Review on several Sukuk
products issued worldwide:
Towards Globally Accepted Sukuk
Ijlal A. Alvi
CONTENTS
Current trends and developments in Sukuk – a market
overview
Total Sukuk Issuance
Global Sukuk Issuance
Sukuks in the Pipeline
Corporate Sukuk
Sukuk Funds
Innovative Structures and Trends
Utility Companies issuing Sukuk
Traits of a globally accepted Sukuk / Model that can be
adopted
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK
1
CURRENT TRENDS AND DEVELOPMENTS
IN SUKUK – A MARKET OVERVIEW
Global and local sovereign/corporate Sukuk market currently
exceeds an aggregate issuance value of approximately US$ 47
billion to date and is expected to surpass the US$150 billion mark
before the end of this decade
Up till November 2006, US$17.3 billion in Sukuks have been issued,
up 46% from the whole of last year
Malaysian Sukuk issuance to date stands at US$32 billion
approximately
GCC issuance of Sukuk accounts for US$13 billion of the global
total, with a growth rate of around 45% a year since 2001
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK
CURRENT TRENDS AND DEVELOPMENTS
IN SUKUK – A MARKET OVERVIEW
UNITED KINGDOM
Over the past two years London based financial institutions have
arranged more than a dozen Sukuk issuances on behalf of Middle
Eastern clients, all of them structured in offshore jurisdictions
London Stock Exchange listed its first sukuk – the US$ 200 million
offering by National Central Cooling Company (Tabreed) PJSC. This
should pave the way for further Sukuk listings on the regulated
European markets. Sukuks have previously been listed in
Luxembourg and Dublin
Britain is set to introduce new regulatory framework and tax reforms
to support the domestic issuance of Sukuk by next year
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK
2
CURRENT TRENDS AND DEVELOPMENTS
IN SUKUK – A MARKET OVERVIEW
UNITED STATES
A US company entered the Sukuk market for the first time with East
Cameron Gas Company’s US$ 166 million issue in July to
consolidate assets and fund development of gas fields. The Sukuk
was also the first Islamic bond using hydrocarbon reserves as an
asset class
CHINA
The Kuwait Finance House is set to launch the first Islamic bond
issue in China. The US$ 200 million Sukuk for a Chinese private
sector corporate firm will be used to fund a power plant project
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK
CURRENT TRENDS AND DEVELOPMENTS
IN SUKUK – A MARKET OVERVIEW
JAPAN
Japanese government’s Bank for International Cooperation (JBIC),
is working with Bank Negara, Malaysia’s Central Bank and private
Malaysian banks to issue a Sukuk to attract Middle Eastern liquidity.
When materialized Japan will become the first Group of Seven to
issue an Islamic bond
JBIC has assembled a board of advisors comprising of four Shariah
scholars from Saudi Arabia, Malaysia and Pakistan
Bank of Tokyo-Mitsubishi UFJ Ltd., is allying with Malaysian bank
CIMB Group Bhd., to sell financial services including Japanese
potential corporate Sukuk
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK
3
CURRENT TRENDS AND DEVELOPMENTS
IN SUKUK – A MARKET OVERVIEW
INDONESIA
Indonesia is in the midst of revising tax and other regulations to
support sovereign and corporate Islamic bond issuance. One of the
first Sukuk to come out to market could be a US$ 650 million deal
from Jakarta Monorail, aimed at easing the Indonesian capital’s
transport network. The legal framework is expected to be in place for
the first issue by the first quarter of 2007
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK
TOTAL SUKUK ISSUANCE WORLDWIDE
(AS OF NOVEMBER 2006)
50,000
47,012
45,000
Size in Million US$
40,000
35,000
30,000
25,000
20,576
20,000
15,000
11,829
10,000
5,000
0
336
780
819
2000
2001
2002
5,725
6,947
2003
2004
2005
Year
Source: IFIS
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK
4
2006
Total
issued
GLOBAL SUKUK ISSUANCE WORLDWIDE
(AS OF NOVEMBER 2006)
18,000
15,539
16,000
Size in Million US$
14,000
12,000
10,000
8,000
6,585
6,000
4,000
2,501
2,000
0
780
800
2001
2002
3,288
1,585
0
2000
2003
2004
2005
2006
Total issue d
Year
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK
TOTAL SOVEREIGN/CORPORATE SUKUK
ISSUANCE WORLDWIDE (AS OF NOV 2006)
45,000
40,523
40,000
Size in Million US$
35,000
30,000
25,000
18,782
20,000
15,000
11,122
10,000
336
0
0
2000
250 530
2001
19
800
2002
6,488
5,468
4,545
5,000
1,180
2003
1,479
2004
1,793
707
2005
2006
Year
Corporate Sukuk Issued
Sovereign Sukuk Issued
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK
5
Total
issued
GLOBAL SOVEREIGN/CORPORATE SUKUK
ISSUANCE WORLDWIDE (AS OF NOV 2006)
12,000
10,008
Size in Million US$
10,000
8,000
5,469
6,000
5,531
4,000
2,582
2,000
1,180
530
800
250
1,479
1,022
1,116
707
405
0
0
2001
2002
2003
2004
2005
2006
Total issue d
Year
Corporate Sukuk Issued
Sovereign Sukuk Issued
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK
In
2000
2001
2002
2003
2004
2005
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK
6
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TOTAL SUKUK ISSUANCEISSUANCE-COUNTRYWISE
(AS OF NOVEMBER 2006)
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Size in Million US$
GLOBAL SUKUK ISSUANCEISSUANCE-COUNTRY WISE
(AS OF NOVEMBER 2006)
2005
2006
Source: IFIS
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK
SUKUKS IN THE PIPELINE
Country
United Arab Emirates
Saudi Arabia
Approx Amount –
US $ million
24,240
2,773
Qatar
482
Bahrain
200
Kuwait
150
Malaysia
4,040
Indonesia
817
Japan
400
Brunei
300
China
200
Total
33,602
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK
7
CORPORATE SUKUK
THE SAUDI BASIC INDUSTRIES CORPORATION – SABIC
SUKUK
The transaction has achieved a number of firsts:
SABIC is the first company to take advantage of the recent changes
in the Saudi Capital Markets Law. It issued Saudi Arabia’s first
public fully tradable Sukuk, a 20-year issue of up to US$ 800 million
(largest ever corporate Sukuk issuance in the region)
The first to be admitted to CMA's Official List and to be
settled/cleared through Tadawul and is also the first to be approved
by a Shariah Committee of a Saudi Arabian Bank (SABB Amanah
Shariah Supervisory Committee)
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK
CORPORATE SUKUK
Although the Sukuk expires in 2026, making it the longest dated
Islamic bond in history, investors can redeem the bond at face value
from SABIC in five years. The unique Sukuk structure is directly
underpinned by a real business activity and provides for structured
returns satisfying the institutional need for this important Shariahbased asset class with 49% allotted to pension, mutual & other
funds, 15% to Corporates & Institutions and 36% to banks in Saudi
Arabia
It will be listed on the Saudi bourse and is a potential benchmark for
future corporate, municipal and project Sukuks in the GCC’s largest
economy. It is seen as a key step towards developing the country’s
largely equities-based financial markets
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK
8
SUKUK FUNDS
SANAD SUKUK FUND
The world’s first GCC oriented Sukuk fund that provides direct
access to Sukuk for Islamic banks, trade-finance funds, private
banks, as well as directly to individual investors
The fund will invest 75% in Sukuk and 25% in Shariah compliant
syndications in order to enhance the yield, with a primary focus on
the GCC region
An important effect of the Sanad Sukuk Fund launch, targeted to
quickly reach US$100 million or more, will be the impact on Sukuk
market activity. This may substantially increase secondary market
trading which will foster increased issuance of securities
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK
INNOVATIVE STRUCTURES AND
TRENDS
HYBRID SUKUK
Based on various demands of investors, a more diversified kind of
Sukuk, hybrid or mixed Sukuk emerged in the market. The assets
can comprise of Istisna’a, Murabaha as well as Ijara
Islamic Development Bank issued the first Hybrid Sukuk for US$
400 million. The assets comprised 66% Sukuk al-Ijara,
31%Murabaha and 3% Sukuk al-Istisna’a
The hybrid Sukuk structure represents the potential of new
structures and benefits to the investors
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK
9
INNOVATIVE STRUCTURES AND
TRENDS
CONVERTIBLE SUKUK - PCFC SUKUK
The Dubai based port operator Ports, Customs and Free Zone Corporation
(PCFC) issued the largest Sukuk to date, raising US$3.5 billion
This Sukuk-al-Musharaka structure was issued to bid for a takeover of P&O to
make PCFC one of the three largest port operators in the world
It is the first Sukuk to be convertible into equity upon an IPO. The Sukuk was
targeted in particular at Islamic investors interested in the booming IPO market
in the Middle East. Therefore PCFC structured a Sukuk which was the
equivalent of pre-IPO convertible bond
The PCFC Sukuk was significantly oversubscribed. The transaction
demonstrates the continuing demand for sukuk products and the flexibility of
sukuk, which can be adapted to meet the specific financing needs of issuers
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK
INNOVATIVE STRUCTURES AND
TRENDS
EXCHANGEABLE SUKUK - KHAZANAH SUKUK
World’s first Shariah compliant exchangeable bond. The US$750
million issue is a benchmark for global Islamic investors and
conventional equity-linked investors
The certificates represent interests in a trust constituted by the
issuer and are exchangeable into shares of Telekom Malaysia
Berhad (TM)
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK
10
INNOVATIVE STRUCTURES AND
TRENDS
TABREED SUKUK
Tabreed’s US$ 200 million, five year global corporate Sukuk on behalf of
National Central Cooling Company
The issue was launched to raise funds for asset purchase as well as future
expansion
The transaction structure involved both a construction (Istisna’a) phase, during
which Tabreed undertakes to construct and deliver cooling plants, and a leasing
(Ijara) phase, during which Tabreed agrees to lease plants
During Istisna’a period, profit to the holder is paid, similar to a performance
bond
The Tabreed Sukuk is also the first to be listed on the London Stock Exchange.
This paves the way for further Sukuk issues to be listed on the regulated
European markets
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK
UTILITY COMPANIES ISSUING
SUKUKS
Large companies with regular income flows such as utility
companies, whether power, water, oil or gas are the biggest
potential issuers of Sukuk
At times these projects may be overly leveraged but it is possible
that part of the debt may be converted into a Sukuk that are serviced
by the utility nature of the underlying asset, such as reliable income
streams based on long term contracts with governments
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK
11
UTILITY COMPANIES ISSUING
SUKUKS
PAKISTAN WATER AND POWER DEVELOPMENT
AUTHORITY - WAPDA SUKUK US$ 134 MILLION
The 7-year, US$ 134 million Sukuk has been issued to partially
finance its Mangla Dam raising project
State Bank of Pakistan has granted the Ijara (Leasing) WAPDA
Sukuk as Statutory Liquidity Requirement (SLR) eligible security for
approved banks
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK
TRAITS OF A GLOBALLY ACCEPTED
SUKUK / MODEL THAT CAN BE
ADOPTED
Well researched
Innovative and forward thinking
Shariah views willing to acknowledge
Global appeal – buy ins from many global
institutions
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK
12
THANK YOU
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