Post on 06-Sep-2018
Shaima Hasan, Sukuk Analyst, Thomson Reuters - Islamic Finance Ayman Hamza, Client Specialist, Thomson Reuters – Islamic Finance
“Thomson Reuters” Workshop: Deep Dive Sukuk
Oman Second Islamic Banking & Finance Conference
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
DEEP DIVE SUKUK WORKSHOP
OMAN SECOND ISLAMIC BANKING AND FINANCE CONFERENCE
MUSCAT - OMAN
Ayman Hamza, Client Specialist
Shaima Hasan, Sukuk Analyst
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
THE EVOLUTION OF ISLAMIC BANKING
1960s 1970s 1980s 1990s Since 2000
Emergence of Centres of Excellence like Bahrain and Malaysia
Establishment of Accounting & Auditing Organisation for Islamic Financial Institutions
Islamic banking & finance in Europe
Sharia screening methodologies for investing in equity
A global phenomenon
Integration of Islamic financial services in the mainstream financial markets
European and American conventional investment banks like UBS, Deutsche, ABN Amro, Credit Suisse, BNP Paribas etc. emerged as major players in Islamic finance
Emergence of Islamic bonds or Sukuk market
Establishment of Islamic Financial Services Board
Mit GhamrRural Bank (Egypt)
TabungHajji (Malaysia)
Dubai Islamic Bank (UAE)
Islamic Development Bank (Saudi Arabia)
Kuwait Finance House (Kuwait)
Bahrain Islamic Bank (Bahrain)
Faisal Islamic Banks (Sudan and Egypt)
Bank Islam Malaysia Berhad(Malaysia)
Bank IslamiBangladesh Limited (Bangladesh)
Al-Rajhi brand (Saudi Arabia)
Dar al-Maal al-Islami Trust
Dalla Al Baraka Group
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
THE SOURCES OF SHARIA
Islamic Law Shari’a
Primary Source 1 The Holy Book
Qur’an
Primary Source 2 Traditions of the Prophet (SAW)
Sunnah
Secondary Source 1 Consensus of pre-
modern jurists Ijma
Secondary Source 2 Analogy
Qiyas
Secondary Source 3 Independent Reasoning
Ijtihad
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
STRUCTURE OF ISLAMIC LAW
Sharia
Nature
1.Aqidah (faith)
2. Akhlaq (ethics)
3.Ibadah (worship)
4.Muamalat (interactions)
Sources
1.Qur’an
2.Sunnah
3.Ijma
4.Qiyas
5.Ihtihsan (juristic
preference)
Objectives
1.Education (tarbiyah)
2.Justice (‘adalah)
3.Protection of Public Interest (Maslahah al-
Ammah)
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
HOW DOES AN ISLAMIC BANK SOURCE ITS FUNDING?
Current Accounts
(Wadiah)
10-15%
Savings and Investment
Accounts
(Mudaraba)
60%
Interbank deposits
(Mudaraba and Murabaha)
20%
Shareholders
(Mudarib/Trustee)
10%
Islamic
Bank
(Musharaka)
100%
Artificial
Legal
Entity
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
HOW DOES AN ISLAMIC BANK MOBILIZE ITS FUNDS
Islamic
Bank
(Musharaka)
100%
Inter-bank liquidity
deposits
(Murabaha) 5-10%
Trade Finance, L/C
(Murabaha) 60%
Lease Finance
(Ijarah/Ijarah wa Iqtina)
20%
Project Finance
(Mudaraba, Istisna’a)
10-15%
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
ISLAMIC FINANCE MARKET – GROWTH DRIVERS & SIZE
1.0
0.6
0.1
0.3
0.1
0.2
2.2
Sharia-compliant assets 2009
Share of Sharia-compliant financing in Gov't Spending
Growth of Private Sector GDP
attributable to Islamic Finance
Growth of Islamic Finance due to the
growing attractiveness
Growth of Islamic Finance due to
economic diversification
Other Changes in Sharia-compliant
assets
Sharia-compliant assets 2015
CAGR until
2015: 15%
Sharia-compliant
assets are 1% of Total Banking Assets
Sharia-compliant
assets are 1.63% of Total Banking Assets
A $1 trillion industry today, market participants expect Islamic finance to
grow by at least 10-15% per annum to reach $2.2 trillion by 2015.
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
WHAT‟S SO DIFFERENT ABOUT THE ISLAMIC FINANCE WORKFLOW?
Interaction of Islamic law and Finance
• Prohibition of Interest
• Financial contracts limited to equity investment or sale of tangible
assets
Impact on the trading workflow
Shari’a Review
• Need for a Shari‟a board to ensure compliance with law
• Additional layer of documentary / structure diligence for new structures and products).
Money Market Trades
• Money market trades involve commodities
• Depo Placer purchases commodity to sell to Depo Taker for mark up. Depo Taker then sells it for cash
Sukuk Trading
• Need to ensure compliance with internal Shari‟a standards and requirements
Screening of equities
• Equities screened for:
• Repugnant Activities i.e. alcohol, pork , gambling
• Interest bearing borrowing
• Interest bearing securities and lending
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
ISLAMIC FINANCE INTERBANK MONEY MARKET
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
WHAT IS A MONEY MARKET?
• The money market is the market where the
buying, selling, lending, and borrowing of
short-term funds occur.
• It provides liquidity funding for the global
financial system.
ONE YEAR OR LESS
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
International money market:
Transactions involving
currencies.
Interbank market:
Transactions carried out exclusively
between banks.
MONEY MARKET COMPONENTS
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
COMMON IIMM INSTRUMENTS
Commodity
Murabaha
Wakala Mudharaba
Use agency
arrangements to
undertake commodity
Murabaha transactions
Use agency
arrangements to make
sharia compliant
Investments
Use Mudharaba
arrangement between
deficit bank and surplus
bank
Banks buys and sells
commodity on behalf of
depositor bank
Target profit rate and time
period is agreed upon
Return is based on rate of
gross profit which is
negotiable among both
banks
On the date of maturity,
depositor bank will
receive initial deposit plus
profit
On the date of maturity
depositor bank will
receive investment plus
profit based on
agreement
Principle shall be repaid
to the investor bank plus
agreed share of profit
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
FEATURES OF AN IDEAL SHARIA COMPLIANT INSTRUMENT
Liquidity Proven Liquidity/demand and maximum principal
recovery
Yield Competitive with market yields
Price Discovery
Listed in regulated markets for transparency
Tradability Should be asset backed for easy tradability
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
INTERFACE – MONEY MARKETS
Islamic Contributions – USD Murabaha <USDMR=>
Our new display release:
The USD Murabaha tile
boasts of a sleek new look and
is currently exclusive for this
asset class. All customers who
price USD Murabaha are
included in this tile.
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
INTERFACE – ISLAMIC INTERBANK BENCHMARK RATE
IIBR Fixing - <IIBRFIX>
The Islamic Interbank Benchmark Rate (IIBR), a breakthrough
initiative from Thomson Reuters, is calculated in accordance with the
guidance and advice of the Accounting and Auditing Organization for
Islamic Financial Institutions (AAOIFI) and the Islamic Benchmark
Committee.
To be part of the IIBR Fixing, certain qualifications and requirements
laid down by our Shariah Committee have to be met as
prerequisites.
Following a vote from existing panel members, the benchmark
committee takes a decision regarding the admittance of new bank.
Currently, 18 Banks from the GCC comprise the fixing panel.
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
You can also find detailed information about the fixing
including the definition, tenors, calculation methodology,
timing of contributions etc. on <IIBRINFO>
The historical rates can be viewed on
<USDIIBRRECAP>
Viewers can see daily USD fixing rates with
their respective tenors on <USDIIBRFIX01>
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
SUKUK IS…
An Islamic Investment instruments, comes from the word “Sak” which means a financial certificate. Sukuk are always linked to the underlying assets (tangible or intangible), which gives a partial ownership in the assets
Sukuk refer to securitization, a process in which ownership of the underlying assets is transferred to a large number of investors
Sukuk can be structured in a number of ways, depending on the underlying assets and the business purpose.
While majority of the Sukuk issued to date have utilized “Ijara” or “Musharaka” structures based on real estate as the underlying asset.
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
..HENCE THE OBJECTIVES OF SUKUK ARE…
Raise capital in a Sharia-compliant style
Expand the investor base
Offering investment opportunities
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
..SO WHAT IS UNIQUE ABOUT SUKUK ?
Issuer
• Typically an SPV that issues Sukuk certificates. The
investors purchase Sukuk certificates to fund the Issuer, who passes the funds to the Obligor.
Obligor
• The beneficiary of the funds i.e. the corporate, sovereign or institution who is raising these funds through the Sukuk. Typically, the investors take ultimate credit risk on the Obligor for both coupon and principal repayments
Profit
• Interest (Rib‟a) is not allowed under Sharia principles. The profits generated from the use of the underlying asset portfolio. Any surplus is retained by the obligor as incentive fees
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
..AND WHAT ARE THE KEY ISSUANCE CRITERIA?
Issuer
• Non Sharia compliant businesses cannot be a major revenue
• Typical financial screens
• Total Debt/ Market Cap < 33%
• Total Debt/ Total Assets < 33%
• Interest Income/ Total Revenues < 5%
• Accounts Receivable/ Total Assets < 45%
Assets
• Typically the ownership of the assets are transferred to the SPV
for the duration of the Sukuk, with eventual transfer back to the obligor at maturity
Security
• It is crucial to note that while the assets are technically transferred to the SPV, the documentation stipulate that in an event of default the assets revert back to the ultimate beneficiary of the Sukuk („obligor‟), and the Sukuk holders lay claim to the obligor.
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
• Sukuk Application
Salam Short term structure based on spot payment with future delivery of asset
Long term sukuk structure involving the sale and lease-back of assets in
existence e.g. real estate, plant & machinery, aircraft, ships, other tangible
assets.
Long term sukuk structure involving a partnership between the SPV and
Obligor to jointly own either ready assets or to construct/manufacture assets
Long term sukuk structure for construction financing (progress payment for
assets / projects under construction)
…AND THE POPULAR SUKUK STRUCTURES ??
Mudaraba
Murabaha
Ijara
Musharaka
Istisnaa
Short term sukuk structure based on a cost plus financing contract , asset
delivered now with deferred payment
Long term partnership / fund management contract between an investor (Rab-
ul-Mal) and a manager (Mudarib)
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
Offer / Structure Pre-Marketing Roadshow
Bookbuilding
Aftermarket
support
Base Prospectus
Due Diligence
Sukuk Structure
Local law/tax clearance
Check for Sharia compliance
Obtain Sharia approval
Regional reach
Targeting
Experience
Benchmarking
Rehearsal
Road show
Q & A
PR, press
Transparency
Market presence
Commitment
ANALYSIS & DOCUMENTATION MARKETING/DEMAND GENERATION BOOKBUILDING AFTERMARKET
Pre-marketing
Roadshow
Aftermarket support
Structure / Preparation Issue Red Roadshow begins Pricing
Phase 1
(4-8 weeks)
Phase 2
(2-4 weeks)
Appoint Paying Agents, Printers
etc.
Public
Announcement
Settlement
& Payment
Phase 3
(1-2 weeks)
Drafting & reviewing
of legal documents
Business & Legal
Due Diligence
Structure Issuance,
Base Prospectus
Prepare marketing
material
Islamic structuring /
Sharia approval Obtain Sharia approval /
Fatwa for transaction
docs
SUKUK TYPICAL EXECUTION TIMELINE
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
…ALTHOUGH SUKUK PRINCIPLES ARE STILL NOT GLOBALLY STANDARDIZED…
Sukuk Product Malaysian Principle AAOIFI Principle
Murabaha Debt may be traded at a discount
or assets traded subject to
proposed contract
Assets may be traded subject to
proposed contract, but before their
sale
Ijara Asset may be traded Asset may be traded
Istisnaa Debt may be traded at a discount
or Suk with asset claim may be
issued.
Short term: above 25%
Long term: above 51%
Musharaka Asset may be traded If the underlier is debt, not
tradable.
Mudaraba Asset may be traded If the underlier is debt, not
tradable.
Wakala Asset may be traded If the underlier is debt, not
tradable.
Qard al-hasan Debt may be traded Not admissible as an investment.
25
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
... IN MARKED ENHANCEMENT, MOST OUTSTANDING SUKUK ARE STRUCTURED TO COMPLY WITH AAOIFI STANDARDS AND BACKED BY ASSETS...
Asset Backed 65%
Project Backed
3%
Asset Based 22%
Hybrid 10%
BY RISK CLASSIFICATION AS OF SEPTEMBER 30, 2012
AAOIFI Compliant
72%
AAOIFI non Compliant
28%
BY AAOIFI COMPLIANCE AS OF SEPTEMBER 30, 2012
Source: Thomson Reuters Zawya Sukuk Perceptions & Forecast Study 2013
OUTSTANDING INTERNATIONAL SUKUK
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
SUKUK VS. CONVENTIONAL BOND
SUKUK CONVENTIONAL BOND
Each Sukuk unit represents an ownership of
the underlying asset;
Bonds represent pure debt obligations due from
the issuer;
Maturity of the Sukuk corresponds to the term
of the underlying project or activity;
The core relationship is a loan of money, which
implies a contract whose subject is purely
earning money on money;
The Sukuk prospectus contains all the Shariah
rules related to the issue;
The issue prospectus does not include Shariah
constraints; and
The underlying asset / project / business has to
be Shariah complaint (i.e. not dealing with pork
related items, gambling, tobacco, institutions
that deal with Riba (interest) etc.); and
The underlying asset / project / business can
belong to any sector / industry
The Sukuk manager is required to abide by
Shariah rules
Can be issued to finance almost any purpose
which is legal in its jurisdiction.
2
7
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
LET’S VIEW KEY HISTORICAL TRENDS...
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
SUKUK ISSUANCE WITNESSED A RAPID GROWTH ACROSS THE HISTORY...
0
10
20
30
40
50
60
70
80
90
100
110
120
130
1990 - 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q3 2012
$ blns GLOBAL SUKUK TIMELINE (1990 - Sept 2012)
Kumpulan
Guthrie Bhd
World's 1st Int'l
Malaysia 1st Int'l Sovereign
IDB 1st Int'l Quasi-
Sovereign Sukuk
Caravan 1st Asset-
Backed Sukuk
Dawama 1st Hybrid
Sukuk (Ijara-Murabaha)
World Bank 1st Sukuk
Cagamas
World's
1st
Residentia
l Mortgage
Sukuk
Durrat Al
Bahrain
1st Int'l
Hybrid
Sukuk
(Ijara -
Istisna)
Khazanah
Nasional
World's 1st
Int'l
Exchangeable
Sukuk
Nakheel Sukuk,
Dubai Real Estate
Boom
Saad Group
Default
DP World
Announces
Default
Mufti Taqi Usmani
criticises 85% of sukuk
as not sharia-compliant
Indonesia 1st
Domestic Sovereign
Retail Sukuk
ADIB Tier 1
Sukuk to Govt of
Abu Dhabi
Danga Capital
World's 1st
Renminbi Sukuk General Electric
1st USA Corporate
Sukuk
NBAD 1st
Ringgit Cross
Border Sukuk
Qatar QR33
billion Sukuk
Bank Al Jazira
Tier 2 Sukuk
Pakistan Proposes
New Sukuk Rules
Jordan Passes
Sukuk Law
Axis 1st REIT
Sukuk
Qatar 4 billion
Eurobond
Shell MDS
Sdn Bhd
World's 1st
Ringgit
Central Bank of
Bahrain 1st
Series of Int'l
Shell MDS Sdn
Bhd, Malaysia
Govt of Bahrain
Indosat,
Indonesia
Solidarity, KSA
Tabreed,
Financing, UAE
Govt of
Pakistan
Govt of Brunei
Central Bank of
Sudan
Central Bank of
The Gambia
Monetary
Authority of
Singapore
Nomura
Holding, Japan
Central Bank of
Yemen
DBK,
Kazakhstan
Qatar Global
Sukuk
Saxony-Anhalt,
Germany
Al Safeena, UK
East Cameron
Gas Co., USA
Kuveyt Turk,
Turkey
Al Rajhi
CementJordan,
Jordan
The
Commercial
Real Estate
Co., Kuwait Source: Thomson Reuters Zawya Sukuk Perceptions & Forecast Study 2013
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
...MOST SUKUK HAVE BEEN DEBT BASED AS MAJORITY ORIGINATED IN MALAYSIA.. HOWEVER, INVESTMENT BASED SUKUK SLOWLY CATCHING UP...
Source: Thomson Reuters Zawya Sukuk Perceptions & Forecast Study 2013
0
20
40
60
80
100
120
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q3 YTD 2012
$ BILLION
GLOBAL DEBT STRUCTURE SUKUK VS INVESTMENT STRUCTURE SUKUK HISTORICAL TREND ( Jan 02 - Sep 12)
Debt Based Sukuk Structure Investment Based Sukuk Structure
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
60
70
80
90
100
110
0
20
40
60
80
100
120
2005 2006 2007 2008 2009 2010 2011 2012
Index Price $ bln DOW JONES GLOBAL SUKUK INDEX PRICE MOVEMENT (Oct 05 - Sep 12)
Sukuk Issued Price Movement
Boom of Sukuk Market
Dubai Debt Crisis
Sukuk rallies and becomes
investors choice over US &
European ow market yields
Nakheel deafults & Abu
Dhabi Government bails
outDubai
Sukuk enjoys exceptional favorable pricing
compared to conventional bonds (Cheaper
by 50 bps as per HSBC data)
AAOIFI comments that
85% of sukuk are not
sharia compliant
... SUKUK MOSTLY REBOUNDED AFTER DIPPING DURING THE FINANCIAL CRISIS TO PROVIDE EXCEPTIONAL
PERFORMANCE GOING FORWARD...
Source: Thomson Reuters Zawya Sukuk Perceptions & Forecast Study 2013
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
AS PER THE SURVEY CONDUCTED BY THOMSON REUTERS ZAWYA, MOST GLOBAL INVESTORS
PREFER TO INVEST IN OMAN
..OMAN IS ONE OF THE POTENTIAL EMERGING
COUNTRIES TO ENTER THE SUKUK MARKET..
0% 10% 20% 30% 40% 50% 60% 70% 80%
Kenya
Yemen
Other
Morocco
Azerbaijan
Libya
Tunisia
Kazakhstan
Oman
Egypt
SELL SIDE - Expectation
BUY SIDE - Preference
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
WILL SUPPLY MEET DEMAND?
DEMAND AND SUPPLY EQUILIBRIUM ANALYSIS
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
SUPPLY
3.6%
3.6%
14.3%
35.7%
42.9%
0% 10% 20% 30% 40% 50%
$125 billion - $150 billion
Above $150 billion
Less than $75 billion.
$100 billion - $124.9 billion
$75 billion - $99.9 billion
What is the expected dollar amount of sukuk issuance in 2013?
0.0%
3.6%
14.3%
35.7%
46.4%
0% 10% 20% 30% 40% 50%
Above 40 issues
35 - 40 issues
30 - 35 issues
Under 25 issues
25 - 30 issues
What is the expected number of Eurobond (International USD) sukuk issuance in 2013?
2012 figures are around the $132 bln range.
Are arrangers being too conservative when projecting 2013
issuance levels?
Number of Eurobond issuances in 2012 were 25.
Are arrangers being too conservative when projecting 2013
issuance levels, when pipeline itself is around the 18-20
mark (Source: IFR)?
MOST ARRANGERS EXPECT ISSUANCE VOLUME AROUND THE $75-125 BLN RANGE WITH UP
TO 30 EUROBOND ISSUES
Source: Thomson Reuters Zawya Sukuk Perceptions & Forecast Study 2013
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
DEMAND
WHILE MOST ISLAMIC FINANCE INVESTORS WILL INVEST BETWEEN 20-100 PERCENT OF
THEIR PORTFOLIO IN SUKUK AND LESS THAN OR AROUND $200 MLN
0
0.0002
0.0004
0.0006
0.0008
0.001
0.0012
0
5
10
15
20
25
30
35
40
45
0 200 400 600 800 1000 1200
Fre
quency
$ (mln)
In US dollar terms
0
0.002
0.004
0.006
0.008
0.01
0.012
0
5
10
15
20
25
30
0 20 40 60 80 100
Fre
quency
pct (%)
As a percentage of total portfolio
ISLAMIC FINANCE INVESTMENT SUKUK INVESTMENT
0
0.0002
0.0004
0.0006
0.0008
0.001
0.0012
0.0014
0.0016
0.0018
0
5
10
15
20
25
30
35
0 200 400 600 800
Fre
quency
$ (mln)
In US dollar terms
0
0.002
0.004
0.006
0.008
0.01
0.012
0.014
0
5
10
15
20
25
30
0 20 40 60 80 100
Fre
quency
pct (%)
As a percentage of total portfolio value
Source: Thomson Reuters Zawya Sukuk Perceptions & Forecast Study 2013
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
DEMAND AND SUPPLY EQUILIBRIUM
0
50
100
150
200
250
300
350
400
450
2008 2009 2010 2011 2012 2013 2014 2015 2016
$ bln SUKUK DEMAND AND SUPPLY LEVELS (2012 - 2016)
Total Global Sukuk Matured Total Global Sukuk Issued Total Outstanding Global Sukuk Total Outstanding Sovereign+Quasi Sovereign Sukuk Total Sukuk Demand
Supply & Demand Gap:
Sovereign & Quasi Sovereign
sukuk issuance, and replacement
of other investment grade papers
will far from meet expected
demand and the required level of
issuance.
WE PROJECT THAT SUKUK DEMAND WILL SURPASS SUPPLY BY ABOUT USD 250 BLN BY
2016 AT CURRENT SUKUK ISSUANCE GROWTH LEVELS
Source: Thomson Reuters Zawya Sukuk Perceptions & Forecast Study 2013
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
EXAMPLE IJARA SUKUK STRUCTURE
38
Investors
SPV/Issuer
Manufacturer
Co./Obligor
7
5
4
2
3
1 6
1.SPV/Issuer issues Sukuk to raise funds
from investors.
2.SPV (directly or via company as agent)
purchases the asset from supplier.
3.SPV leases the asset to Company
(Ijara)
4.Company takes delivery of the assets.
5.Purchase undertaking is given to
ensure redemption of Sukuk.
6.Company makes periodic payments.
7.SPV distributes payments to investors
8.Upon maturity, purchase undertaking is
exercised and asset is transferred to
company.
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
EXAMPLE MURABAHA SUKUK STRUCTURE
39
Investors
SPV/Issuer
Supplier
Co./Obligor
6
5
4
2
3 1
1.SPV/Issuer issues Sukuk to raise
funds from investors.
2.SPV (directly or via company as
agent) purchases the asset from
supplier.
3.SPV sells the asset to company at a
mark-up (Murabaha).
4.Company takes delivery of the
assets.
5.Company makes periodic payments.
6.SPV distributes payments to
investors
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
EXAMPLE MUSHARAKA (PARTNERSHIP) EXISTING ASSETS
40
(2) Musharaka Agreement
(4) Management Agreement
(3) Sukuk Certificates
issued
$
Obligor
Musharak
a Partner
SPV
(Issuer)
Musharak
a
Partner
Sukuk
Holders
Musharak
a
(3) Contributio
n in kind
$
(1) SPV formed
(5) Lease Agreement
(6) Purchasing undertaking
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
EXAMPLE WAKALA SUKUK
41
Investors
SPV/Issuer
Wakeel
Co./Obligor
7
6
5
2
4
1
1.SPV/Issuer issues Sukuk to raise
funds from investors.
2.SPV enters into a Wakala agreement
with the Wakeel.
3.SPV enter purchases agreement with
the Wakeel.
4.The Wakeel on behalf of the issuer will
invest in assets.
5. Generation of profit and kept by
Wakeel on behalf of the SPV.
6.Company makes periodic payments.
7.SPV distributes payments to investors
8.Obligor buys the assets from the
Wakeel
Wakala
Assets
3
8
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
SUKUK ANALYSIS STRUCTURE (TEN STEPS)
43
1. Sukuk Overview
2. Sukuk Issuer Background
(Counterparty Risk – Credit Risk – Operational Risk-Supply Risk)
3. Country Outlook
(Country Risk- systemic Risk-Currency Risk-
Regulation Risk)
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
SUKUK ANALYSIS STRUCTURE (TEN STEPS)
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4. Industry Outlook
(Regulation Risk – Competitor Risk – Market Risk)
5. Sukuk Structure
(SPV Risk – Asset Quality Risk – Pre-Settlement Risk)
6. Financial Commentary
(Operational Risk – Company Liquidity Risk)
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
SUKUK ANALYSIS STRUCTURE (TEN STEPS)
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7. Rating Commentary
(Credit Risk – Downgrade Risk)
8. Pricing & Yield Analysis
(Coupon Payment Risk-Liquidity Risk- Rate of Return Risk – Equity Price Risk)
9. Risk Assessment
(Default Risk – Covenant Risk)
10. Recommendation
ISLAMIC FINANCE GATEWAY THE PULSE OF THE ISLAMIC FINANCIAL MARKETS
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REACH US: ISLAMIC.FINANCE@THOMSONREUTERS.COM
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