
(CTP)
Purchase Order with
Undertaking to
Purchase
Company as
Purchase
Agent on
behalf of
Sukukholders
Bursa Suq
Al-Sila’
Commodity
Suppliers
Purchase Price =
Sukuk Proceeds
3
3
Purchase Commodities on spot
2929
Sukuk
PART V : GLOBAL MARKET TRENDS
Global Sukuk Market – Current State
International Bonds
(Conventional & Sukuk)
USD Bil
Total Amount Issued (USD Bil)
International Sukuk
(including Ringgit Sukuk)
USD Bil
Number of Issues
14,000
5,000
4,500
USD 3,082 bln
4,295.0
12,000
4,000
3,494.5
3,500
3,545.4
3,823.1
Total Amount Issued (USD Bil)
50
10,000
3,082.0
3,000
8,000
2,500
USD 37 bln
450
46.45
45
43.03
40
3,643.8
Number of Issues
400
350
36.84
36.69
35
300
30
250
25
6,000
2,000
20
1,500
16.00
4,000
15
2,000
10
1,000
200
18.76
150
100
500
50
5
0
2009
2010
2011
2012
2013
3Q 2014
-
0
2009
•
•
2010
2011
2012
2013
3Q 2014
The international Sukuk market is relatively small compared to the global debt
market.
However, the Sukuk market has experienced exponential growth as evidenced by an
aggregate outstanding amount of USD257.6 billion1 as at 3Q 2014.
Source: Bloomberg – International bonds market vs global Islamic bonds market (excluding securities with maturities equal to or less than 12 months)
1. Excluding government short term securities
31
31
Global Sukuk Market – Current State

Government and financial sectors dominated the primary global Sukuk market in
2014.
3.6%
4.1%
0.7% 0.6%
0.2%
1.2%
0.2%
14.7%
36.2%
Source: Bloomberg (based on total issuance amount of USD57.98billion)(as at 3Q 2014)
1. Excluding government short term securities
38.5%
Government
Financial
Utilities
Industrials
Materials
Communications
Health Care
Consumer Staples
Consumer Discretionary
Energy
32
Trends in the Global Sukuk Market
•
The year 2014 has been a ground-breaking year in the Islamic capital markets as we witness
non-Muslim majority global financial centres tap the global Sukuk market for their sovereign
funding needs:
 July 2014: UK became the first country outside of the Muslim majority nations to issue
Sukuk. The £200 million (USD343 million) issue with maturity of 5 years, priced at
2.036%, was 11.5 times oversubscribed attracting orders of more than £2 billion from
global investors
 September 2014: The Hong Kong government's USD1 billion five-year Sukuk, priced at
2.005%, were oversubscribed 4.7 times with orders of US$4.7 billion
 September 2014: South Africa, the third non-Muslim majority country to issue sovereign
Sukuk, issued USD500 million Sukuk which were more than four times oversubscribed,
with an order book of $2.2 billion. The Sukuk, with maturity of 5 years and 9 months,
were priced at 3.90% with a spread of 180 b.p. above the corresponding mid-swap
benchmark rate
 October 2014: Luxembourg issued its debut €200 million (USD253 million) five-year
Sukuk, with an order book that was more than two times oversubscribed. The AAA-rated
sovereign Sukuk were priced at a profit rate of 0.436%
•
Other non-Muslim majority countries including Australia and Thailand have also expressed
interest to tap the global Sukuk Market.
33
Pricing Analysis – Government of UK
2.5
•
The UK Sukuk’s yield move in
tandem with the conventional
UK Gilt
•
The market data shows that
there are more demand for the
UK Sukuk in the secondary
market
compared
to
the
conventional UK Gilt, given that
the UK Sukuk is priced higher
than the conventional UK Gilt
2
1.5
UK 1 3/4
UK Sukuk
1
0.5
0
1-Jul-14
1-Aug-14
Issuer
United Kingdom Gilt
(1¾% TREASURY GILT
2019 )
HM Treasury UK
Sovereign Sukuk Plc
1-Sep-14
1-Oct-14
1-Nov-14
Amount
Coupon
Outstanding
(%)
(GBP mil)
30,212.43
200.00
Source: Bloomberg – Historical Prices (as of 8 Dec)
1.75
2.036
1-Dec-14
Issue Date
Maturity
Date
22 Nov 2013 22 July 2019
2 July 2014
22 July 2019
Remaining Yield to
Tenure
Maturit
(years)
y (%)
4.62
4.62
Price
Islamic
Structure
1.345
101.81
N/A
1.304
Ijarah (Head
103.27 Lease and Sub
Lease)
34
Snapshot of the Global Sukuk Market
Malaysia continues to lead the world in sukuk, with over 63% market share in
2Q14
Global Sukuk Issuance Yearly Comparison
USD mil
Other
80,000
Global Sukuk Issues 2Q14 vs. 2Q13
MENA
Global Sukuk Issues by Size & No of Deals
USD mil
USD mil
Others
40,000
Capital Raised
15,000
MENA
# of Deals
100
90
80
70
60
50
40
30
20
10
0
35,000
60,000
30,000
25,000
54,797
40,000
50,821
20,000
44,759
25,177
21,348
10,000
15,000
33,054
12,210
12,738
10,000
20,000
13,212
14,283
14,621
16,454
2011
2012
2013
2014
8,881
5,000
8,434
8,653
2Q13
2Q14
0
0
Global Sukuk Trends by Quarter
USD mil
MENA
40,000
35,000
Agriculture
Conglomerates
Transport
Services
Retail
Healthcare
Oil and Gas
Telecommunications
Construction
Real Estate
Power and Utilities
Financial Services
Gov't Institutions
33,115
29,782
30,000
23,459
25,000
20,000
10,481
15,000
8,434
10,000
7,800
5,000
1,345
0
2Q13
3Q13
4Q13
1Q14
5,000
3
BND
161
BHD
350
IDR
429
PKR
502
SAR
10,000
15,000
USD mil
Source: Zawya 2Q14 Report
20,000
25,000
19,574
5,000
10,000
15,000
20,000
25,000
USD mil
Global Sukuk Issues by Structure in 2Q14
BAIEINAH
Al Salaam
Wakala-Murabaha
Modarabah
Musharakah
Modarabah-Murabaha
Wakala
Bai Bithaman Ajil
Ijarah
Murabaha
2,053
8,990
MYR
0
Sovereign
20,074
59%
6,376
USD
22,440
0
Corporate
10,944
33%
Global Sukuk Issues by Currency in 2Q14
GMD
Jun-14
Quasi
Sovereign
2,812
8%
USD mil
3
40
161
350
430
502
1,601
3,350
4,953
May-14
Global Sukuk Issues by Issuer Type (in USD mil)
13
63
78
107
141
172
320
640
1,339
2,319
2,688
0
Global Sukuk Issues by Country in 2Q14
Gambia
Luxembourg
Brunei
Bahrain
Indonesia
Pakistan
Turkey
UAE
Saudi Arabia
Malaysia
Apr-14
Global Sukuk Issues by Sector in 2Q14
Global
36,224
5,000
5,000
10,000
USD mil
15,000
20,000
94
194
350
500
913
2,053
3,040
3,324
7,070
16,479
0
5,000
10,000
USD mil
15,000
20,000
Sukuk
PART VI : MALAYSIA AS CROSS BORDER SUKUK MARKETPLACE
Malaysia : Cross Border Sukuk Marketplace
Malaysia has seen a number of cross-border MYR Sukuk transactions
including issuers from neighbouring countries
Last
Issue
Date
Issuer
Golden Assets
International
Finance Ltd
TF Varlik Kiralama
30/6/2014
Anonim Sirketi
5/8/2014
18/3/2014 Bumitama Agri Ltd
8/11/2013
31/7/2013
ABHC Sukuk Bhd
Country
Industry
Amount
Issued (MYR)
Obligor
Rating
Maturit
y
Coupon
(%)
Singapore
Financials
375,000,000.00
Golden Assets
International Finance
AA2s
5Y
5.35
Turkey
Financials
800,000,000.00
Turkiye Finans Katilim
Bankasi AS
AA3
5Y
6.00
Indonesia
Consumer
Staples
500,000,000.00
Bumitama Agri Ltd
AA3
5Y
5.25
Al Bayan Group Holding
Company
AA3s
1Y
4.2
Saudi Arabia
Financials
300,000,000.00
Islamic Development
Bank
AAA
5Y
3.6
Singapore
Consumer
Staples
600,000,000.00
First Resources Ltd
AA2
7Y
4.35
Tadamun Services
Supranational
Bhd
6/6/2013 First Resources Ltd
Consumer
120,000,000.00
Discretionary
30/4/2013
Bahrain
Mumtalakat
Holding Co BSC
Bahrain
Financials
150,000,000.00
Bahrain Mumtalakat
Holding Co BSC
AA2
5Y
5.35
31/1/2013
Noble Group Ltd
Hong Kong
Energy
300,000,000.00
Noble Group Ltd
AA2
3Y
4.3
10/12/2012
National Bank of
Abu Dhabi PJSC
Arab Emirates
Financials
500,000,000.00
National Bank of Abu
Dhabi PJSC
AAA
15Y
4.75
Financials
240,000,000.00
Development Bank of
Kazakhstan JSC
AA2
5Y
5.5
Financials
325,000,000.00 Gulf Investment Corp GSC
AAA
10Y to 15Y
5.1 to 5.3
AA1
10Y
4.65
Development Bank
Kazakhstan
of Kazakhstan JSC
Gulf Investment
18/6/2012
Kuwait
Corp GSC
Abu Dhabi National
5/3/2012
Arab Emirates
Energy Co
3/8/2012
Utilities
650,000,000.00
Abu Dhabi Water &
Electricity Author
37
Malaysia : Cross Border Sukuk Marketplace
Malaysia has seen a number of cross-border MYR Sukuk transactions
including issuers from neighbouring countries
Country
Supranational
11%
10 years
10%
UAE
17%
11 - 15 years
5%
1 - 3 years
12%
1 - 3 years
6 - 9 years
5%
Singapore
33%
Maturity
4 - 5 years
6 - 9 years
Bahrain
4%
10 years
11 - 15 years
4 - 5 years
68%
Hong Kong
7%
AA3
10%
Indonesia
4%
AA3s
3%
AAA
36%
Ratings
AAA
Kuwait
13%
Saudi Arabia
3%
Turkey
6%
Kazakhstan
2%
AA1
AA2s
21%
AA2
AA2s
AA3
AA2
25%
Note: Charts are based on issuances by 12 foreign issuers (MYR 12.72Billion; USD4.04 Billion Equivalent)
Source: Bloomberg (as of 26th August 2014)
AA1
5%
AA3s
38
Malaysia : Cross Border Sukuk Marketplace
Malaysia has seen a number of cross-border MYR Sukuk transactions
including issuers from neighbouring countries
Indicative Rating Mapping
Long Term Rating Scale
International Rating Agencies
S&P
AAA
AA+
AA
AAA+
A
ABBB+
BBB
BBBBB+
BB
BB-
Moody’s
Investment Grade
Aaa
Aa1
Aa2
Aa3
A1
A2
A3
Baa1
Baa2
Baa3
Speculative Grade
Ba1
Ba2
Ba3
B1
B2
B3
Malaysian Rating Agencies
Fitch
AAA
AA+
AA
AAA+
A
ABBB+
BBB
BBBBB+
BB
BBB
RAM
AAA
AA1
AA2
AA3
A1
A2
A3
BBB1
BBB2
BBB3
BB1
BB2
BB3
B1
B2
B3
C1
C2
C3
D
MARC
Investment Grade
AAA
AA+
AA
AAA+
A
ABBB+
BBB
BBBSpeculative Grade
BB+
BB
BBB+
B
BC
D
39
Selected Sukuk Transaction Highlights
USD Sovereign Sukuk: Wakala Global Sukuk Berhad’s USD2.0 billion
Islamic Trust Certificates
First global sovereign USD Sukuk structured under the principle of Wakala
Transaction Details
Transaction Overview
June 2011
USD2.0 billion

WAKALA GLOBAL SUKUK
BERHAD
Joint Malaysian Adviser
Joint Bookrunner
Joint Lead Manager
Trust Certificates

Wakala Global Sukuk Berhad is a single
purpose vehicle established by the
Government of Malaysia, owned by the
Minister of Finance (Incorporated) and the
Federal Lands Commissioner, to undertake
the proposed Sukuk issuance of up to USD2
billion in nominal value
The Wakala Sukuk establishes a new
benchmark in the Islamic capital markets.
Wakala Global Sukuk offering was
structured under the Shariah principle of
Wakala
Transaction Highlights



The establishment of a 10-year benchmark Sukuk reinforces Malaysia’s position
as a leading international Islamic financial centre. The Sukuk assets under the
Wakala principle comprise (i) a tangible asset component consisting of
leasable assets and Shariah-compliant shares; and (ii) a Murabaha receivable
component arising from a sale of Shariah-compliant commodities
The Wakala Global Sukuk represents a number of “firsts”:
― First global sovereign USD Sukuk for 2011;
― First global sovereign USD Sukuk structured under the Shariah principle of
Wakala;
― Largest dual-tranche global sovereign USD Sukuk at issue; and
― First 10-year global sovereign USD Sukuk and lowest absolute yields,
achieved by an Asian sovereign for a new USD issuance
The deal was significantly oversubscribed by 4.5 times, attracting interest in
excess of USD9.0 billion and was fully distributed to over 320 global investors
Issuer
Wakala Global Sukuk Berhad
Facility
Sukuk
Size
Series 1: USD1.2 billion
Series 2: USD0.8 billion
Tenure
Series 1: 5 years
Series 2: 10 years
Coupon
Series 1: 2.991% (UST + 145 bps)
Series 2: 4.646% (UST + 165 bps)
Maybank KE’s
Role
Joint Malaysian Adviser, Joint
Bookrunner, Joint Lead Manager
Issuance
Date
28 June 2011
Distribution Analysis
Allocation by geography (%)
Rest of
Malaysia, Asia, 22%
27%
Europe
, 14%
Middle
East, 29% US, 8%
Demand breakdown (in USD billion)
Others, 6
Maybank
Sales
contribution,
3
41
USD Sovereign Sukuk: Perusahaan Penerbit SBSN Indonesia I’s
USD650.0 million Islamic Trust Certificates
The Government of Indonesia’s first ever sovereign Sukuk issuance
Transaction Details
Overview on Issuer
March 2009
USD650 million

PERUSAHAAN PENERBIT
SBSN INDONESIA I
International Co-Manager
Trust Certificates

Perusahaan Penerbit SBSN Indonesia I
was established in Indonesia on 21
October 2008 by the Republic of
Indonesia, with its registered office at
the Ministry of Finance of the
Republic of Indonesia
The issuer is a special purpose vehicle
formed solely for the purpose of
participating in the USD650 million
Trust Certificates and is a whollyowned subsidiary of the Republic of
Indonesia
Issuer
Perusahaan Penerbit SBSN
Indonesia I
Facility
Trust Certificates
Size
USD650 million
Tenure
5 years
Issue date
4 March 2009
Maturity
4 March 2014
Rating
Moody’s: Ba3; S&P: BB-; Fitch: BB
Issue Price
100
Regulatory Format
Reg S / 144A
Maybank KE’s Role
International Co-Manager
Transaction Highlights

On 4 March 2009, the Government of Indonesia via a Perusahaan Penerbit SBSN Indonesia I, a special purpose vehicle, issued
USD650.0 million in Trust Certificates, representing the Government of Indonesia’s first ever sovereign Sukuk issuance

The Trust Certificates facility received a rating of Ba3 from Moody’s, BB- from S&P, and BB from Fitch

The Trust Certificates were listed on SGX-ST in Singapore

As International Co-Manager, Maybank KE assisted the Government of Indonesia to successfully place out the Trust Certificates to
Investors
Issuer
Format
PERUSAHAAN PENER
PERUSAHAAN PENER
144A
Reg S
Amount Issued
(USD)
650,000,000
650,000,000
Amount Outstanding
(USD)
650,000,000
650,000,000
Coupon
(%)
8.80
8.80
Islamic
Principle
Ijarah
Ijarah
Issue Date
Maturity
4/23/2009 4/23/2014
4/23/2009 4/23/2014
Rating
(F/M/S&P)
BBB-/Ba1/BB+
BBB-/Ba1/BB+
42
USD Government-Linked Corporate Sukuk: Sime Darby’s Inaugural USD
Sukuk
Diversification of USD funding sources led to its foray in the Reg S Sukuk market
January 2013
USD800 million
SIME DARBY GLOBAL
BERHAD
Sime Darby’s Funding Requirements

Inline with the Sime Darby Group’s global
business, Sime Darby required access to foreign
currency debt capital market funding.
Issuer
Sime Darby Global Berhad (whollyowned subsidiary of Sime Darby)

Sime Darby’s USD funding had traditionally been
dominated by bank borrowings, and Sime Darby
wanted to diversify its funding base into the USD
debt capital markets.
Facility
Multi-Currency Sukuk Programme
Programme
Size
USD1.5 billion in nominal value
Format
Reg S
Structure
Islamic (Ijarah)
Issuance Size
and Tenure
5 years:: USD400 million
10 years: USD400 million
Programme
and Issuance
Ratings
A/A/A3 by S&P, Fitch and Moody’s
Maybank KE’s
Role
Joint Principal Adviser, Joint Lead
Arranger, Joint Lead Manager, Dealer,
Listing Agent (Bursa Malaysia)
Our Funding Solution
Joint Principal Adviser, Joint Lead
Arranger, Joint Lead Manager,
Dealer, Joint Shariah Adviser,
Listing Agent

Sukuk

By establishing a multi-currency sukuk programme
(the “Multi-Currency Sukuk Programme”), Sime
Darby can issue sukuk in a host of international
currencies including USD.
Sime Darby, one of the largest listed government
linked-companies in Malaysia would then be able
to make its debut appearance in the international
Reg S markets and tap new and large investor
pools in the Middle East.
Transaction Highlights


Programme and Issuance Salient Terms
Stronger Rating Than Malaysia’s Sovereign Rating: programme ratings of A, A and A3
from S&P, Fitch and Moody’s respectively and similar ratings for the first issuance –
higher than the international sovereign rating of the Government of Malaysia.
Successful International Reception: 9-day international roadshow spanning Asia,
Europe and the Middle East saw the participation of over 180 institutional investors.

Overwhelming Response: despite the heavy supply in the primary USD bond market,
Sime Darby Global was able to attract a very strong order book of more than USD8.0
billion, or an over-subscription rate of over 10 times via 376 orders.

Tight Yields Set New Pricing Benchmarks: (i) lowest ever coupon by any corporate
globally in the USD sukuk market (ii) lowest ever USD coupon in a sukuk format by an
Asian issuer (iii) lowest ever coupon by a Malaysian issuer in the USD market, in both
the 5- and 10-year tenures.
Awards & Recognition
Best Deal of the Year
(Malaysia) 2013
Best Islamic Finance
Deal 2013
Best Foreign Currency
Bond Deal 2013
Bank Negara Malaysia
“Emas” Status
Best Corporate Sukuk
/ New Sukuk 2014
USD Government-Linked Corporate Sukuk: Exim Sukuk Malaysia
Berhad’s USD1.0 billion Multi-Currency Sukuk Issuance Programme
The world’s first EXIM bank to issue USD sukuk
February 2014
USD300 million
Transaction Details
Transaction Overview

EXIM SUKUK MALAYSIA
BERHAD
Joint Principal Adviser,
Joint Lead Arranger, Joint
Lead Manager, Joint
Bookrunner

Sukuk

On 19 February 2014, Export-Import Bank
of Malaysia Berhad (“MEXIM”) issued its
USD300.0 million, 5-year Reg-S Sukuk
(“Sukuk”) issuance via EXIM Sukuk Malaysia
Berhad, pursuant to its USD1.0 billion
Multicurrency Sukuk Issuance Programme
(the “Programme”).
The Sukuk is structured under the Shariah
principle of Wakala comprising of a
tangible asset component; and a Murabaha
receivable component arising from a sale of
Shariah-compliant commodities.
The issue was accorded credit ratings of Aby Fitch Ratings and A3 by Moody's, which
are on par with the Malaysian sovereign
ratings.
Issuer
EXIM Sukuk Malaysia Berhad
Facility
Multicurrency Sukuk Issuance
Programme
Programme Size
USD1.0 billion
Programme
Tenure
Perpetual
Issuance Size
USD300 million
Issuance Tenure
5 years
Issuance Date
19 February 2014
Rating
A- by Fitch Ratings and A3 by
Moody's
Mode of Issuance
Bookbuilding
Maybank KE’s Role
Joint Principal Adviser, Joint
Lead Arranger, Joint Lead
Manager, Joint Bookrunner
Transaction Highlights

The world’s first EXIM bank to issue USD sukuk.

The inaugural Sukuk offering was priced at 140 basis points over US Treasuries
(UST), which is equivalent to an all-in yield of 2.874% per annum, which was
tightened from the initial price guidance of 165 basis points over UST.

The Sukuk was executed intra-day following strong investor demand. The
Sukuk was oversubscribed by approximately 10.6 times, attracting more than
USD3.0 billion orders and was fully distributed to over 185 Islamic and
conventional investors.
Distribution Analysis
16%
19%
Middle East
Asia
Europe
65%
USD Sukuk: IDB Trust Services Limited’s USD1.5 billion Islamic Trust
Certificate Issuance
Strong demand from investors worldwide and aggressive pricing
Transaction Overview
September 2014
USD1.5 billion

IDB TRUST SERVICES
LIMITED

Joint Lead Manager, Joint
Bookrunner
Islamic Trust Certificates

The Islamic Development Bank (“IsDB”) is
a supranational developmental bank,
established in 1975. Owned by 56 member
countries of the Organization of Islamic
Cooperation (“OIC”), the IsDB’s primary
objective is to foster the economic
development and social progress of
member
countries
and
Muslim
communities in non-member countries.
Issued by IDB Trust Services Limited
pursuant to its USD10.0 billion Trust
Certificates Programme, the USD1.5
billion, 5-year issuance is guaranteed by
the IsDB and rated the highest possible
ratings by S&P, Fitch and Moody’s.
The net proceeds will be used for IsDB’s
general corporate purposes.
Transaction Highlights

Worldwide investor demand: There was strong demand for this Sukuk from
investors globally; with final allocation of 59% to investors from Middle East
and North Africa (“MENA”), 27% to investors from Asia and 14% to investors
from Europe.

Aggressive-pricing and oversubscription: The transaction collated a strong
order book which closed at approximately USD2.0 billion, 2.0 times the initial
target issue size of USD1.0 billion.

Upsizing and low all-in profit rate: Due to overwhelming demand, the
transaction was upsized to USD1.5 billion at the lowest end of the spread, with
final price at 10bps above the Mid-Swap (“MS”) against the initial price
guidance of 10-15bps above MS. At MS + 10bps, the all-in profit rate is 2.11%
for the 5year Sukuk.
Salient Terms
Issuer
IDB Trust Services Limited
Guarantor
The Islamic Development Bank
Facility
Trust Certificate Issuance Programme
Programme Size
USD10.0 billion
Issue Size
USD1.5 billion in nominal value
Profit Rate
2.11%
Issue Date
25 September 2014
Tenure
5 years
Programme and Issue
Ratings
AAA, AAA, Aaa by S&P, Fitch and
Moody’s, respectively
Format
Reg S
Listing
London Stock Exchange, Bursa Malaysia
(under the Exempt Regime) and NASDAQ
Dubai
Maybank KE’s Role
Joint Lead Manager and Joint
Bookrunner
Clearing Systems
Euroclear Bank S.A./N.V. and
Clearstream Banking, societé anonyme
Distribution Analysis
Investor Type
Central
Banks
43%
Others
11%
Geographical Breakdown
Financial
Institutions
34%
Fund
Management
12%
Europe
14%
MENA
59%
Asia
27%
Thank You
[email protected]
For more information, please visit
www.maybank.com

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