Deals of the Year 2006 Handbook
Abu Dhabi Islamic Bank
US$5 billion Trust Certicate Program
Abu Dhabi Islamic Bank PJSC (ADIB) established a US$5
billion trust certicate program in December 2006, making it
the largest program, conventional or Islamic, in the region.
The rst Sukuk under the program, which were issued in
the same month with an aggregate size of US$800 million,
attracted both conventional and Islamic investors based in
the Middle East, Europe and Asia. The ADIB Sukuk program
was the rst such program to be listed on the London Stock
Exchange after the implementation of the Prospectus
Directive, which, among other things, sought to harmonise
the listing regime in Europe and signicantly changed the
disclosure requirements relating to listing prospectuses.
Notwithstanding this, it is notable that, despite providing
listing rules for multiple asset classes, regulations made
under the Directive failed to identify Sukuk as a separate
asset class. It was interesting to notice that the two principal
European exchanges, on which Sukuk are listed, treat Sukuk
differently when applying their listing rules.
The ADIB Sukuk program utilised a co-ownership structure
(Sharikat al-Milk), which is summarised in the diagram
below.
ADIB
(as seller)
ADIB
(as purchaser)
ADIB
(as managing
agent)
Purchase
Price for
co-ownership
interest
Master Purchase
Agreement and
Supplemental
Purchase Contract
Return on
co-ownership
interest
Exercise
Price for
co-ownership
interest
ADIB Sukuk
Company Ltd.
(Issuer)
Purchase
Undertaking
Deed
ADIB Sukuk
Company Ltd.
(Issuer)
Proceeds
of Sukuk
Periodic
Distribution
Amounts and
Dissolution Amount
Master Trust
Deed and
Supplemental
Trust Deed
Investors
The key features of this structure are:
• Investors purchase the Sukuk and ADIB Sukuk
Company uses the purchase monies received to buy
a co-ownership interest in a pool of Shariah compliant
assets originated by ADIB
• ADIB agrees to manage the co-owned pool of assets
and pay ADIB Sukuk Company its co-ownership share
of revenues received from the pool in an amount
sufcient to pay periodic distributions on the Sukuk.
If the relevant co-ownership share is insufcient to
fund the full periodic distribution, ADIB will provide
additional Shariah compliant funding to ADIB Sukuk
Company to enable the full payment to be made
• At redemption of the Sukuk, ADIB re-purchases ADIB
Sukuk Company’s co-ownership interest in the pool
and the purchase monies are used to repay the
Sukuk.
ADIB, which was established by the Government of Abu
Dhabi in 1997 and commenced operations in 1998, was
one of the rst Islamic banks to be established in the UAE.
It operates retail, commercial, corporate, treasury and
investment banking divisions through an extensive network
of branches located across the UAE. ADIB sought to access
the capital markets by establishing a Sukuk program in
order to take advantage of the time and cost savings
inherent in the program structure. In contrast to standalone
issuances, all of the principal terms of the Sukuk structure are
determined at the outset and the relevant Shariah scholars
can issue their fatwa conrming that the structure is Shariah
compliant as soon as the program is established.
The principal agreements involved included a master
purchase agreement, under which ADIB (acting as seller)
agrees to sell to ADIB Sukuk Company, from time to time, a
co-ownership interest in a portfolio of Ijarah assets originated,
co-owned and managed by ADIB (the trust assets). The
composition of the trust assets in relation to each issue and
the purchase price for such assets are agreed by ADIB
and ADIB Sukuk Company upon each issuance under the
program and a supplemental purchase contract is entered
into between them to record the agreement.
Under a management agreement, ADIB (acting as
managing agent) agrees to maintain the co-owned Ijarah
assets with the same degree of care and skill that it would
exercise in respect of its own assets and in a manner which
is not repugnant to the Shariah. ADIB also maintains a
collection account in respect of each series of Sukuk issued.
Amounts credited to a collection account include revenues
received from the co-owned assets that are attributable to
ADIB Sukuk Company’s co-ownership share. The revenues
that represent prot returns from the underlying assets are
used to pay periodic distributions in respect of the Sukuk. On
the other hand, revenue that represent principal payments
in respect of the underlying assets, are reinvested in new
Shariah compliant assets. If the prot returns in any period
are insufcient to fund the periodic distribution payment
due in respect of the Sukuk for that period, ADIB agrees to
provide Shariah compliant funding to ADIB Sukuk Company
to enable it to make the necessary payment. On the other
hand, if there are more prot returns than are needed to
pay the relevant periodic distribution amount, these are
paid to ADIB as an incentive fee.
Pursuant to a purchase undertaking deed, ADIB (acting as
purchaser) agrees to repurchase the issuer’s co-ownership
interest in the relevant trust assets at their market value,
as determined by ADIB. However, ADIB also covenants
to ensure that the market value of the trust assets is never
less than the face amount of the outstanding Sukuk. This
ensures that the price paid by ADIB will be sufcient to meet
the issuer’s obligations to pay Sukukholders any amounts
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Deals of the Year 2006 Handbook
ADIB Sukuk Program (continued...)
due following redemption of Sukuk upon maturity or earlier
if an event of default occurs. An interesting feature of the
Purchase Undertaking Deed is that, unlike on many previous
Sukuk transactions, English law governed it. The undertaking
given in this document is a unilateral promise by ADIB.
English law clearly recognises such undertakings provided
that certain formalities are complied with, essentially being
the fact that they are recorded in a deed. This point has
been commented on favourably by rating agencies when
looking at subsequent transactions.
Another unique feature of the ADIB program is that it is
the rst Sukuk documentation in the UAE to contemplate
the issuance of subordinated Sukuk. Although the Sukuk
actually issued by ADIB were not subordinated, any
subordinated Sukuk that might be issued in the future under
the program would be subordinated using the contingent
debt subordination mechanism, whereby ADIB’s payment
obligations under the Management Agreement and the
Purchase Undertaking Deed only become due and payable
if and to the extent that ADIB has sufcient trust assets to
pay any holders of senior obligations in full prior to making
payments in respect of subordinated Sukuk. The contingent
debt subordination method does not violate the pari passu
insolvency rule in the UAE, which states that all creditors
must be treated equally, as ADIB’s subordinated obligations
under the two agreements do not arise as long as ADIB has
sufcient funds to pay such holders. As Sukuk represent
undivided benecial interests in trust assets, the Sukuk were
sufciently subordinated by subordinating ADIB’s payment
obligations under the management agreement and the
purchase undertaking deed and there was no need to
include subordination language in the Sukuk themselves.
The establishment of the ADIB program and initial issuance
exemplies the complexities of structural innovations
and market potential for Sukuk. With an estimated 30%
growth rate for 2007 and beyond, the primary Sukuk
market currently exceeds an aggregate issuance value of
approximately US$45 billion and secondary Sukuk trading
averages over US$10 million trades daily. Given that almost
every Sukuk issued to date has been oversubscribed, there
is no indication that investor demand will taper. As the
market continues to ourish and mature, Sukuk structures
will continue to evolve.
Roger Wedderburn-Day is a partner in the international
capital markets department of Allen & Overy LLP in London.
He is head of the rm’s emerging markets practice and,
together with Anzal Mohammed and Sahar Kianfar, was
responsible for documenting the ADIB Sukuk program. He
has worked on numerous other debut Sukuk transactions
and conventional nancings for borrowers based in the
Middle East and elsewhere. Anzal Mohammed is a senior
associate at Allen & Overy LLP in Dubai. He has extensive
experience in working on Islamic and other capital
markets transactions in the Middle East and elsewhere
and advised on the ADIB Sukuk program. Sahar Kianfar
is an associate at Allen & Overy LLP in London. She has
worked on several Islamic and conventional nancings
for borrowers based in the Middle East and elsewhere
and also advised on the ADIB Sukuk program.
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TERMSHEET
ADIB Sukuk Company
INSTRUMENT
Trust Certicates / Sukuk Program.
ISSUER
ADIB Sukuk Company Ltd.
PRINCIPAL ACTIVITIES
The Issuer was established as a special purpose vehicle for the sole purpose of issuing the Sukuk under the
program and entering into the transactions contemplated under the program.
BOARD OF DIRECTORS
Guy Major Senior (Maples Finance Limited); Carlos Farjallah (Maples Finance Limited); Stephen O’Donnell
(Maples Finance Limited).
DATE OF LISTING
30th November 2006.
ISSUE SIZE
Program: US$5,000,000,000. First issue: US$800,000,000. Subsequent issues may vary.
DATE OF ISSUE
First issue: 11th December 2006. Subsequent issues will vary.
MATURITY
First issue: December 2011. Subsequent issues may vary.
COUPON
First issue: None. Subsequent issues may vary.
PAYMENT SCHEDULE
First issue: The 12th of March, June, September and December of each year, commencing in March 2007.
Subsequent issues may vary.
AUTHORIZED PAID UP
CAP
The authorized share capital of the Issuer is US$50,000 ordinary shares of US$1 each, 250 of which have been
issued. All of the issued shares are fully-paid and are held by Maples Finance Limited (in its capacity as share
trustee) under the terms of a trust for charitable purposes.
IDENTIFIED ASSETS
Certain Ijarah assets originated by Abu Dhabi Islamic Bank PJSC; specic assets may vary per issue under
the program.
LEAD ARRANGER
HSBC Bank plc.
ARRANGERS/
MANAGERS
First Issue: HSBC Bank plc. Subsequent issues may include additional arrangers and/or managers.
LEGAL COUNSEL
To the dealers and the delegate as to English and UAE law: Allen & Overy LLP; to the Issuer as to Cayman
Islands law: Maples and Calder; to ADIB as to English and UAE law: Norton Rose.
FINANCIAL ADVISOR
Auditors to ADIB and Issuer: Deloitte & Touche.
GUARANTOR
Abu Dhabi Islamic Bank PJSC.
UNDERWRITERS
First Issue: HSBC Bank plc. Subsequent issues may include additional underwriters.
TRUSTEE
Trustee: ADIB Sukuk Company Ltd.
Delegate: HSBC Trustee (C.I.) Limited.
SHARIAH ADVISOR
Abu Dhabi Islamic Bank PJSC’s Fatwa & Shariah Supervisory Board, whose members include: Sheikh
Muhammad Taqi Al Uthmani, Dr. Abdul Sattar Abu Ghudda, Dr. Jasem Ali Al Shamisi and Sheikh Nizam
Muhammad Yaqoubi.
PURPOSE OF ISSUE
To raise capital for Abu Dhabi Islamic Bank PJSC.
RATINGS
First issue: Moody’s: A2; Fitch: A.
Subsequent issues may vary.
OBLIGOR
Abu Dhabi Islamic Bank
PRINCIPAL ACTIVITIES
ADIB was established in 1997 by Emiri Decree. Its main shareholders comprise of local prominent families;
including the ruling family, which own about 27% of company shares and the Abu Dhabi Investment Authority
(ADIA),holding 10%. ADIB is one of four Islamic banks in the UAE and serves upper and middle-tier clients in
the retail and corporate segments. As at end of September 2006, it led a 32-branch network supported by
78 ATMs.
METHOD OF ISSUE
US$5 billion EMTN Program
TRUSTEE
HSBC Trustee (C.I) Limited, acting as the trustee’s delegate
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