Islamic Finance at London Stock Exchange

Gillian Walmsley

October 2013

• London is established as the leading western centre for Islamic finance and has been at the forefront of key developments in Europe

• to date FCA has authorised five wholly-Islamic banks, one Shariah-

compliant hedge fund manager and one dedicated Takaful provider in the UK

• there are 22 banks providing Islamic financial services, more than in any

other European country – depth and liquidity of London’s capital markets – extensive pool of expertise offered by one of largest concentrations of legal, regulatory

and tax specialists – commitment of UK Government with series of regulatory changes to offer ‘level playing

field’ between conventional and Shariah-compliant instruments

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Islamic Finance in London

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UK Development of Tax & Regulatory Structure

• London offers the most open, flexible and attractive tax & regulatory structure for facilitating Islamic finance

• 2003 – introduction of Stamp Duty Land Tax (SDLT) legislation to remove double SDLT in Islamic instruments structured with property transactions

• further changes made in 2005 and 2006 to introduce new types of borrowing concepts – murabaha and diminishing musharaka

• Finance Acts 2007 and 2008 contained measures to facilitate sukuk issuance by addressing differences in tax treatment between Alternative Finance Investment Bonds (AFIBs) and conventional bonds

Further Developments

• October 2009, FCA and HM Treasury summary of responses to joint consultation paper on AFIBs proposed changes aimed at regulating sukuk in equivalent way to conventional bonds – aim was to remove additional regulatory burden associated with sukuk which had

seemed to fall within definition of Collective Investment Scheme (CIS)

– expected to facilitate sukuk issuance by removing barriers structuring of property-backed sukuk in the UK

• legislation introduced in Finance Bill 2009 – amended SDLT and Capital Gains Tax (CGT) rules to allow sukuk issuers to retain capital

allowance in relation to transactions linked to UK land

• ‘liquidity buffer’ arrangements 2009 – FCA recognised specific needs of Islamic banks in relation to requirements of regulator’s

strengthened liquidity standards, amendments introduced to allow Islamic banks to hold IDB securities rather than conventional sovereign bonds

Islamic finance on London Stock Exchange

• four Islamic institutions have been quoted on AIM – Alternative Investment Market offers growing companies all the benefits of being traded

on world-class public market within regulatory environment that has been designed to meet their needs

• Islamic Bank of Britain – authorised by FCA in August 2004, first stand alone Islamic retail bank in a non-Muslim

majority country

• European Islamic Investment Bank – authorised by FCA in March 2006, the first Shariah-compliant wholesale bank in any

western country

• the Family Shariah Fund

• Shariah Capital

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Sukuk

• London is one of the most important listing venues for Sukuk

• London offers a choice of markets, depending in issuers’ needs:

– Main Market

– Professional Securities Market

• to date there have been 49 issues on London Stock Exchange, with money raised exceeding $34 billion

Sukuk Listings in London – Key Highlights

• DIB Sukuk, first London-listed sukuk, Mar 2007

• IIG Funding sukuk – first sukuk listed on PSM, Jun 2007

• CBB International Sukuk – first sovereign sukuk, Mar 2008

• GE Capital Sukuk - $500 million raised, first sukuk to be issued by a major US corporate issuer – Nov 2009

• KT Turkey Sukuk – first sukuk issued by European bank, Aug 2010

• recent issues: – BSF Sukuk, May 2012

– IDB Trust , Jun 2012

– SoQ Sukuk, Jul 2012

Shariah-Compliant Exchange Traded Funds

• two of Europe’s key ETF providers offer Shariah-compliant ETFs on the London Stock Exchange: – iShares offers ETFs based on the MSCI World Islamic, MSCI USA Islamic and MSCI Emerging

Markets Islamic indices

– db x-trackers, the ETF provider of Deutsche Bank, offers Islamic ETFs are based on the S&P Japan 500 Shariah, S&P 500 Shariah, S&P Europe 350 Shariah and DJ Islamic Market Titans indices

• London Stock Exchange Group awarded ‘Largest European Exchange for ETF volume’ at 2009 Global ETF

• recognised as ‘Largest Exchange for ETFs in Europe by Volume 2010’ at the 7th Annual Global ETF Award

New Retail Market

• London Stock Exchange launched its Order book for Retail Bonds (ORB) in 2010, which aims to develop a liquid, transparent, on-screen market in fixed income for private investors

• ORB offers a new market model for fixed income in the UK and is in early stages of development, but our aim is to expand this market to offer a wider range of securities

• for admission to ORB, securities must be issued in ‘retail-size’, for example, in trading denominations of £1,000 and must be supported by a market maker committed to quoting two-way tradable prices throughout continuous trading session

• this new market may present interesting opportunities for sukuk issuers who wish to access the growing retail appetite for alternative asset classes

Investor Demand

• increasing private investor focus on fixed income – seeking alternative asset classes given current low interest rates and recent equity market

volatility

• private investors using bond funds are keen to take more active role in managing their portfolio by selecting and trading individual bonds

• strong demand from UK private client brokers for electronic retail bond offering – customers seeking cost-effective, transparent mechanism for retail price discovery in

secondary markets for UK sovereign and corporate bonds

– strong appetite for wider range of retail-size corporate bonds to be made available

Market Partners

• ORB is currently supported by eleven market makers: – Investec Bank, Lloyds TSB Bank and Winterflood Securities in gilts and corporates

– Canaccord Genuity, Peel Hunt and Shore Capital across corporate bond range

– Jefferies International in gilts

– HSBC and Numis Securities in a range of corporates

– RBS and Barclays Capital

• we are working with market partners to further develop the ORB and to support new admissions with press/marketing activity

• dedicated partner logos may be displayed by key participants

Factsheet

Further Information

Gillian Walmsley

Fixed Income & Listed Product

London Stock Exchange

e gwalmsley@lseg.com

t +44 (0) 20 7797 3679

w www.londonstockexchange.com/islamic-finance

e islamicfinance@lseg.com

Appendices

• Sukuk issues listed on London Stock Exchange

• Sukuk listing requirements and admission process

• London Stock Exchange’s market for Sukuk

Sukuk Issuers on London Stock Exchange

Exchange

Ticker

Admission

Date

Issuer Name Instrument Name Market Money

Raised

£(million)

11FF 20111123 ADCB ISLAMIC FINANCE (CAYMAN) LIMITED CERTS 22/11/2016 Main Market 311.25

10YA 20111130 ADIB SUKUK COMPANY LTD TST CERTS 30/11/16 Main Market 323.83

45SI 20101104 ADIB SUKUK COMPANY LTD TRST CERTS 04/11/15 Main Market 469.1

99YN 20110729 ALMANA SUKUK 2011 LIMITED TST CERTS 28/07/16 PSM 133.38

11EZ 20120523 BSF SUKUK LTD 2.947% TST CERTS 22/05/17 Main Market 474.14

79ND 20111125 CBB INTERNATIONAL SUKUK COMPANY (NO.3) (SPC) 6.273% TST CERTS 22/11/18 USD Main Market 474.5

76EM 20090618 CBB INTERNATIONAL SUKUK COMPANY NO2 (SPC) TRUST CERTS 17/06/14 $ Main Market 458.76

44GO 20100219 DAR AL-ARKAN INTERNATIONAL SUKUK COMPANY II CERTS 18/02/2015 (REG S) Main Market 289.29

44GP 20100219 DAR AL-ARKAN INTERNATIONAL SUKUK COMPANY II CERTS 18/02/2015 (144A) Main Market -

50PC 20070703 DP WORLD SUKUK LIMITED TST CERTS 02/07/17 (REGS) $ Main Market 751.04

50PE 20070703 DP WORLD SUKUK LIMITED TST CERTS 02/07/17 (144A) $ Main Market -

76VQ 20091103 DUBAI DOF SUKUK LIMITED 6.396% TST CERTS 03/11/14 Main Market 745.78

Live Sukuk

Sukuk Issuers on London Stock Exchange

Exchange

Ticker

Admission

Date

Issuer Name Instrument Name Market Money

Raised

£(million)

76VR 20091103 DUBAI DOF SUKUK LIMITED FLTG RTE TST CERTS 03/11/14 Main Market 406.08

12XR 20120712 EIB SUKUK COMPANY LTD TRST CERTS 11/01/18 Main Market 321.77

48VQ 20120118 EIB SUKUK COMPANY LTD TRST CERTS 18/01/2017 Main Market 326.22

46GA 20110204 EMAAR SUKUK LIMITED TST CERTS 03/08/16 Main Market 311.12

48VG 20120118 FGB SUKUK COMPANY LIMITED TRST CERTS 18/01/2017 Main Market 766.35

10IT 20110802 FGB SUKUK COMPANY LIMITED TRUST CERTS 02/08/2016 Main Market 395.98

44AL 20091130 GE CAPITAL SUKUK LTD TST CERTS 26/11/14 $ Main Market 302.16

47IW 20110602 HBME SUKUK COMPANY LIMITED 3.575% TST CERTS 02/06/2016 Main Market 303.69

37YL 20120626 IDB TRUST SERVICES LIMITED TST CERTS 26/06/17 Main Market 513.12

80DB 20110525 IDB TRUST SERVICES LIMITED TRUST CERTS 25/05/2016 Main Market 463.11

78KY 20101027 IDB TRUST SERVICES LIMITED TST CERTS 27/10/15 Main Market 319.08

76RZ 20090916 IDB TRUST SERVICES LIMITED 3.172% TRUST CERTS 16/09/14 Main Market 508.86

Live Sukuk continued

Sukuk Issuers on London Stock Exchange

Exchange

Ticker

Admission

Date

Issuer Name Instrument Name Market Money

Raised

£(million)

13VB 20111101 KT SUKUK VARLÝK KIRALAMA A.Þ. CERT 31/10/16 Main Market 219.38

51AE 20120208 MAF SUKUK LTD. 5.85% TST CERTS 07/02/2017 Main Market 252.96

61ZF 20101008 QIB SUKUK FUNDING LIMITED 3.856% CRTS 07/10/15 $ Main Market 474.53

43DA 20120404 SAUDI ELECTRICITY GLOBAL SUKUK COMPANY 2.655% CERTS 03/04/17 USD Main Market 315.78

43DB 20120404 SAUDI ELECTRICITY GLOBAL SUKUK COMPANY 4.211% CERTS 03/04/2022 USD Main Market 789.44

94SR 20110526 SIB SUKUK COMPANY II LIMITED TST CERTS DUE 25/05/2016 Main Market 246.99

38LB 20120719 SOQ SUKUK A Q.S.C. 2.099% TST CERTS 18/01/18 $ Main Market 1,292.66

38LC 20120719 SOQ SUKUK A Q.S.C. 3.241% TST CERTS 18/01/23 $ Main Market 1,292.66

87SC 20080618 SUKUK FUNDING (NO.2) LIMITED TRUST CERTS 17/06/13 AED Main Market 520.91

76UP 20091021 TDIC SUKUK LIMITED 4.949% CERTS 21/10/14 Main Market 602.23

Live Sukuk continued

Sukuk Issuers on London Stock Exchange

Instrument Name Money Raised £(million)

ADIB SUKUK CO LTD TRUST CERTS 12/12/11 USD100000 417.72

ALDAR FUNDING LTD TRUST CERT 10/11/2011 USD100000 1295.68

CBB INTERNATIONAL SUKUK COMPANY (SPC) TRUST CERTIFICATES 18/03/13 $ 176.38

DANA GAS SUKUK LIMITED TRUST CERT 31/10/12 $ 487.90

DIB SUKUK COMPANY LIMITED TRUST CERTS 22/03/12 $ 384.09

EIB SUKUK COMPANY LTD TRUST CERTS 12/06/12 176.33

GFH SUKUK LIMITED FLTG RTE SUKUK CERTS 26/07/12 100.37

IIG FUNDING LIMITED TRUST CERTS 10/07/12 $ 100.76

JAFZ SUKUK LIMITED TRUST CERT 27/11/12 AED 996.49

KT TURKEY SUKUK LIMITED TRUST CERTS 24/08/13 ($) 64.16

NIG SUKUK LTD TRUST CERTS 16/08/12 232.12

QATAR ALAQARIA SUKUK COMPANY TRUST CERT 02/08/12 $ 146.6

RAKIA SUKUK CO LTD TRUST CERTS 05/12/2012 USD100000 158.06

SIB SUKUK CO TRUST CERTS 12/10/2011 USD100000 118.62

Matured Sukuk

Sukuk Issuers on London Stock Exchange

Instrument Name Money Raised £(million)

TABREED 06 FINANCING CORP TRUST CERTS 20/7/2011 USD100000 109.38

TABREED FINANCING CORP TRUST CERTS 19/05/11 AED500000 235.11

URC SUKUK LIMITED TST CERTS 13/06/12 $ 50.38

Matured Sukuk continued

Listing and Admission

Sukuk Listings follow the same route as conventional debt securities

Two Stage Process:

• Listing – admission to the UK Official List, process managed through UK Listing Authority − Listing Applications +44 (0)20 7066 8352

− fax +44 (0)20 7066 8364

• Admission to trading – admission to London Stock Exchange’s markets, process managed with Admissions team at the Exchange − LSE admissions +44 (0)20 7797 4310

− admissions@lseg.com

UK Listing Authority

• highly efficient regulator with solid expertise and specialist knowledge

• issuers and advisors can contact UKLA directly to discuss proposed transaction timetables or technical matters without the need for an intermediary – no requirement for a listing agent or sponsor to manage relationship between UKLA and issuer

UKLA Turnaround Times

Day 1 Day 2 Day 3 Day 4 Day 5

Prospectus approved

before 12 noon Listing Hearing

Security

Admitted

Prospectus approved

after 12 noon Listing Hearing

Security

Admitted

Drawdown Prospectus (DDP)

submitted before 2pm

Security

Admitted

Drawdown Prospectus (DDP)

submitted after 2pm

Security

Admitted

London Stock Exchange Markets

• choice of two markets for debt securities

Main Market Professional Securities Market

• eligibility requirements for both markets − minimum value of issue of £200,000

− free transferability of debt securities

− all securities of same class to be listed

London Stock Exchange Markets

• EU-Regulated Market under MiFID

• full Prospectus required

• securities subject to Chapters 2 and 17 of the UK Listing Rules

• admission of both ‘wholesale’ and ‘retail’ bonds

• Exchange-Regulated

• no requirement for full Prospectus, only Listing Particulars necessary

• subject to Chapter 4 of the Listing Rules

• admission of ‘wholesale’ securities only

Main Market • issuers are subject to EU Prospectus and Transparency Directive

requirements

• London-listed securities can be passported to other EEA markets to access international investors

• Prospectus Directive distinguishes between wholesale and retail securities − Wholesale

o denominations equal to or above €100K

o annex IX of the PD regulation applies

− Retail

o denominations below €100K

o annex IV of the PD applies

o more detailed disclosure in the prospectus

Professional Securities Market • introduced in July 2005

• outside scope of EU Prospectus and Transparency Directives

• designed to meeting financing needs of issuers who do not require EU passport

• offers alternative for issuers not wishing to prepare financial information to IFRS, can report under national GAAP

• distinction between wholesale and retail does not apply, allows securities to be issued in denominations lower than €100K but under the wholesale regime

Exchange Admission Documents Required

• electronic copy of Prospectus/Offering Circular/Pricing Supplement/Final Terms documentation

• copy of relevant Board Minutes

• copy of Regulated Information Service, e.g. RNS, announcement relating to the admission

• written confirmation of the number of securities to be issued

• completed Exchange Form 1

Exchange Issuer Fees