Presentation is loading. Please wait.

Presentation is loading. Please wait.

Strictly Private & Confidential Sukuk : A Viable Funding Option HIGH-LEVEL WORKSHOP ON SUKUK Moscow, Russia 15-17 December 2014 Presented by: Arshad Ismail.

Similar presentations


Presentation on theme: "Strictly Private & Confidential Sukuk : A Viable Funding Option HIGH-LEVEL WORKSHOP ON SUKUK Moscow, Russia 15-17 December 2014 Presented by: Arshad Ismail."— Presentation transcript:

1 Strictly Private & Confidential Sukuk : A Viable Funding Option HIGH-LEVEL WORKSHOP ON SUKUK Moscow, Russia December 2014 Presented by: Arshad Ismail

2 2 CONTENT SECTION 1. INTRODUCTION TO ISLAMIC CAPITAL MARKETS 2. SUKUK  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 3. SELECTED SUKUK TRANSACTION HIGHLIGHTS 2

3 Introduction to Islamic Capital Markets

4 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:- 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”. 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 4 What are Islamic Capital Markets? Shariah essentially allows all economic activities unless clearly prohibited

5 5 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 IJARAH (Leasing) ISTISNA’ (Purchase Order) WAKALAH BIL ISTITHMAR (Investment Agency) AGENCY CONTRACT MUDHARABAH (Profit-Sharing) MUSHARAKAH (Joint Ventures) MURABAHAH (Cost Plus Sale) SALE AND PURCHASE CONTRACTS PARTNERSHIP CONTRACTS

6 Sukuk PART I : OVERVIEW

7 7 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: FeaturesSukukConventional 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 FormBased on trade transaction, represented by sale, lease, investment or joint venture contracts Based on model of borrowing/lending

8 8 What are Sukuk? (Cont’d) FeaturesSukukConventional Bonds Utilisation of Proceeds Should not contradict ShariahNo restriction Asset requirement YesTypically 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 Sukuk may also lead to better profiling/exposure for issuers and enhance their credit profile in new markets Conventional bonds are not acceptable to Islamic investors. As such, limited exposure to conventional investors only

9 9 FeaturesSukukConventional Bonds Programme/ Issuance Cost Lead Manager/Lead Arranger fees are similar to conventional bonds transactions Documentation costs could be marginally higher Shariah Advisory fee No additional 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 What are Sukuk? (Cont’d)

10  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 Why Sukuk? Key Advantages of Issuing Sukuk 10

11 Sukuk PART II : DEVELOPING THE SUKUK MARKET

12 Policy Principles What should be done? Creating a "level playing field" 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. Regulation for Shariah Advisory 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 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:

13 Policy Principles What should be done? Evolving Regulatory Landscape 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 Investor Base 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 Incentives to Encourage Growth of the Market 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 Developing the Sukuk Market (Cont’d) Making Islamic Capital Markets effective, efficient and conducive

14 Sukuk PART III : STRUCTURING ANALYSIS

15 ParametersExample Issuer  Typically, a special purpose vehicle Facility Trust Certificates Programme 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 Typical Terms and Conditions of a Reg S USD Sukuk Transaction Structuring Sukuk 15

16 Execution process: Typical timeline is approximately weeks Weeks A A B B C C D D E E G G F F Financial/Legal/ Technical Due Diligence Appointment of Parties Legal, financial & technical due diligence Preparation & review of cashflow projections Engaging with relevant rating agencies Submissions to regulatory authorities Cashflow Preparation & Review Ratings Process Regulatory Approval Documentation Marketing & Distribution Issuance Programme Agreement, Trust Deed & asset related documents Prepare marketing material Marketing of offering, including roadshow Launch Final OC & Listing Compliance with CPs Settlement Shariah Review & Approval Shariah approval on T&Cs Shariah approval on documentation H H 16 Structuring Sukuk

17 Note: For programme size of up to USD1.0 billion in nominal value (or its equivalent in any other currencies) Indicative Fees and Expenses for Reg S USD Sukuk Transactions Indicative Upfront FeesIndicative Amount (USD) Arranger/Manager/Bookrunners FeesDepending 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 Fee150,000 – 200,000 Shariah Advisory Fee25,000 Listing Agent Fee10,000 Fiscal Agent Fee30,000 SPV’s Establishment ExpensesDepending on the jurisdictions Miscellaneous (e.g. out-of-pocket expenses)30,000 TOTAL (USD) (excluding Arranger/Manager/Bookrunners Fees, Regulatory Fees* and Rating Fees**) 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 FeesIndicative Amount (USD) Fiscal Agent Fee30,000 Rating Surveillance Fee60,000 SPV Corporate Services ExpensesDepending on the jurisdictions TOTAL (USD)90, Structuring Sukuk

18 Note: For Islamic MTN programme size of up to MYR1.0 billion in nominal value, 1 st issue in 2tranches Indicative Fees and Expenses for MYR Bonds and Sukuk Indicative Upfront Fees Conventional BondsSukuk Indicative Amount (MYR) Legal Counsel Fee (Arranger) 130,000 – 180,000200,000 – 250,000 Reporting Accountant Fee (if applicable) 100,000 – 150,000 Securities Commission Fee 51,000 Rating Fee600,000 Shariah Advisory Fee N/A75,000 Trustee Fee10,000 Agency Fee75,000 BNM Depository Fees30,000 FAST Charges & RENTAS Annual Fees1,400 Miscellaneous (e.g. out-of-pocket expenses)30,000 TOTAL (MYR) 1,027, ,127,4001,172,400 – 1,272,400 (excluding Arranger/Manager/Bookbuilding Fees*) Indicative Annual Recurring Fees Indicative Amount (MYR) Agency Fees75,000 Rating Surveillance Fees400,000 Trustee50,000 RENTAS Annual Fees4,000 TOTAL (MYR) 529, Structuring Sukuk

19 The issuance of Sukuk is managed by the lead managers via the following modes: Modes of Issuance Bookbuilding Bought Deal Private Placement 19 Structuring Sukuk

20 20 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 LocationDurationFormat Kuala Lumpur 1 day 1-1 Meetings/Group Presentation Singapore1 day 1-1 Meetings/Group Presentation Hong Kong/South Korea 2 days 1-1 Meetings/Group Presentation Middle East (Abu Dhabi / Dubai / Riyadh / Bahrain) 3 days 1-1 Meetings/Group Presentation Europe2 days 1-1 Meetings/Group Presentation Kuala Lumpur Singapore Hong Kong London Middle East Proposed Roadshow Locations Roadshow Schedule Illustration Structuring Sukuk

21 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) Wakalah (Agency) Ijarah (Lease) Description  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  Government of Malaysia 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  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.

22 22 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) Underlying Assets  Tangible asset is 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 Marketability  Gaining prominence in the Malaysian sukuk market.  Tradability restriction 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) Notable Issuances  Cagamas Berhad (2013)(RM)  Golden Assets International Finance (2012)(RM)  TH Plantations (2012)(RM)  Qatar Islamic Bank (2013)(USD)  Islamic Development Bank (2012, 2011)(USD)  Government of Malaysia (2011)(USD)  Kuveyt Turk (2014)(USD)  Government of Turkey (2013, 2012)(USD)  Government of Indonesia (2013, 2012)(USD)  Government of Dubai (2013, 2012)(USD)  Government of Qatar (2012)(USD) Dependence on Issuer’s Tangible Assets Low High

23 Sukuk PART IV : COMMON SUKUK STRUCTURES

24 24 Purchase Assets Declare Trust & Issue Sukuk Ijarah Rental Sale Agreement Lease Assets Asset Purchase Price Company (Lessee/ Obligor/ Servicing Agent) Purchase Undertaking 5 5 Servicing Agency Agreement Exercise Price 6 6 Sukukholders SPV (Trustee) Proceeds 24 Sukuk Ijarah (Lease)

25 25 Sukuk Ijarah (Lease) Case Study: Government of UK GBP200million Certificates This structure diagram was extracted from the prospectus dated 30 June 2014

26 Commodities < 49% Tangible > 51% Issue Sukuk sale of commodities at Sale Price Purchase of commodities on spot Sale of commodities on spot Periodic Distributions Purchase Undertaking Assets Sukuk proceeds Issuer Appoint as Wakeel Purchase Order Leases Assets Substitution Undertaking Sukukholders Exercise Price 5(i) (a) 1(b) (ii) 5(iii) 5(iv) Company (Purchaser) Company (Wakeel/Original Owner/Lessee/ Obligor) SPV (Trustee) Bursa Suq Al-Sila’ Commodity Buyer Commodity Suppliers 26 Sukuk Wakalah (Agency)

27 27 Sukuk Wakalah (Agency) Case Study: Government of Malaysia USD2,000million Certificates This structure diagram was extracted from the prospectus dated 28 June 2011.

28 Intangible Asset (Commodity Murabahah) (<66% outstanding Sukuk proceeds at all times) Tangible Asset (>34% outstanding Sukuk proceeds at all times) Islamic Structure Challenges and Highlights Structure and Diagram of Cashflows  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 structuring MEXIM’s Sukuk:  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.  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. MEXIM (Wakeel) MEXIM (Obligor) Bursa Malaysia Islamic Services Sdn Bhd Bursa Suq Al-Sila’ EXIM Sukuk Malaysia Berhad (Issuer, Trustee and Purchaser and Seller of Tangible and Non-Tangible Assets) Sukukholders MEXIM (Purchaser and Seller of Tangible Assets) Wakalah Agreement Incentive Fee Deferred Sale Price Sale of Commodities Purchase of Commodities Purchase Price Purchase of Tangible Assets and Non- Tangible Assets Exercise Price Sale of Tangible Assets and Non- Tangible Assets Cost price of purchase of commodities Sale of Commodities Proceeds from Sale Price Sukuk Issue Proceeds Periodic Distribution Amount and Distribution Amount Cash Movements Non-Cash Movements Substitution Undertaking Agreement Sukuk Wakalah (Agency) Case Study: Exim Sukuk Malaysia Berhad’s USD1.0 billion Multi-Currency Sukuk Issuance Programme 28 This structure diagram was extracted from the prospectus dated 27 September 2013.

29 Sukukholders represented by Trustee Company (as Purchaser/ Issuer) Company as Purchase Agent on behalf of Sukukholders Bursa Suq Al-Sila’ Commodity Buyer Commodity Suppliers Sukuk Proceeds Issue Sukuk 1 1 Agency Agreement Sale of Commodities Sale Price = Purchase Price + profit margin 2 2 Purchase Order with Undertaking to Purchase Commodity Trading Participant (CTP) Selling Price = Sukuk Proceeds Sale of Commodities on spot 3 3 Purchase Price = Sukuk Proceeds Purchase Commodities on spot Sukuk Murabahah (Cost Plus Mark-up Sale)

30 Sukuk PART V : GLOBAL MARKET TRENDS

31 31 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 billion 1 as at 3Q 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 International Bonds (Conventional & Sukuk) International Sukuk (including Ringgit Sukuk) USD 3,082 bln USD 37 bln 31 Global Sukuk Market – Current State

32 32  Government and financial sectors dominated the primary global Sukuk market in Source: Bloomberg (based on total issuance amount of USD57.98billion)(as at 3Q 2014) 1. Excluding government short term securities Global Sukuk Market – Current State

33 Trends in the Global Sukuk Market 33 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.

34 34 Issuer Amount Outstanding (GBP mil) Coupon (%) Issue Date Maturity Date Remaining Tenure (years) Yield to Maturit y (%) Price Islamic Structure United Kingdom Gilt (1¾% TREASURY GILT 2019 ) 30, Nov July N/A HM Treasury UK Sovereign Sukuk Plc July July Ijarah (Head Lease and Sub Lease) Pricing Analysis – Government of UK Source: Bloomberg – Historical Prices (as of 8 Dec) 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

35 Global Sukuk Issues by Issuer Type (in USD mil) 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 Global Sukuk Issues 2Q14 vs. 2Q13 Global Sukuk Issues by Size & No of Deals Global Sukuk Trends by Quarter Source: Zawya 2Q14 Report Global Sukuk Issues by Structure in 2Q14 Global Sukuk Issues by Currency in 2Q14 Global Sukuk Issues by Country in 2Q14 Global Sukuk Issues by Sector in 2Q14

36 Sukuk PART VI : MALAYSIA AS CROSS BORDER SUKUK MARKETPLACE

37 37 Last Issue Date IssuerCountryIndustry Amount Issued (MYR) Obligor Rating Maturit y Coupon (%) 5/8/2014 Golden Assets International Finance Ltd SingaporeFinancials375,000, Golden Assets International Finance AA2s5Y /6/2014 TF Varlik Kiralama Anonim Sirketi TurkeyFinancials800,000, Turkiye Finans Katilim Bankasi AS AA35Y /3/2014Bumitama Agri LtdIndonesia Consumer Staples 500,000, Bumitama Agri Ltd AA35Y5.25 8/11/2013ABHC Sukuk BhdSaudi Arabia Consumer Discretionary 120,000, Al Bayan Group Holding Company AA3s1Y4.2 31/7/2013 Tadamun Services Bhd SupranationalFinancials300,000, Islamic Development Bank AAA5Y3.6 6/6/2013First Resources LtdSingapore Consumer Staples 600,000, First Resources Ltd AA27Y /4/2013 Bahrain Mumtalakat Holding Co BSC BahrainFinancials150,000, Bahrain Mumtalakat Holding Co BSC AA25Y /1/2013Noble Group LtdHong KongEnergy300,000, Noble Group Ltd AA23Y4.3 10/12/2012 National Bank of Abu Dhabi PJSC Arab EmiratesFinancials500,000, National Bank of Abu Dhabi PJSC AAA15Y4.75 3/8/2012 Development Bank of Kazakhstan JSC KazakhstanFinancials240,000, Development Bank of Kazakhstan JSC AA25Y5.5 18/6/2012 Gulf Investment Corp GSC KuwaitFinancials325,000, Gulf Investment Corp GSC AAA10Y to 15Y5.1 to 5.3 5/3/2012 Abu Dhabi National Energy Co Arab EmiratesUtilities650,000, Abu Dhabi Water & Electricity Author AA110Y4.65 Malaysia : Cross Border Sukuk Marketplace Malaysia has seen a number of cross-border MYR Sukuk transactions including issuers from neighbouring countries

38 Note: Charts are based on issuances by 12 foreign issuers (MYR 12.72Billion; USD4.04 Billion Equivalent) Source: Bloomberg (as of 26th August 2014) 38 Malaysia : Cross Border Sukuk Marketplace Malaysia has seen a number of cross-border MYR Sukuk transactions including issuers from neighbouring countries

39 Indicative Rating Mapping International Rating AgenciesMalaysian Rating Agencies S&PMoody’sFitchRAMMARC Investment Grade AAAAaaAAA AA+Aa1AA+ AAAa2AA AA-Aa3AA- A+A1A+ AA2AInvestment Grade A-A3A-AAA BBB+Baa1BBB+AA1AA+ BBBBaa2BBBAA2AA BBB-Baa3BBB-AA3AA- Speculative GradeA1A+ BB+Ba1BB+A2A BBBa2BBA3A- BB-Ba3BB-BBB1BBB+ B1BBBB2BBB B2 BBB3BBB- B3 Speculative Grade BB1BB+ BB2BB BB3BB- B1B+ B2B B3B- C1 C C2 C3 DD Long Term Rating Scale 39 Malaysia : Cross Border Sukuk Marketplace Malaysia has seen a number of cross-border MYR Sukuk transactions including issuers from neighbouring countries

40 Selected Sukuk Transaction Highlights

41 41  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 June 2011 USD2.0 billion Transaction Overview Transaction Highlights IssuerWakala Global Sukuk Berhad FacilitySukuk 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 bps) Series 2: 4.646% (UST bps) Maybank KE’s Role Joint Malaysian Adviser, Joint Bookrunner, Joint Lead Manager Issuance Date 28 June 2011 Transaction Details Distribution Analysis  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 WAKALA GLOBAL SUKUK BERHAD Joint Malaysian Adviser Joint Bookrunner Joint Lead Manager Trust Certificates Demand breakdown (in USD billion) Allocation by geography (%) 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

42 42 Overview on Issuer Transaction Highlights Issuer Perusahaan Penerbit SBSN Indonesia I FacilityTrust Certificates SizeUSD650 million Tenure5 years Issue date4 March 2009 Maturity4 March 2014 RatingMoody’s: Ba3; S&P: BB-; Fitch: BB Issue Price100 Regulatory FormatReg S / 144A Maybank KE’s RoleInternational Co-Manager Transaction Details  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 wholly- owned subsidiary of the Republic of Indonesia  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 March 2009 USD650 million PERUSAHAAN PENERBIT SBSN INDONESIA I International Co-Manager Trust Certificates 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

43 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 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.  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. Our Funding Solution  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. Issuer Sime Darby Global Berhad (wholly- owned subsidiary of Sime Darby) FacilityMulti-Currency Sukuk Programme Programme Size USD1.5 billion in nominal value FormatReg S StructureIslamic (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) Programme and Issuance Salient Terms Transaction Highlights  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. January 2013 USD800 million SIME DARBY GLOBAL BERHAD Joint Principal Adviser, Joint Lead Arranger, Joint Lead Manager, Dealer, Joint Shariah Adviser, Listing Agent Sukuk Awards & Recognition Best Deal of the Year (Malaysia) 2013 Best Foreign Currency Bond Deal 2013 Best Islamic Finance Deal 2013 Bank Negara Malaysia “Emas” Status Best Corporate Sukuk / New Sukuk 2014

44 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 EXIM SUKUK MALAYSIA BERHAD Joint Principal Adviser, Joint Lead Arranger, Joint Lead Manager, Joint Bookrunner Sukuk Transaction Overview Transaction Highlights IssuerEXIM Sukuk Malaysia Berhad Facility Multicurrency Sukuk Issuance Programme Programme SizeUSD1.0 billion Programme Tenure Perpetual Issuance SizeUSD300 million Issuance Tenure5 years Issuance Date19 February 2014 Rating A- by Fitch Ratings and A3 by Moody's Mode of IssuanceBookbuilding Maybank KE’s Role Joint Principal Adviser, Joint Lead Arranger, Joint Lead Manager, Joint Bookrunner Distribution Analysis  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.  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 A- by Fitch Ratings and A3 by Moody's, which are on par with the Malaysian sovereign ratings. Transaction Details

45 USD Sukuk: IDB Trust Services Limited’s USD1.5 billion Islamic Trust Certificate Issuance Strong demand from investors worldwide and aggressive pricing Transaction Overview  The Islamic Development Bank (“IsDB”) is a supranational developmental bank, established in 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. IssuerIDB Trust Services Limited GuarantorThe Islamic Development Bank FacilityTrust Certificate Issuance Programme Programme SizeUSD10.0 billion Issue SizeUSD1.5 billion in nominal value Profit Rate2.11% Issue Date25 September 2014 Tenure5 years Programme and Issue Ratings AAA, AAA, Aaa by S&P, Fitch and Moody’s, respectively FormatReg 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 Salient Terms 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. September 2014 USD1.5 billion IDB TRUST SERVICES LIMITED Joint Lead Manager, Joint Bookrunner Islamic Trust Certificates Investor TypeGeographical Breakdown Distribution Analysis

46 Thank You For more information, please visit


Download ppt "Strictly Private & Confidential Sukuk : A Viable Funding Option HIGH-LEVEL WORKSHOP ON SUKUK Moscow, Russia 15-17 December 2014 Presented by: Arshad Ismail."

Similar presentations


Ads by Google