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Sukuk Market Overview &
Structural Trends
IIFM Industry Seminar on
Islamic Capital Market, Liquidity Management & Risk Mitigation Instruments Morning Pre-Conference Day Session, 19th Annual World Islamic Banking Conference
Sunday, 9th December 2012, Awal Ballroom, Gulf Hotel, Kingdom of Bahrain
Ijlal Ahmed Alvi Chief Executive Officer
IIFM
What is International Islamic Financial Market (IIFM) ?
IIFM is the international Islamic financial market’s organization focused on the Islamic Capital & Money Market segment of the Islamic Financial Services Industry. Its primary focus lies in the standardization of Islamic financial products, documentation and related processes at the global level.
IIFM was founded with the collective efforts of the Islamic Development Bank, Autoriti Monetari Brunei Darussalam, Bank Indonesia, Central Bank of Bahrain, Central Bank of Sudan and the Labuan Financial Services Authority (Malaysia) as a neutral and non-profit organization.
Besides the founding members, IIFM is supported by its permanent member State Bank of Pakistan as well as by a number of regional and international financial institutions and other market participants as its members.
The main strength of IIFM is pooling of expertise from banks, legal, accounting and other market participants who work together under the guidance of Shari’ah scholars
1 IIFM Industry Seminar on Islamic Capital Market, Liquidity Management & Risk Mitigation Instruments Morning Pre-Conference Day Session, 19th Annual WIBC, 9th December 2012, Gulf Hotel, Kingdom of Bahrain
2
What IIFM provides to the Industry?
Addressing the standardization needs of the industry & creating awareness
Providing universal platform to market participants through “Global Working
Groups” for the development of Islamic Capital & Money Market
Shari’ah harmonization in documentation, products and processes
2 IIFM Industry Seminar on Islamic Capital Market, Liquidity Management & Risk Mitigation Instruments Morning Pre-Conference Day Session, 19th Annual WIBC, 9th December 2012, Gulf Hotel, Kingdom of Bahrain
Recent Sukuk Trends
Islamic Institutions Sukuk issuance to support capital base
Abu Dhabi Islamic Bank, UAE
Saudi Hollandi Bank, KSA
Sovereign Benchmark Sukuk
Turkey Government Sukuk
Indonesian Government Sukuk
UAE, Qatar, Saudi Arabia (Corporates)
Fixed Profit Rate & Lower Pricing
Longer Tenors including Perpetual
3 IIFM Industry Seminar on Islamic Capital Market, Liquidity Management & Risk Mitigation Instruments Morning Pre-Conference Day Session, 19th Annual WIBC, 9th December 2012, Gulf Hotel, Kingdom of Bahrain
3
Why The Market Need Sukuk
Allows banks to manage its Liquidity and Balance Sheet more Effectively
Offers Alternative Investment with Floating or Fixed Returns
Offers Investors with a Choice of Varied Risk & Maturity
Gives rise to Tradable Asset and provides Liquidity to the Market
4 IIFM Industry Seminar on Islamic Capital Market, Liquidity Management & Risk Mitigation Instruments Morning Pre-Conference Day Session, 19th Annual WIBC, 9th December 2012, Gulf Hotel, Kingdom of Bahrain
Why The Market Need Sukuk
Assist Growth in the Takaful Market
Allow for a Balanced Portfolio
Ensure Prudent Borrowing
Facilitate Islamic M & A Activities
Provides an Asset that can be used for Reserve requirement and for Central Bank Money Market intervention
5 IIFM Industry Seminar on Islamic Capital Market, Liquidity Management & Risk Mitigation Instruments Morning Pre-Conference Day Session, 19th Annual WIBC, 9th December 2012, Gulf Hotel, Kingdom of Bahrain
4
Hybrid (2,087) 3% Exchangeable (6,190) 9%
Ijarah (32,734) 47%
Mudarabah (6,675) 10%
Murabahah (817) 1%
Musharakah (10,832) 15%
Salam (1,958) 3%
Wakalah (8,090) 12%
Source: IIFM Sukuk Database
6 IIFM Industry Seminar on Islamic Capital Market, Liquidity Management & Risk Mitigation Instruments Morning Pre-Conference Day Session, 19th Annual WIBC, 9th December 2012, Gulf Hotel, Kingdom of Bahrain
Hybrid (2,550) 1%
Exchangeable (408) 0%
Ijarah (66,693) 20%
Istisna'a (3,651) 1%
Investment / Al Istithmar (9,284) 3%
Mudarabah (10,847) 3%
Murabahah (138,644) 42%
Musharakah (61,749) 19%
Salam (2,563) 1%
Wakalah (3,621) 1%
Bai' At-Tawarruq (49) 0%
Bai' Bithaman Ajil (BBA) (27,912) 8% Bai' Inah
(1,958) 1%
Source: IIFM Sukuk Database
7 IIFM Industry Seminar on Islamic Capital Market, Liquidity Management & Risk Mitigation Instruments Morning Pre-Conference Day Session, 19th Annual WIBC, 9th December 2012, Gulf Hotel, Kingdom of Bahrain
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Law Amendment to Issue Sukuk
Tax neutrality measures for Sukuk Income Tax Law, Corporate Tax Law,
VAT Law, Stamp Duty Law Ability to Sell State Asset
Setting up of SPV
Trust Law
8 IIFM Industry Seminar on Islamic Capital Market, Liquidity Management & Risk Mitigation Instruments Morning Pre-Conference Day Session, 19th Annual WIBC, 9th December 2012, Gulf Hotel, Kingdom of Bahrain
What is Required for the Development & Success of the Sukuk Market
Sovereign and Quasi-Sovereign
Implicit versus explicit guarantee
Sizeable Issuance
2012 record year
Quality Corporate issuer
Market Makers
9 IIFM Industry Seminar on Islamic Capital Market, Liquidity Management & Risk Mitigation Instruments Morning Pre-Conference Day Session, 19th Annual WIBC, 9th December 2012, Gulf Hotel, Kingdom of Bahrain
6
Corporate (138,591)
42%
Quasi-Sovereign
(14,725) 4%
Sovereign (176,615)
54%
Domestic Sukuk
Corporate (39,044)
56%
Quasi-Sovereign
(7,527) 11%
Sovereign (22,811)
33%
International Sukuk
Source: IIFM Sukuk Database
10 IIFM Industry Seminar on Islamic Capital Market, Liquidity Management & Risk Mitigation Instruments Morning Pre-Conference Day Session, 19th Annual WIBC, 9th December 2012, Gulf Hotel, Kingdom of Bahrain
Future Prospects
We have only begun to tap the potential that exists in the global Sukuk market
Islamic banks are becoming prominent Sukuk issuers to support their balance sheet
Project finance Sukuk
Asset-backed Sukuk
Mortgage-backed Sukuk
Convertible/Exchangeable Sukuk
Use of Islamic Hedging products
11 IIFM Industry Seminar on Islamic Capital Market, Liquidity Management & Risk Mitigation Instruments Morning Pre-Conference Day Session, 19th Annual WIBC, 9th December 2012, Gulf Hotel, Kingdom of Bahrain
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Future Prospects: Final Remarks
It is clear that the Sukuk supply side is becoming quite robust. The challenge for Islamic financial institutions is to develop the following four strategic areas:
Develop Trading Capabilities
Sell down to private and retail investors
Development of Sukuk & Balanced Fund
Liquidity Financing capabilities
12 IIFM Industry Seminar on Islamic Capital Market, Liquidity Management & Risk Mitigation Instruments Morning Pre-Conference Day Session, 19th Annual WIBC, 9th December 2012, Gulf Hotel, Kingdom of Bahrain
1,172 1,371 6,410 8,140
12,180
29,992
48,929
18,752 25,571
47,081
92,403
107,310
0
20,000
40,000
60,000
80,000
100,000
120,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q3 2012 Source: IIFM Sukuk Database
13 IIFM Industry Seminar on Islamic Capital Market, Liquidity Management & Risk Mitigation Instruments Morning Pre-Conference Day Session, 19th Annual WIBC, 9th December 2012, Gulf Hotel, Kingdom of Bahrain
8
Breakdown of Global Sukuk Issuances – By Region Jan 2001 – Q3 2012 (All Amounts in USD Millions)
Africa (13,408) 3%
Asia, 287230, 72%
Europe (394) 0%
GCC (97,437) 25%
USA (767) 0% Central Asia and
Eastern Europe (77) 0%
Source: IIFM Sukuk Database
14 IIFM Industry Seminar on Islamic Capital Market, Liquidity Management & Risk Mitigation Instruments Morning Pre-Conference Day Session, 19th Annual WIBC, 9th December 2012, Gulf Hotel, Kingdom of Bahrain
Bahrain, (11,959) 3% Brunei Darussalam,
(3,688) 1%
Gambia (66) 0%
Germany(123) 0%
Indonesia, (13,607) 3%
Japan (131) 0%
Jordan, 119, 0%
Kazakhstan, 77, 0%
Kuwait (2,458) 1%
Malaysia (259,056) 65%
Pakistan (6,645) 2%
Qatar(15,783) 4%
Saudi Arabia (26,922) 7%
Singapore (380) 0%
Sudan (13,344) 3%
Turkey (2855) 1%
UAE (40,808) 10%
UK(271) 0% USA (767) 0%
Yemen (253) 0%
Source: IIFM Sukuk Database
15 IIFM Industry Seminar on Islamic Capital Market, Liquidity Management & Risk Mitigation Instruments Morning Pre-Conference Day Session, 19th Annual WIBC, 9th December 2012, Gulf Hotel, Kingdom of Bahrain
9
Emirati Dirhams (AED)
2%
Bahraini Dinars (BHD)
1% Bruneian Dollars (BND)
1%
Chinese Yuan Renminbi (CNY)
0%
Euros (EUR)
0%
British Pounds (GBP)
0%
Gambian Dalasi (GMD)
0%
Indonesian Rupiah (IDR) 3%
Jordanian Dinars (JOD)
0%
Kuwaiti Dinars (KWD)
0% Malaysian Ringgit (MYR)
63%
Pakistani Rupees (PKR)
2%
Qatari Riyals (QAR)
2%
Saudi Riyals (SAR)
4%
Sudanese Pounds (SDG) 3.66%
Singapore Dollars (SGD)
0%
Turkey Lira (TRY) 0% United States Dollars
(USD) 17%
Yemeni Riyals (YER)
0%
Source: IIFM Sukuk Database
16 IIFM Industry Seminar on Islamic Capital Market, Liquidity Management & Risk Mitigation Instruments Morning Pre-Conference Day Session, 19th Annual WIBC, 9th December 2012, Gulf Hotel, Kingdom of Bahrain
Breakdown of Global Sukuk Issuances – By Maturities Jan 2001 – Q3 2012 (All Amounts in USD Millions)
Less than 1 year (141,238) 35%
2 to 5 years (114,699) 29%
6 to 10 years (82,875) 21%
11 to 15 years (23,253) 6%
16 to 20 years (18,200) 5%
21 to 25 years (5,503)1%
26 to 30 years (7,135) 2%
31 to 40 years (5,822) 1%
41 to 50 years (586) 0%
Source: IIFM Sukuk Database
17 IIFM Industry Seminar on Islamic Capital Market, Liquidity Management & Risk Mitigation Instruments Morning Pre-Conference Day Session, 19th Annual WIBC, 9th December 2012, Gulf Hotel, Kingdom of Bahrain
10
Use of Sukuk as Collateral
International Sukuk
Domestic Sukuk
18 IIFM Industry Seminar on Islamic Capital Market, Liquidity Management & Risk Mitigation Instruments Morning Pre-Conference Day Session, 19th Annual WIBC, 9th December 2012, Gulf Hotel, Kingdom of Bahrain
Shukaran Wassalamu ‘Alaikum
www.iifm.net
+973 17 500 161