1. Corporate Bonds for Real Estate with Sukuk Features ORIX Investment Bank Pakistan Limited International Islamic Finance and Investment Symposium 2006 December 7, 2006 Presented By: Naim Farooqui Managing Director

2. Real Estate Acquisition Transaction Structure Bank Syndication Debt -Rs. 150 m Corporate House Equity – Rs. 121 m Office Building Equity + Debt Rs. 271 m Company 1 Company 2 Company 3 Company 4 Purchase Rented Rentals 1

3. Securitization is a process for institutions to turn their locked up assets i.e. mortgages in the instant case, which are illiquid and lumpy, into tradable securities such as bonds. Securitization is a process for institutions to turn their locked up assets i.e. mortgages in the instant case, which are illiquid and lumpy, into tradable securities such as bonds. Securitization is an open market selling of financial instrument backed by asset’s cash flow or asset value (mortgages). Securitization is an open market selling of financial instrument backed by asset’s cash flow or asset value (mortgages). A contractual arrangement whereby the REFC sells its mortgage receivables to a special purpose vehicle (SPV). A contractual arrangement whereby the REFC sells its mortgage receivables to a special purpose vehicle (SPV). SPV issues debt instruments (bonds) to finance the purchase SPV issues debt instruments (bonds) to finance the purchase Making a Case for Securitization for A Real Estate Finance Company (REFC) 2

4. Securitization Structure Real Estate Finance Company Real Estate Finance Company Mortgages Normal REFC Business Operations Extension of Loans For Real Estate Housing Mortgage Receivables SPV Cash Proceeds Raised Via Issuance of Debt Securities Investors Debt Securities Cash Receivables Key Issues To be Addressed 1.Non-Recourse Element 2.Accounting Clearance 3.Legal Issues 4.Market For Instrument 5.Regulatory Aspects 6.Security Mechanisms Trustee Safeguarding Investors Interest Typical Structure Mortgage Backed Securitization 3 Private PlacementsPublic Placements

5. Originator: entity that generates receivables Originator: entity that generates receivables Issuer of the securities: SPV (any form, usually trust, corporation, partnership, etc.) Issuer of the securities: SPV (any form, usually trust, corporation, partnership, etc.) Advisor/Arranger: structures transaction; prepares documentation alongside legal, liaison with auditors Advisor/Arranger: structures transaction; prepares documentation alongside legal, liaison with auditors Underwriter: who places securities in the market Underwriter: who places securities in the market Structure of SPV 4

6. Custodian: entity that holds receivables as agent and bailee for the trustee or trustees Custodian: entity that holds receivables as agent and bailee for the trustee or trustees Servicer: who collects receivables and transfers funds to accounts of trustees Servicer: who collects receivables and transfers funds to accounts of trustees Trustee: who deals with the administration— holds receivables; receives payment on receivables, makes payment to security holders Trustee: who deals with the administration— holds receivables; receives payment on receivables, makes payment to security holders Rating agencies: JCR-VIS, PACRA.—helps in structuring; determine opinions needed, etc. Rating agencies: JCR-VIS, PACRA.—helps in structuring; determine opinions needed, etc. Structure of SPV…contd. 5

7. Why Securitize? Why Securitize? Lower-cost financing Lower-cost financing Liquidity crunches? Liquidity crunches? Equity saving Equity saving Leverage restrictions Leverage restrictions Reduction of assets – create liquidity to the company Reduction of assets – create liquidity to the company Matched funding / funding strategy Matched funding / funding strategy Earnings Earnings Originator capitalizes the future cash flow Originator capitalizes the future cash flow General Benefits of Securitization 6

8. To owner/originator To owner/originator Alternative financing instruments Alternative financing instruments Improve liquidity in the balance sheet Improve liquidity in the balance sheet Reinvestment and freeing up the low-yield assets Reinvestment and freeing up the low-yield assets Transfer the interest rate risks to SPV Transfer the interest rate risks to SPV Reducing corporate gearing Reducing corporate gearing To bondholders/investors To bondholders/investors New Investment opportunities for diversification New Investment opportunities for diversification Direct participation in real estate market by small investors Direct participation in real estate market by small investors Building as collateral Building as collateral To Real Estate Market To Real Estate Market An active secondary capital market for institutional investment An active secondary capital market for institutional investment Alternative Financing Options Alternative Financing Options Summing Benefits for all Stakeholders 7

9. Similarities of SUKUK with the proposed structure The proposed structure though based on conventional model can easily be converted into a Shariah Compliant Sukuk Bond. It has the following characteristics which are important elements of Sukuks: Corporate Bonds are easily Tradable – Similarly, SUKUK being liquid real assets, are easily transferred and traded in the financial market. Corporate Bonds are easily Tradable – Similarly, SUKUK being liquid real assets, are easily transferred and traded in the financial market. Corporate Bonds can be Rated – Credit rating increase the credibility of financial instruments. SUKUK are easily analyzed by international and regional rating agencies which facilitates their marketability. Corporate Bonds can be Rated – Credit rating increase the credibility of financial instruments. SUKUK are easily analyzed by international and regional rating agencies which facilitates their marketability. Differences in Main features: Sukuk have share holding in the underlying asset while Bonds are purely a debt instrument. Sukuk have share holding in the underlying asset while Bonds are purely a debt instrument. Sukuk are limited to Sharia permissible ventures/products. Sukuk are limited to Sharia permissible ventures/products. Conclusions 8

10. Recent Deals July 2003 Rs. 150 Million International Housing Finance Limited Brookes Pharmaceutical Limited July 2003 Ittehad Chemicals Limited Rs. 250 Million Listed Term Finance Certificates July 2003 National Police Foundation Security Services Limited Rs. 38 Million Lease Syndication Baluchistan Glass Limited Rs. 200 Million Debt Syndication July 2003 Debt Syndication Rs. 100 Million July 2003 Crescent Ujala Limited Rs. 150 Million August 2003 Fidelity Investment Bank Limited Sept 2003 Rs. 400 Million Privately Placed Term Finance Certificates Grays Leasing Limited Privately Placed Term Finance Certificates Rs. 130 Million Oct 2003 Debt Syndication Rs. 100 Million Nov 2003 Sigma Leasing Limited Orient Petroleum Inc Privately Placed Term Finance Certificates Rs. 300 Million Dec 2003 Crescent Standard Investment Bank Limited Rs. 125 Million Lease Discounting Syndication Dec 2003 Crescent Steel & Allied Products Limited Jan 2004 Privately Placed Term Finance Certificates Rs. 300 Million Sindh Abadgar Sugar Mills Limited March 2004 Rs. 100 Million Debt Syndication Al Zamin Leasing Modaraba Limited Rs. 50 Million Lease Discounting Syndication May 2004 Indus Dyeing & Manufacturing Company May 2004 Rs. 100 Million Rs. 500 Million Eden Developers Pvt Limited Debt Syndication June 2004 Rs. 110 Million International Brands Pvt Limited Debt Syndication Big Bang Communications Pvt Limited Rs. 32 Million Debt Syndication June 2004 Telecard Limited Al Noor Sugar Mills Limited June 2004 Rs. 100 Million Debt Syndication June 2004 Rs. 200 Million Debt Syndication Mortgage Backed Bridge Financing Commercial Paper Debt Syndication Orient Petroleum Inc Rs. 1 Billion Sept 2003 First Oil & Gas Securitization Company Securitization Orient Petroleum Inc April 2005 Rs. 1.2 Billion Naimat Basal oil & Gas Securitization Company Securitization PILCORP Sept 2002 Rs. 100 Million First Securitization Trust Company Lease Receivables Securitization ORIX Securitization Transactions Completed July 2003 Rs. 150 Million International Housing Finance Limited Brookes Pharmaceutical Limited July 2003 Ittehad Chemicals Limited Rs. 250 Million Listed Term Finance Certificates July 2003 National Police Foundation Security Services Limited Rs. 38 Million Lease Syndication Baluchistan Glass Limited Rs. 200 Million Debt Syndication July 2003 Debt Syndication Rs. 100 Million July 2003 Crescent Ujala Limited Rs. 150 Million August 2003 Fidelity Investment Bank Limited Sept 2003 Rs. 400 Million Privately Placed Term Finance Certificates Grays Leasing Limited Privately Placed Term Finance Certificates Rs. 130 Million Oct 2003 Debt Syndication Rs. 100 Million Nov 2003 Sigma Leasing Limited Orient Petroleum Inc Privately Placed Term Finance Certificates Rs. 300 Million Dec 2003 Crescent Standard Investment Bank Limited Rs. 125 Million Lease Discounting Syndication Dec 2003 Crescent Steel & Allied Products Limited Jan 2004 Privately Placed Term Finance Certificates Rs. 300 Million Sindh Abadgar Sugar Mills Limited March 2004 Rs. 100 Million Debt Syndication Al Zamin Leasing Modaraba Limited Rs. 50 Million Lease Discounting Syndication May 2004 Indus Dyeing & Manufacturing Company May 2004 Rs. 100 Million Rs. 500 Million Eden Developers Pvt Limited Debt Syndication June 2004 Rs. 110 Million International Brands Pvt Limited Debt Syndication Big Bang Communications Pvt Limited Rs. 32 Million Debt Syndication June 2004 Telecard Limited Al Noor Sugar Mills Limited June 2004 Rs. 100 Million Debt Syndication June 2004 Rs. 200 Million Debt Syndication Mortgage Backed Bridge Financing Commercial Paper Debt Syndication Orient Petroleum Inc Rs. 1 Billion Sept 2003 First Oil & Gas Securitization Company Securitization Orient Petroleum Inc April 2005 Rs. 1.2 Billion Naimat Basal oil & Gas Securitization Company Securitization PILCORP Sept 2002 Rs. 100 Million First Securitization Trust Company Lease Receivables Securitization ORIX Securitization Transactions Completed 9

11. Thank You! Thank You!