STRUCTURE OF CORPORATE SUKUK CASE OF INDONESIABandar Seri Begawan, 30th Nov – 4th Dec 2015

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The Structure of Corporate SukuksCase of Indonesia

Agenda

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I. Basic Fiqh-Structures of Sukuks

II. Types of Corporate Sukuks

III. Asset-Backed and Asset-Based Sukuks

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Basic Sukuk Fiqh-Structure

Sukuk Fiqh-Structure with WAKIL

Sukuk Fiqh-Structure with SPV-Entity (Special Purpose Vehicle)

Sukuk Fiqh-Structures

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1. Owner Issues Sukuk and leases Asset to Investor

2. Investor gives Liquidity

1. Owner Issues Sukuk and leases Asset to Investor

2. Investor gives Liquidity

3. Sublease3. Sublease 4. Rental Fee

4. Rental Fee

Issuer is Owner of Existing Asset

Basic Fiqh-Structures of Sukuks

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4. Rental Fee

4. Rental Fee

Issuer is Owner of Existing

Asset

3. Instructs Owner as Wakil

3. Instructs Owner as Wakil

4. Sublease4. Sublease

3. Sublease3. Sublease

5. Rental Fee5. Rental Fee

1. Owner Issues Sukuk and leases Asset to investor

2. Investor gives Liquidity

1. Owner Issues Sukuk and leases Asset to investor

2. Investor gives Liquidity

Basic Fiqh-Structures of Sukuks

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4. Rental Fee

4. Rental Fee

Existing Asset

ISSUERSPV

(Special PurposeVehicle)

ISSUERSPV

(Special PurposeVehicle)

3. SPV Issue Sukuk4. Investor instruct SPV

3. SPV Issue Sukuk4. Investor instruct SPV

5. Sublease5. Sublease

3. Sublease3. Sublease

6. Rental Fee6. Rental Fee1. SPV buys Asset2. Owner leases

Rights over Usufructs of Asset to SPV

1. SPV buys Asset2. Owner leases

Rights over Usufructs of Asset to SPV

1. Owner Issues Sukuk and leases asset to investor

2. Investor gives Liquidity

1. Owner Issues Sukuk and leases asset to investor

2. Investor gives Liquidity

Basic Fiqh-Structures of Sukuks

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Overview of Different Typesof Corporate Sukuks

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Ijarah Sukuks of Ownership inLeased Asset or Tangible Asset

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Ijarah Object

3/1 Sukuk-Ijarah: Tangible Assetand Issuer is Owner and Act as Wakil

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Ijarah Object

3/1 Sukuk-Ijarah: Tangible Assetand Issuer is Lessee

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Overview of Different Typesof Corporate Sukuks

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• There are 4 types of Usufructs Certificates, differing by the underlying object:

Owner of Existing Asset

Owner of Usufruct of Existing Asset (Lessee)

3/2 Ijarah Sukuks of Usufructs of Assets

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Ijarah Object

3/2/1/1 Sukuk-Ijarah: Usufructs of ExistingAsset is Owned by Issuer (act as Wakil)

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No. Name of Sukuk

Name of Publisher

Managing Underwriter

1.Sukuk Ijarah PLN V Tahun 2010

PT PLN (Persero)

PT Danareksa Sekuritas PT Mandiri Sekuritas PT Trimegah Securities Tbk

2. Sukuk Ijarah Berlian Laju Tanker Tahun 2007

PT Berlian Laju tanker Tbk.

PT Danatama Makmur PT Andalan Artha

Advisindo Sekuritas PT HSBC Securities

Indonesia

3.Sukuk Ijarah Indosat IV Tahun 2009

PT Indosat Tbk.

PT Danareksa Sekuritas DBS Vickers Securities PT Mandiri Sekuritas

4.Sukuk Ijarah Metrodata Electronics I Tahun 2008

PT Metrodata Electronics

PT Andalan Artha Advisindo Sekuritas

Case Indonesia: Issuers Use 3/2/1/1Sukuk-Ijarah: Issuer is Owner of Usufruct

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Ijarah Object

3/2/1/2 Sukuk-Ijarah:Issuer is Lessee of Usufruct

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No. Name of Sukuk Name of Publisher Managing Underwriter

1. OS Ijarah I Matahari Putra Prima Tahun 2004

PT Matahari Putra Prima Tbk.

PT Mandiri Sekuritas PT Deutsche Securities

Indonesia

2. Sukuk Ijarah Matahari Putra Prima II Tahun 2009

PT Matahari Putra Prima Tbk.

PT HSBC Securities Indonesia

PT IndoPremier Securities

PT Ciptadana Securities (Terafiliasi)

Case Indonesia: Issuers Use 3/2/1/2Sukuk-Ijarah: Usufruct of Existing Asset

is Leased by Issuer (act as Wakil)

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Ijarah Object

3/2/2 Sukuk-Ijarah: Usufruct of Future Assetis Owned by Issuer (act as Waki)

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No. Name of Sukuk Name of Publisher Managing Underwriter

1.Obligasi Syariah Ijarah Indorent I Tahun 2004

PT CSM Corporatama PT Indopremier Securities

Case Indonesia: Issuers Use 3/2/2Sukuk-Ijarah: Usufruct of Future Asset

is Owned by Issuer (act as Waki)

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Ijarah Object

3/2/3 Sukuk-Ijarah: Service of SpecifiedParty Leased by Issuer (act as Wakil)

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No. Name of Sukuk Name of Publisher Managing Underwriter

1. Sukuk Ijarah Salim Ivomas Pratama I Tahun 2009

PT Salim Ivomas Pratama PT Danatama Securities PT Makinta Sekuritas

2. Sukuk Ijarah Pupuk Kaltim I Tahun 2009

PT Pupuk Kalimantan Timur (Persero)

PT Danareksa Sekuritas

Case Indonesia: Issuers Use 3/2/3Sukuk-Ijarah: Service of Specified Party

Leased by Issuer (Wakil)

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Ijarah Object

3/2/3 Sukuk-Ijarah: Service of SpecifiedParty is Owned by Issuer (act as Wakil)

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No. Name of Sukuk Name of Publisher Managing Underwriter

1. Sukuk Ijarah Aneka Gas Industri I Tahun 2008

PT Aneka Gas Industri PT Andalan Artha Advisindo

Sekuritas

Case Indonesia: Issuers Use 3/2/3Sukuk-Ijarah: Service of Specified Party

is Owned by Issuer (act as Wakil)

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Ijarah Object

3/2/4 Sukuk-Ijarah: Future ServiceLeased by Issuer (act as Wakil)

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Overview of Different Typesof Corporate Sukuks

These are certificates of equal value issued with the aim of using the mobilised funds for establishing a new project, developing an existing project or financing a business activity on the basis of any of partnership contracts so that the certificate holders become the owners of the project or the assets of the activity as per their respective shares, with the musharaka certificates being managed on the basis of participation or mudaraba or an investment agency.

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There are 3 types of Musharaka Certificates:

3/6 Musharaka CertificatesJoint Venture, Profit and Loss Sharing

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1

2

3

4

5

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Fatwa Dewan Syariah Nasional No. 15/DSN-MUI/IX/2000 “Incrome distribution Principles for Islamic Financial Institutions”

3/6/2 Mudaraba Sukuk

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1

Activity

Revenue

3/6/2 Sukuk-Mudaraba:Total Sharia Compliant Gross-Profit

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No. Name of Sukuk Name of Publisher Managing Underwriter

1. Sukuk Mudharabah I Mayora Indah Tahun 2008

PT Mayora Indah Tbk. PT Danareksa Sekuritas

13/6/2 Sukuk-Mudaraba:

Total Sharia Compliant Gross-Profit

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2

Revenue

Activity

3/6/2 Sukuk-Mudaraba:Total Sharia Compliant Revenue

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No. Name of Sukuk Name of Publisher Managing Underwriter

1. Obligasi Syariah Mudharabah Ciliandra Perkasa Tahun 2003

PT Ciliandra Perkasa

PT Indopremier Securities

Period of calculation of income that has been distributed is obtained during a quarterly basis.Portion (ratio) for the results to investors is a single ratio, i.e. 17.70% of the value of sales contracts in a single calculation period (quarterly) business activities by the subsidiary.Income that has been distributed rather than direct the Company's income, but income from subsidiaries.

23/6/2 Sukuk-Mudaraba:

Total Sharia Compliant Revenue

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3

Activity

Revenue

3/6/2 Sukuk-Mudaraba:Sharia Unit using Gross Profit Sharing

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Activity

Revenue

43/6/2 Sukuk-Mudaraba:

Sharia Unit using Revenue Sharing

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No. Name of SukukName of

PublisherManaging Underwriter

1.  Sukuk Mudharabah I Bank Nagari Tahun 2010

PT Bank Pembangunan Daerah Sumatera Barat

PT Trimegah Securities Tbk.

PT Andalan Artha Advisindo Sekuritas

2.  Obligasi Syariah Mudharabah Bank Bukopin Tahun 2003

PT Bank Bukopin PT Andalan Artha Advisindo Sekuritas 

43/6/2 Sukuk-Mudaraba:

Sharia Unit using Revenue Sharing

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Activity

Revenue

53/6/2 Sukuk-Mudaraba:

Gross Profit from Specific Project

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No.Name

of Sukuk

Name of Publisher

Managing Underwriter

Notes

1.   Obligasi Syariah Mudharabah PTPN VII Tahun 2004

PT Perkebunan Negara VII (Persero)

PT Andalan Artha Advisindo Sek.

PT Mandiri Sekuritas (afiliasi)

Portion (ratio) for the results to be multi Investors ratio (decreased),  namely 2.64% and 3.61% in unity ca. 2.01% and 2.97% the fifth year of sales revenue minus the costs of commodities;Calculation and the magnitude of the percentage of the profit sharing ratio based /refers to the sales revenue is used as underlying commodity in the issuance of sukuk.

53/6/2 Sukuk-Mudaraba:

Gross Profit from Specific Project

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Activity

Revenue

63/6/2 Sukuk-Mudaraba:

Revenue from Specific Project

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No. Name of Sukuk Name of Publisher Managing Underwriter

1

Obligasi Syariah Mudharabah Bank

Syariah Mandiri Tahun 2003

PT Bank Syariah Mandiri

PT Andalan Artha Advisindo Sekuritas

PT Mandiri Sekuritas (afiliasi)

2Sukuk Subordinasi Mudharabah Bank

Muamalat Tahun 2008

PT Bank Syariah Muamalat Indonesia Tbk.

PT Andalan Artha Advisindo Sekuritas

PT Bahana Securities PT CIMB-GK Securities

Indonesia PT Danareksa Sekuritas

3Sukuk Mudharabah

Bank Sulselbar I Tahun 2011

PT BPD Sulawesi Barat PT Danareksa Sekuritas PT Andalan Artha Advisindo

Sekuritas

63/6/2 Sukuk-Mudaraba:

Revenue from Specific Project

Sukuk Transactions

• Assets are sold from the obligor to the issuer SPV (True Sale)

• Legal title is transferred to the Sukuk holders

• Collateralized Asset

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• Ownership is with no rights of a title of the asset (beneficial ownership)

• Asset stays on originators balance sheet

• Asset is not collateralized

Asset-Backed and Asset-Based Sukuks

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Characteristic Asset-Backed Asset-Based

Asset

Benefits

• Owned by Sukuk holders (Legal title to the asset)

• No claw-back of assets by originator

• Beneficial ownership• Can remain on the books of obligator• No detailed due diligence required

Risks

• No recourse for unpaid investments• Asset value for realization only upon

returning or default• Asset transfer time intensive• Detailed due diligence required

• No direct recourse to underlying assets• Unsecured (unless there is a security interest)• Restrictions of disposal of assets rights

prompt sharia concerns

Credit Quality

Benefits

• Credit-rating based on performance of assets• Preferential position over assets to

unsecured creditors• Enjoy upside of revenue or realization of

underlying asset

• Credit-rating based on the corporate credit of the originator

• Holder only have credit risk of obligator• True market value of asset is irrelevant

Risks• Holder bears asset, market and credit risks• Losses due to impairment of asset value

• No upside-benefits once liabilities are paid off• Pure debt instrument• No difference to any unsecured debt creditors

Overall • Preferred from sharia perspectiveFor detailed version see appendix. Source: Sukuk Report 2011, International Islamic Financial Market, 2nd Edition

Overview aboutthe Characteristics of Asset-Backed

and Asset-Based Sukuk Transactions

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Appendix

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Definitions of different Types of Investment Sukuks

These are certificates of equal value issued either by the owner of a leased asset or a tangible asset to be leased by promise, or they are issued by a financial intermediary acting on behalf of the owner with the aim of selling the asset and recovering its value through subscription so that the holders of the certificates become owner of the assets.

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3/1 Certificates of Ownershipin Leased Assets

There are two types:

3/2/1/1 Certificates of equal value issued by the owner of an existing asset either on his own or through a financial intermediary, with the aim of leasing the asset and receiving

the rental from the revenue of subscription so that the usufruct of the assets passes into the ownership of the holders of the

certificates.

3/2/1/2 Certificates of equal value issued by the owner of the usufruct of an existing asset (lessee), either on his own or through a financial intermediary, with the aim of subleasing the usufruct and receiving the rental from the revenue of the subscription so that the holders of the certificates become owners of the usufruct asset.

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3/2/1 Certificates of ownershipof Usufructs of Existing Assets

These are certificates of equal value issued for the purpose of leasing out tangible future assets and for collecting the rental from the subscription revenue so that the usufruct of the described future asset passes into the ownership of the holders of the certificate.

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3/2/2 Certificates of Ownershipof Usufructs of Described Future Assets

These are certificates of equal value issued for the purpose of providing services through a specified provider (such as educational benefits in a nominated univesity) and obtaining the service charges in the form of a subscription income so that the holders of the certificates become owners of these services.

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3/2/3 Certificates of Ownershipof Service of a Specified Party

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These are certificates of equal value issued for the purpose of providing future services through described provider (such as educational benefits from an university without naming the educational institution) and obtaining the fee in the form of subscription income so that the holders of the certificates become owners of the services.

3/2/4 Certificates of Ownership ofService of a Described Future Service

These are certificates of equal value issued for the purpose of mobilising salam capital so that the goods to be delivered on the basis of salam come to be owned by the certificate holders.

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3/3 Salam Certificates

These are certificates of equal value issued with the aim of mobilising funds to be employed for the production of goods so that the goods produced come to be owned by the certificate holders.

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3/4 Istisna’ Certificates

These are certificates of equal value issued for the purpose of financing the purchase of goods through murabaha so that the certificate holders become the owners of the Murabaha commodity

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3/5 Murabaha CertificatesTrust Financing, Profit Sharing

These are certificates of equal value issued with the aim of using the mobilised funds for establishing a new project, developing an existing project or financing a business activity on the basis of any of partnership contracts so that the certificate holders become the owners of the project or the assets of the activity as per their respective shares, with the musharaka certificates being managed on the basis of participation or mudaraba or an investment agency.

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There are 3 types of Musharaka Certificates:

3/6 Musharaka CertificatesJoint Venture, Profit and Loss Sharing

3/6/1 Participation certificates: These are certificates representing projects or activities managed on the basis of Musharaka by appointing one of the partners or another person to manage the operation.

3/6/2 Mudaraba Sukuk: These certificates that represent projects or activities managed on the basis of Mudaraba by appointing one of the partners or a another person person as the mudarib for the management of the operation.

3/6/3 Investment Agency Sukuk: These are certificates that represent projects or activities managed on the basis of an investment agency by appointing an agent to manage the operation on behalf of the certificate holders. 52

3/6 Musharaka CertificatesJoint Venture, Profit and Loss Sharing

These are certificates of equal value issued for the purpose of using the funds mobilised through subscription for financing a project on the basis of Muzara’a so that the certificate holders become entitled to a share in the crop according to the terms of the agreement.

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3/7 Muzara’a (Sharecropping) Certificates

These are certificates of equal value issued for the purpose of employing the funds mobilised through subscription for the irrigation of fruit bearing trees, spending on them and caring for them on the basis of a Musaqa contract so that the certificate holders become entitled to a share in the crop as per agreement.

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3/8 Musaqa (Irrigation) Certificates

These are certificates of equal value issued on the basis of a Mugharasa contract for the purpose of employing the funds for planting trees and undertaking the work and expenses required by such plantation so that the certificate holders become entitled to a share in the land and the plantation.

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3/9 Mugharasa (Agricultural) Certificates

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Sukuk-Type Benefits

Asset-Backed • Asset owned by Sukuk holders• Sukuk holders can enjoy a share in the upside of any revenue and realization from the underlying asset• Recourse to the Sukuk assets• Preferential position of Sukuk holders over the assets compare to unsecure creditors• Sukuk credit rating based on the performance of those pool of assets, not the corporate credit-worthiness of

the originator• Assets ring-fenced from originator‘s financial plight; no claw-back of the assets• For banks, capital adequacy requirements reduced following the true sale of the assets• Preferred over asset-based from a sharia perspective

Asset-Based • Sukuk holders have recourse to the originator via a purchase undertaking or the issuer via a guarantee, not restricted to the asset value

• Take on only credit risk of obligor• Obligor can raise unsecured funding without tying up assets• No legal or financial due diligence required on asset transfer• Assets can remain on the books of the obligor• Purchase undertaking takes away risk of loss to sukuk holders• Sukuk credit rating based on the corporate credit of the originator, not the performance of the underlying pool

of assets• Sukuk holders effectively enjoy guaranteed capital and periodic returns, depending on credit risk of

obligor/originator• True market value of the underlying assets is irrelevant for sukuk holders.

Source: Sukuk Report 2011, International Islamic Financial Market, 2nd Edition

Asset-Backed and Asset-Based Sukuk: Benefits

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Sukuk-Type Risks

Asset-Backed • Can only look to asset value for realization upon returning the capital or upon default• No recourse to the riginator for unpaid investments if assets insufficient to meet realization on sale• Sukuk holders will bear any losses due to impairment of the asset values• Detailed legal and financial due diligence required on te asset transfer from obligor• Issuers must be ready to part with their assets • Requires compliance with true sale, bankruptcy remoteness and enforceability securitization rules• Asset transfer may require lengthy registration • Regulatory framework for true sales not permitted in all juristications• Insolvency and bankruptcy laws not developed in many juristications

Asset-Based • Sukuk holders are simply unsecured (unless there is a security interest in the assets)• Sukuk holders do not have direct recourse to the underlying assets• Even if the assets are secured, Sukuk holders can not benefit from any upside in the sale of the assets

once liabilities paid off• Restrictions on the right of disposal of the assets, prompt Sharia concerns• Purchase Undertaking effectively turns sukuk into a pure debt instrument• Purchase Undertaking ranks parri passu with other unsecured creditors on theoriginator‘s unsecured

obligations• Sukuk holders are no different from any unsecured creditors of the originator• Any security granted by obligor to the issuer not necessarily related to the underlying assets

Source: Sukuk Report 2011, International Islamic Financial Market, 2nd Edition

Asset-Backed and Asset-Based Sukuk: Negatives