Alhuda CIBE - Presentation on Sukuk by Hamad Rasool

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Sukuk(Islamic Bond)

Hamad RasoolDirector : First WAPDA Sukuk Co.Director: First Credit Investment Bank.Director: WAPDA Finance

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Defination

Sukuk is the Arabic name for a financial certificate, Islamic alternative to conventional bonds, Sukuk is a Trust certificate in which investor returns are derived from legal or beneficial ownership of assets.

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Introduction

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Growing Sukuk Liquidity Management of Islamic Banking.

Islamic financial institutions are seeking to diversify their portfolio and increase their portfolio size of tradable instruments with fixed income profile

The industry requires Sukuk funds for retail distribution

Sukuk a Money Market instrument.

Islamic Inter-Bank or Short term Islamic Finance market can be developed through sukuks

The underlying assets are purely used as a means of transacting and do not constitute a Transaction specific pool of security

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Growing Sukuk Sukuk are usually issued through special purpose vehicle (‘SPV’)

In Pakistan a Limited Liability Company has acted as the issuer and is registered with and regulated by SECP

It is estimated that by 2006, close to US$ 25 billion of Sukuk would be outstanding and by 2008,approximately US$ 50 billion Sukuk will be outstanding. Bahrain Issues near about 24 Sukuk in a year

Short and long term 5 – 10 Years Periods

There are 77 Sukuk has been issued with the volume of USD 17,977.11 Millions

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Advantage of Sukuk Issuance

Diversify funding source Create and enhance profile in international

market Pricing benchmark Secondary liquidity Sizeable financing. Ease of clearing and settlement

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Advantage of Sukuk Investor

Diversify Investment Provides Leveraging Capabilities Secondary Market Liquidity Ease of clearing and Settlement Investment available to Institutional and Retail

investors Allows for many computation of Risk –Credit

/Mkt. /Duration etc

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Issuance of Sukuk- Factor to be considered Identify investors Rating – by a Credit Rating Agency Underlying Assets Secondary Market Considerations Applicable laws – SECP rules Cost to the Issuers Drafting of Legal Documents Regularity Frame work

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Parties Involved

Originator : Initial Owner SPV : Set up for Special Purpose Investors: Subscribers. Servicer: Servicer the assets. Receiving and Paying Agent : Banks Credit Enhancement provider : hedges,

Guarantees, Takaful etc

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Parties Involved

Merchant Banker : Credit Rating Agency: Legal & Tax Counsel: Auditor

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Challenges of Market

Limited number of issuance that constrains active trading of these instruments in the secondary market

Buy and Hold Strategy by major investors of sukuks

Limited quality assets available for Ijarah securitization

Limited Corporate Focus - Changing

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Ideal models for structuring of Sukuk Especially focused on

Construction Industry.

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Sukuk Structure Sukuk Structuring may based on following

modes

Mudarabah (Trust Financing/Trust Investment) Murabahah (Sale And Purchase) Musharaka (Partnership, Project Financing Participation) Istishna (Purchase by Order or Manufacture) Salam (In-front Payment Sale) Ijarah (Operating Lease Concept)

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Sukuk Al-Ijara based Model

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Sukuk al Istismar (51% Ijarah structuring)

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Global Sukuk Issues

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Global Sukuk Cumulative Issuance

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Global Sukuk Issuance

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Sukuk Issuing in Construction Industry

Name Country Volum Date TenorEmaar UAE $65 m July 2004 5 yearsAmlak UAE $200 m July 2005 5 yearsUEM Builders Malasiya $82 m Jan-2006 7 yearsAldar Behrain $100 m Oct – 2005 5 yearsCom. RE Kuwait $100 m May 2005 5 yearsMotorway Pak $600 m Jan-2005 5 years

WAPDA, Penang Port and bridge , Sanctuary Building-U k, Sukuk, Zam Zam tower KSA etc also has been issued sukuk related to construction Industry list attached for further consideration)

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CASE STUDIES

Case study of Sukuk Relatively with Construction industry.

WAPDA Sukuk for upraising Mangla Dam Motorway Sukuk

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WAPDA Sukuk WAPDA’s financing requirement: PKR 8,000 million to

(partially) fund the Mangla Dam Raising Project Key objectives for WAPDA were: To raise financing in a cost efficient manner Strengthen its presence in the local financial markets Diversify and cultivate WAPDA’s investor base Undertake a landmark transaction which will catalyze the

promotion of Islamic Financial instruments and lead the way for other public sector entities

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Transaction Structure

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Transaction Structure

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Offering Summery

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Motorway Sukuk

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Glossary