The Sukuk Summit – Strategies for Today: Demystifying Islamic Capital Markets (ICM) Products London June 21 st, 2007 Securitization in the GCC – Opportunities and Challenges Issam Al Tawari, Vice Chairman - CEO

Who are we What is Securitisation Benefits of Securitisation Opportunities in the GCC The First Deals Why Now ? Securitisation main Challenges & Opportunities A look at the future Agenda Page (1) of (15) 21 June 2007

We are a securitization house & financial engineering specialists in Islamic Debt arrangements focused on the GCC as a primary market. Rasameel first licensed securitization/ investment company by The Central Bank of Kuwait Page (2) of (15) 21 June 2007 Who Are We …..

In securitisation, a corporation creates and ‘securitises’ assets - that is, transfers assets in form of securities. The claim is on assets, and not on the entity Hence, asset-backed risk Sukuks (asset based) are a step towards securitisation (asset backed) similar but different ….. Page (3) of (15) 21 June 2007 What Is Securitisation … How Is It Different

In Sukuks: oTypical asset is not rated but the strength of corporate undertaking oAsset transfer not perfected necessarily oCash flow segregation only a book entry oAmortization of Sukuk is achieved by sale of assets back to originator rather than assets performance ( Dibashish,Clifford Chance) Page (4) of (15) 21 June 2007 Sukuk / Securitisation Differences

The key economic driver of securitisation is lower cost, resulting out of: –Credit enhancement –Higher ratings Bankruptcy remoteness Capital Market Funding Other spin offs – off balance sheet, capital relief, etc. are consequences, not cause of the isolation process Page (5) of (15) 21 June 2007 Benefits of Securitisation

Page (6) of (15) 21 June 2007 Securitisation Benefits

Talked about as concept back in 1990’s Market acceptance now: Tradability and liquidity it posses Sharia closer understanding Legal structures improvements Growth of Sukuk market Basel II –Changes in Asset Retention Strategies a Basle II bias toward banks holding securities instead of direct exposures. (Thomas,Abdelakder,2007) Islamic Capital Market development Page (7) of (15) 21 June 2007 Opportunities In The GCC

MENA 0.2% of Global Market ( Moody's) Kuwait: –US$ 5/ 15 bn in Islamic & Conventional receivables respectively UAE: –Mortgage market most active AED 11.5 Bn residential mortgage in Dubai ( Moody's) Saudi Arabia: –US$ 5 bn est. RE Finance in 2004 –20% of population owning their properties –65% of mortgage is provided by banks but with restrictive criteria –KSA MBS 1 US$ 23 mm securitization issue with partial recourse Page (8) of (15) 21 June 2007 Opportunities In The GCC (cont.)

The largest and fastest growing funding tool in the international capital markets Current ABS outstanding estimated to be in excess of $5 trillion Annual issuance in Europe, Middle East and Africa exceeds $600 billion. (Source HSBC) Page (9) of (15) 21 June 2007 What Is The Size Of The Securtisation Market

Page (10) of (15) 21 June 2007 Where Deals Are Done In Kuwait

Market Orientation Clients/originators insufficient IT system reports Portfolio Data Market Data Legal & regulatory framework shortcomings Civil law jurisdictions are typically limited to Debt issues, but not Islamic securitization; No specific securitisation law yet Enforceability of legal opinion? –Can a Security Interest be perfected –Ratings implications Page (12) of (15) 21 June 2007 Securitisation Main Challenges

Law not permit sale of Kuwaiti assets abroad Lack of local SPV need for 2 tier structure Transaction size matters, many SME originators Lack of government sponsored agencies such as Ginnie Mae and Fannie Mae Lack of (deep) capital markets Targeted securitised assets denominated in Local currency Page (13) of (15) 21 June 2007 Securitisation Main Challenges (cont.)

New securitisation directives by the Central Bank of Kuwait under review Sovereign originators may be targeted for the next wave after corporates. Future flow securitisation will be the way forward for many originators Islamic securitisation will be a key driver for the market growth to feed the secondary Sukuk market Page (14) of (15) 21 June 2007 The Future Of Securitisation In GCC

THANK YOU Page (15) of (15) 21 June 2007