strictly private & confidential sukuk : a viable funding option high-level workshop on sukuk...
TRANSCRIPT
Strictly Private & Confidential
Sukuk : A Viable Funding Option
HIGH-LEVEL WORKSHOP ON SUKUKMoscow, Russia
15-17 December 2014
Presented by:Arshad Ismail
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
Introduction to Islamic Capital Markets
• 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
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 CONTRACTSPARTNERSHIP CONTRACTS
SukukPART I : OVERVIEW
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:
Features Sukuk Conventional 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
Form Based on trade transaction, represented by sale, lease, investment or joint venture contracts
Based on model of borrowing/lending
8
What are Sukuk? (Cont’d)
Features Sukuk Conventional Bonds
Utilisation of Proceeds
Should not contradict Shariah No restriction
Asset requirement
Yes Typically 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
Features Sukuk Conventional 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)
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
SukukPART II : DEVELOPING THE SUKUK MARKET
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 MarketMaking 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:
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
SukukPART III : STRUCTURING ANALYSIS
Parameters Example
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
Execution process: Typical timeline is approximately 12 - 16 weeks
Weeks
1 2 3 4 5 6 7 8 9 10
11
12
13
14
15
16
A
B
C
D
E
G
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
16
Structuring Sukuk
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 TransactionsIndicative Upfront Fees Indicative Amount (USD)
Arranger/Manager/Bookrunners Fees Depending 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 Fee 150,000 – 200,000
Shariah Advisory Fee 25,000
Listing Agent Fee 10,000
Fiscal Agent Fee 30,000
SPV’s Establishment Expenses Depending 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 Fees Indicative Amount (USD)Fiscal Agent Fee 30,000Rating Surveillance Fee 60,000SPV Corporate Services Expenses Depending on the jurisdictionsTOTAL (USD) 90,000
17
Structuring Sukuk
Note: For Islamic MTN programme size of up to MYR1.0 billion in nominal value, 1st issue in 2tranches
Indicative Fees and Expenses for MYR Bonds and Sukuk
Indicative Upfront FeesConventional Bonds Sukuk
Indicative Amount (MYR) Indicative Amount (MYR)
Legal Counsel Fee (Arranger) 130,000 – 180,000 200,000 – 250,000
Reporting Accountant Fee (if applicable) 100,000 – 150,000 100,000 – 150,000
Securities Commission Fee 51,000 51,000
Rating Fee 600,000 600,000
Shariah Advisory Fee N/A 75,000
Trustee Fee 10,000 10,000
Agency Fee 75,000 75,000
BNM Depository Fees 30,000 30,000
FAST Charges & RENTAS Annual Fees 1,400 1,400Miscellaneous (e.g. out-of-pocket expenses) 30,000 30,000
TOTAL (MYR) 1,027,400 - 1,127,400 1,172,400 – 1,272,400(excluding
Arranger/Manager/Bookbuilding Fees*)
Indicative Annual Recurring Fees Indicative Amount (MYR)
Agency Fees 75,000 75,000
Rating Surveillance Fees 400,000 400,000
Trustee 50,000 50,000
RENTAS Annual Fees 4,000 4,000
TOTAL (MYR) 529,000 529,000
18
Structuring Sukuk
The issuance of Sukuk is managed by the lead managers via the following modes:
Modes of Issuance
Modes of
Issuance
Bookbuilding
Bought Deal
Private Placement
19
Structuring Sukuk
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
Location Duration Format
Kuala Lumpur 1 day1-1
Meetings/Group Presentation
Singapore 1 day1-1
Meetings/Group Presentation
Hong Kong/South
Korea2 days
1-1 Meetings/Group
Presentation
Middle East (Abu Dhabi /
Dubai / Riyadh / Bahrain)
3 days1-1
Meetings/Group Presentation
Europe 2 days1-1
Meetings/Group Presentation
Kuala Lumpur
Singapore
Hong Kong
London
Middle East
Proposed Roadshow Locations Roadshow Schedule Illustration
Structuring Sukuk
21
Common Islamic Structures for Sukuk IssuancesProposed 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 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
Common Islamic Structures for Sukuk IssuancesProposed 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
SukukPART IV : COMMON SUKUK STRUCTURES
24
Purchase Assets
Declare Trust & Issue Sukuk Ijarah
Rental
Sale Agreement
Lease Assets
Asset Purchase Price
Company(Lessee/ Obligor/
Servicing Agent)
2
3
6
5
2
4Purchase Undertaking
5 Servicing Agency Agreement
Exercise Price6
Sukukholders
SPV (Trustee)
1
1
Proceeds
24
Sukuk Ijarah (Lease)
2525
Sukuk Ijarah (Lease)Case Study: Government of UK GBP200million Certificates
This structure diagram was extracted from the prospectus dated 30 June 2014
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
Exercise Price
5(i)28
8
1(a)
1(b)
1(b)
76
3
45(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
Sukuk Wakalah (Agency)Case Study: Government of Malaysia USD2,000million Certificates
This structure diagram was extracted from the prospectus dated 28 June 2011.
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 Agreemen
tIncentive
Fee
Deferred Sale Price
Sale of Commodities
Purchase of Commoditie
sPurchase Price
Purchase of Tangible
Assets and Non-Tangible
Assets
ExercisePrice
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 Movement
sNon-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.
Sukukholdersrepresentedby Trustee
Company
(as Purchaser/
Issuer)
Company as Purchase Agent on behalf of
Sukukholders
Bursa Suq Al-Sila’
Commodity Buyer
Commodity
Suppliers
4
4
Sukuk Proceeds
Issue Sukuk
1
Agency Agreement
Sale of Commodities
5
7
Sale Price = Purchase Price + profit
margin
2
Purchase Order with Undertaking
to Purchase
Commodity Trading Participan
t (CTP)
6
6
Selling Price = Sukuk
Proceeds
Sale of Commodities on spot
3
Purchase Price = Sukuk
Proceeds
Purchase Commodities on spot
3
2929
Sukuk Murabahah (Cost Plus Mark-up Sale)
SukukPART V : GLOBAL MARKET TRENDS
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 billion1 as at 3Q 2014.
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)
18.7616.00
36.69
46.45
43.03
36.84
0
50
100
150
200
250
300
350
400
450
-
5
10
15
20
25
30
35
40
45
50
2009 2010 2011 2012 2013 3Q 2014
Total Amount Issued (USD Bil) Number of IssuesUSD Bil
4,295.0
3,494.5 3,545.43,823.1 3,643.8
3,082.0
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2009 2010 2011 2012 2013 3Q 2014
Total Amount Issued (USD Bil) Number of IssuesUSD Bil
USD 3,082 bln
USD 37 bln
31
Global Sukuk Market – Current State
32
Government and financial sectors dominated the primary global Sukuk market in 2014.
38.5%
36.2%
14.7%4.1%
3.6% 1.2%
0.7% 0.6%
0.2% 0.2% GovernmentFinancialUtilitiesIndustrialsMaterialsCommunicationsHealth CareConsumer StaplesConsumer DiscretionaryEnergy
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
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
Issuer
Amount Outstandi
ng (GBP mil)
Coupon (%)
Issue Date
Maturity Date
Remaining Tenure (years)
Yield to
Maturity (%)
PriceIslamic
Structure
United Kingdom Gilt (1¾% TREASURY GILT 2019 )
30,212.43 1.75 22 Nov 2013
22 July 2019
4.62 1.345 101.81 N/A
HM Treasury UK Sovereign Sukuk Plc
200.00 2.036 2 July 201422 July 2019
4.62 1.304 103.27Ijarah (Head Lease and Sub Lease)
Pricing Analysis – Government of UK
Source: Bloomberg – Historical Prices (as of 8 Dec)
1-Ju
l-14
11-Ju
l-14
21-Ju
l-14
31-Ju
l-14
10-A
ug-1
4
20-A
ug-1
4
30-A
ug-1
4
9-Se
p-14
19-S
ep-1
4
29-S
ep-1
4
9-Oct
-14
19-O
ct-1
4
29-O
ct-1
4
8-Nov
-14
18-N
ov-1
4
28-N
ov-1
4
8-Dec
-14
0
0.5
1
1.5
2
2.5
UK 1 3/4UK Sukuk
• 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
8,434
1,345
10,481
7,800
29,782
23,459
36,22433,115
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2Q13 3Q13 4Q13 1Q14
USD mil MENA Global
12,738
8,881
12,210
0102030405060708090100
5,000
10,000
15,000
Apr-14 May-14 Jun-14
USD mil Capital Raised # of Deals
Global Sukuk Issues by Issuer Type (in USD mil)
Snapshot of the Global Sukuk MarketMalaysia continues to lead the world in sukuk, with over 63% market share in 2Q14
Global Sukuk Issuance Yearly Comparison
Global Sukuk Issues 2Q14 vs. 2Q13Global Sukuk Issues by Size & No of
Deals
Global Sukuk Trends by Quarter
13,212 14,283 14,621 16,454
33,054
54,797
44,75950,821
0
20,000
40,000
60,000
80,000
2011 2012 2013 2014
USD mil Other MENA
8,434 8,653
21,34825,177
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2Q13 2Q14
USD milOthers MENA
22,4404,953
3,3501,601
502430350
161403
0 5,000 10,000 15,000 20,000 25,000
MalaysiaSaudi Arabia
UAETurkey
PakistanIndonesia
BahrainBrunei
LuxembourgGambia
USD mil
19,5746,376
2,6882,319
1,339640
320172141107786313
0 5,000 10,000 15,000 20,000 25,000
Gov't InstitutionsFinancial Services
Power and UtilitiesReal Estate
ConstructionTelecommunications
Oil and GasHealthcare
RetailServices
TransportConglomerates
Agriculture
USD mil
8,990
2,053
502
429
350
161
3
0 5,000 10,000 15,000 20,000
MYR
USD
SAR
PKR
IDR
BHD
BND
GMD
USD mil
Source: Zawya 2Q14 Report
16,4797,070
3,3243,040
2,053913
50035019494
0 5,000 10,000 15,000 20,000
MurabahaIjarah
Bai Bithaman AjilWakala
Modarabah-MurabahaMusharakahModarabah
Wakala-MurabahaAl SalaamBAIEINAH
USD mil
Sovereign20,074
59%
Corporate10,944
33%
Quasi Sovereign
2,8128%
USD milGlobal Sukuk Issues by Structure in
2Q14Global Sukuk Issues by Currency in
2Q14Global Sukuk Issues by Country in
2Q14
Global Sukuk Issues by Sector in 2Q14
SukukPART VI : MALAYSIA AS CROSS BORDER SUKUK MARKETPLACE
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Last Issue Date
Issuer CountryIndustr
y
Amount Issued (MYR)
ObligorRatin
gMatur
ity Coupon (%)
5/8/2014Golden Assets International Finance Ltd
Singapore Financials375,000,000.0
0 Golden Assets
International FinanceAA2s 5Y 5.35
30/6/2014TF Varlik
Kiralama Anonim Sirketi
Turkey Financials800,000,000.0
0Turkiye Finans Katilim
Bankasi ASAA3 5Y 6.00
18/3/2014Bumitama Agri
LtdIndonesia
Consumer Staples
500,000,000.00 Bumitama Agri Ltd AA3 5Y 5.25
8/11/2013 ABHC Sukuk Bhd Saudi ArabiaConsumer Discretiona
ry
120,000,000.00
Al Bayan Group Holding Company
AA3s 1Y 4.2
31/7/2013Tadamun
Services BhdSupranationa
lFinancials
300,000,000.00
Islamic Development Bank
AAA 5Y 3.6
6/6/2013First Resources
LtdSingapore
Consumer Staples
600,000,000.00 First Resources Ltd AA2 7Y 4.35
30/4/2013Bahrain
Mumtalakat Holding Co BSC
Bahrain Financials150,000,000.0
0 Bahrain Mumtalakat
Holding Co BSCAA2 5Y 5.35
31/1/2013 Noble Group Ltd Hong Kong Energy300,000,000.0
0 Noble Group Ltd AA2 3Y 4.3
10/12/2012
National Bank of Abu Dhabi PJSC
Arab Emirates
Financials500,000,000.0
0 National Bank of Abu
Dhabi PJSCAAA 15Y 4.75
3/8/2012Development
Bank of Kazakhstan JSC
Kazakhstan Financials240,000,000.0
0 Development Bank of
Kazakhstan JSCAA2 5Y 5.5
18/6/2012Gulf Investment
Corp GSCKuwait Financials
325,000,000.00
Gulf Investment Corp GSC
AAA10Y to
15Y5.1 to 5.3
5/3/2012Abu Dhabi
National Energy Co
Arab Emirates
Utilities650,000,000.0
0 Abu Dhabi Water & Electricity Author
AA1 10Y 4.65
Malaysia : Cross Border Sukuk MarketplaceMalaysia has seen a number of cross-border MYR Sukuk transactions including issuers from neighbouring countries
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1 - 3 years12%
4 - 5 years68%
6 - 9 years5%
10 years10%
11 - 15 years5%
Maturity1 - 3 years
4 - 5 years
6 - 9 years
10 years
11 - 15 years
AAA36%
AA15%
AA225%
AA2s21%
AA310%
AA3s3%
RatingsAAA
AA1
AA2
AA2s
AA3
AA3s
Note: Charts are based on issuances by 12 foreign issuers (MYR 12.72Billion; USD4.04 Billion Equivalent) Source: Bloomberg (as of 26th August 2014)
UAE17%
Bahrain4%
Hong Kong7%
Indonesia4%
Kuwait13%
Kazakhstan2%
Turkey6%
Saudi Arabia3%
Singapore33%
Supranational11%
Country
Malaysia : Cross Border Sukuk MarketplaceMalaysia has seen a number of cross-border MYR Sukuk transactions including issuers from neighbouring countries
39
Indicative Rating MappingInternational Rating Agencies Malaysian Rating Agencies
S&P Moody’s Fitch RAM MARCInvestment Grade
AAA Aaa AAAAA+ Aa1 AA+AA Aa2 AAAA- Aa3 AA-A+ A1 A+A A2 A Investment GradeA- A3 A- AAA AAA
BBB+ Baa1 BBB+ AA1 AA+BBB Baa2 BBB AA2 AABBB- Baa3 BBB- AA3 AA-
Speculative Grade A1 A+BB+ Ba1 BB+ A2 ABB Ba2 BB A3 A-BB- Ba3 BB- BBB1 BBB+
B1 B BBB2 BBB B2 BBB3 BBB- B3 Speculative Grade
BB1 BB+BB2 BBBB3 BB-B1 B+B2 BB3 B-C1
CC2C3D D
Long Term Rating Scale
Malaysia : Cross Border Sukuk MarketplaceMalaysia has seen a number of cross-border MYR Sukuk transactions including issuers from neighbouring countries
Selected Sukuk Transaction Highlights
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Maybank Sales
contribution, 3
Others, 6
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 2011USD2.0 billion
Transaction Overview
Transaction Highlights
Issuer Wakala Global Sukuk Berhad
Facility Sukuk
SizeSeries 1: USD1.2 billionSeries 2: USD0.8 billion
TenureSeries 1: 5 yearsSeries 2: 10 years
Coupon
Series 1: 2.991% (UST + 145 bps)Series 2: 4.646% (UST + 165 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 (%)
Middle East, 29%
Malaysia, 27%
Rest of Asia, 22%
Europe , 14%
US, 8%
USD Sovereign Sukuk: Wakala Global Sukuk Berhad’s USD2.0 billion Islamic Trust CertificatesFirst global sovereign USD Sukuk structured under the principle of Wakala
42
Overview on Issuer
Transaction Highlights
IssuerPerusahaan Penerbit SBSN Indonesia I
Facility Trust Certificates
Size USD650 million
Tenure 5 years
Issue date 4 March 2009
Maturity 4 March 2014
RatingMoody’s: Ba3; S&P: BB-; Fitch: BB
Issue Price 100
Regulatory Format
Reg S / 144A
Maybank KE’s Role
International 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
Issuer FormatAmount Issued
(USD)Amount Outstanding
(USD)Coupon
(%)Islamic
PrincipleIssue Date Maturity
Rating (F/M/S&P)
PERUSAHAAN PENER 144A 650,000,000 650,000,000 8.80 Ijarah 4/23/2009 4/23/2014 BBB-/Ba1/BB+PERUSAHAAN PENER Reg S 650,000,000 650,000,000 8.80 Ijarah 4/23/2009 4/23/2014 BBB-/Ba1/BB+
March 2009USD650 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 CertificatesThe Government of Indonesia’s first ever sovereign Sukuk issuance
USD Government-Linked Corporate Sukuk: Sime Darby’s Inaugural USD SukukDiversification 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.
IssuerSime Darby Global Berhad (wholly-owned subsidiary of Sime Darby)
Facility Multi-Currency Sukuk Programme
Programme Size USD1.5 billion in nominal value
Format Reg S
Structure Islamic (Ijarah)
Issuance Size and Tenure
5 years:: USD400 million10 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 2013USD800 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
USD Government-Linked Corporate Sukuk: Exim Sukuk Malaysia Berhad’s USD1.0 billion Multi-Currency Sukuk Issuance ProgrammeThe world’s first EXIM bank to issue USD sukuk
February 2014USD300 million
EXIM SUKUK MALAYSIA BERHAD
Joint Principal Adviser, Joint Lead Arranger, Joint
Lead Manager, Joint Bookrunner
Sukuk
Transaction Overview
Transaction Highlights
Issuer EXIM Sukuk Malaysia Berhad
FacilityMulticurrency Sukuk Issuance Programme
Programme Size
USD1.0 billion
Programme Tenure
Perpetual
Issuance Size USD300 million
Issuance Tenure
5 years
Issuance Date 19 February 2014
RatingA- by Fitch Ratings and A3 by Moody's
Mode of Issuance
Bookbuilding
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
19%
65%
16%
Middle East
Asia
Europe
USD Sukuk: IDB Trust Services Limited’s USD1.5 billion Islamic Trust Certificate IssuanceStrong demand from investors worldwide and aggressive pricing
Transaction Overview
The Islamic Development Bank (“IsDB”) is a supranational developmental bank, established in 1975. 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.
Issuer IDB Trust Services Limited
Guarantor The Islamic Development Bank
FacilityTrust Certificate Issuance Programme
Programme Size USD10.0 billion
Issue Size USD1.5 billion in nominal value
Profit Rate 2.11%
Issue Date 25 September 2014
Tenure 5 years
Programme and Issue Ratings
AAA, AAA, Aaa by S&P, Fitch and Moody’s, respectively
Format Reg S
ListingLondon Stock Exchange, Bursa Malaysia (under the Exempt Regime) and NASDAQ Dubai
Maybank KE’s Role
Joint Lead Manager and Joint Bookrunner
Clearing SystemsEuroclear 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 2014USD1.5 billion
IDB TRUST SERVICES LIMITED
Joint Lead Manager, Joint Bookrunner
Islamic Trust Certificates
Investor Type
Financial Institutions
34%
Fund Management
12%Others
11%
Central Banks43%
Geographical Breakdown
Europe14%
Asia27%
MENA59%
Distribution Analysis
