FINANCIAL INSTITUTIONS ENERGY INFRASTRUCTURE AND COMMODITIES TRANSPORT TECHNOLOGY United Kingdom: First Corporate Sukuk Shatha Ali Associate Norton Rose LLP 28 October 2010 Shatha Ali Associate Norton Rose LLP 28 October 2010

Features of Islamic Finance Riba (usury or unjust enrichment) Gharar (uncertainty) Maisir (speculation) Assured Profit Unethical Investment

The basic difference* Bank Client Conventional Islamic BankClient money money + money (interest) Goods & Services Source: Sheikh Nizam Yaquby – 24 March 2005 Training course *Courtesy of Sheikh Nizam Yaquby Permission to reprint or distribute any content from this presentation requires the prior written approval of Norton Rose

Sukuk: What is it? AAOIFI definition: ‘certificates of equal value representing undivided shares in the ownership of tangible assets, usufructs and services or (in the ownership of) the assets of particular projects or special investment activity’

Sukuk: Main Structures Ijara (lease) Musharaka (joint venture or co-ownership financing) Mudarabah (trust/participation financing) Wakala (investment)

First UK Corporate Sukuk Arranged by International Innovative Technologies Limited (IIT) –technology development company –requirement for Sukuk driven by investor Sukuk Al-Musharaka US$10,000,000 issue Convertible

Sukuk Structure Investments as per Musharaka Business Plan IIT Target Company Issuer/Trustee Pursuant to Declaration of Trust Sukukholder Declaration of Trust Purchase Undertaking Musharaka Agreement Musharaka Capital Management Agreement Musharaka Entity Managing Partner IIT (Target Company) Cash Proceeds Distribution Contribution in-kind Distribution Contribution in-cash Return on Investment

Going forward: Regulation Financial Services and Markets Act (Regulated Activities) (Amendment) Order 2010 Changes legislative framework to align regulatory treatment of alternative finance investment bonds (AFIBs) –AFIBs as specified investments on same basis as instruments creating / acknowledging debt –excludes AFIBs from definition of “collective investment schemes”

Going forward: Tax Finance Acts since 2003 removed tax barriers Finance Act three further measures: –relief from stamp duty land tax for transactions undertaken as part of property AFIB –relief from capital gains tax for transfers of land to and from sukuk issuance vehicles –person obtaining financing continue to be entitled to claim capital allowance

Sukuk issued by UK Government? Considered by HM Treasury Previous position that it “would not offer value for money at the present time” Situation under review

Our international practice

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