MURABAHA

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Sukuk(Islamic Bond)

• Hamad Rasool
• Director First WAPDA Sukuk Co.
• Director First Credit Investment Bank.
• Director WAPDA Finance

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Defination

• Sukuk is the Arabic name for a financial
  certificate, Islamic alternative to conventional
  bonds, Sukuk is a Trust certificate in which
  investor returns are derived from legal or
  beneficial ownership of assets.

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Introduction
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Growing Sukuk

• Liquidity Management of Islamic Banking.
• Islamic financial institutions are seeking to
  diversify their portfolio and increase their
  portfolio size of tradable instruments with fixed
  income profile
• The industry requires Sukuk funds for retail
  distribution
• Sukuk a Money Market instrument.
• Islamic Inter-Bank or Short term Islamic Finance
  market can be developed through sukuks
• The underlying assets are purely used as a means
  of transacting and do not constitute a
  Transaction specific pool of security

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Growing Sukuk

• Sukuk are usually issued through special purpose
  vehicle (SPV)
• In Pakistan a Limited Liability Company has acted
  as the issuer and is registered with and
  regulated by SECP
• It is estimated that by 2006, close to US 25
  billion of Sukuk would be outstanding and by
  2008,approximately US 50 billion Sukuk will be
  outstanding. Bahrain Issues near about 24 Sukuk
  in a year
• Short and long term 5 10 Years Periods
• There are 77 Sukuk has been issued with the
  volume of USD 17,977.11 Millions

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Advantage of Sukuk Issuance

• Diversify funding source
• Create and enhance profile in international
  market
• Pricing benchmark
• Secondary liquidity
• Sizeable financing.
• Ease of clearing and settlement

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Advantage of Sukuk Investor

• Diversify Investment
• Provides Leveraging Capabilities
• Secondary Market Liquidity
• Ease of clearing and Settlement
• Investment available to Institutional and Retail
  investors
• Allows for many computation of Risk Credit /Mkt.
  /Duration etc

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Issuance of Sukuk- Factor to be considered

• Identify investors
• Rating by a Credit Rating Agency
• Underlying Assets
• Secondary Market Considerations
• Applicable laws SECP rules
• Cost to the Issuers
• Drafting of Legal Documents
• Regularity Frame work

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Parties Involved

• Originator Initial Owner
• SPV Set up for Special Purpose
• Investors Subscribers.
• Servicer Servicer the assets.
• Receiving and Paying Agent Banks
• Credit Enhancement provider hedges, Guarantees,
  Takaful etc

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Parties Involved

• Merchant Banker
• Credit Rating Agency
• Legal Tax Counsel
• Auditor

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Challenges of Market

• Limited number of issuance that constrains active
  trading of these instruments in the secondary
  market
• Buy and Hold Strategy by major investors of
  sukuks
• Limited quality assets available for Ijarah
  securitization
• Limited Corporate Focus - Changing

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• Ideal models for structuring of Sukuk
  Especially focused on Construction Industry.

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Sukuk Structure

• Sukuk Structuring may based on following modes
• Mudarabah (Trust Financing/Trust Investment)
• Murabahah (Sale And Purchase)
• Musharaka (Partnership, Project Financing
  Participation)
• Istishna (Purchase by Order or Manufacture)
• Salam (In-front Payment Sale)
• Ijarah (Operating Lease Concept)

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Sukuk Al-Ijara based Model
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Sukuk al Istismar (51 Ijarah structuring)
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Global Sukuk Issues
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Global Sukuk Cumulative Issuance
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Global Sukuk Issuance
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Sukuk Issuing in Construction Industry

• Name Country Volum Date Tenor
• Emaar UAE 65 m July 2004 5 years
• Amlak UAE 200 m July 2005 5 years
• UEM Builders Malasiya 82 m Jan-2006 7 years
• Aldar Behrain 100 m Oct 2005 5 years
• Com. RE Kuwait 100 m May 2005 5 years
• Motorway Pak 600 m Jan-2005 5 years
• WAPDA, Penang Port and bridge , Sanctuary
  Building-U k, Sukuk, Zam Zam tower KSA etc also
  has been issued sukuk related to construction
  Industry list attached for further
  consideration)

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CASE STUDIES

• Case study of Sukuk Relatively with Construction
  industry.
• WAPDA Sukuk for upraising Mangla Dam
• Motorway Sukuk

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WAPDA Sukuk

• WAPDAs financing requirement PKR 8,000 million
  to (partially) fund the Mangla Dam Raising
  Project
• Key objectives for WAPDA were
• To raise financing in a
• cost efficient manner
• Strengthen its presence in the local financial
  markets
• Diversify and cultivate WAPDAs investor base
• Undertake a landmark transaction which will
  catalyze the promotion of Islamic Financial
  instruments and lead the way for other public
  sector entities

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Transaction Structure
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Transaction Structure
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Offering Summery
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Motorway Sukuk
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Glossary