Islamic Finance and Sukuk Market Review

1
Islamic Finance and Sukuk Market Review
December 2008
2
Principles of Islamic Finance
3
Principles of Islamic finance

• Islamic finance is an ethical and equitable mode
  of finance which derives its principles from the
  Quran (the Holy Book) and the Sunnah (the
  traditions of the Prophet Muhammad)
• While Shariah law prohibits interest, this does
  not mean that capital is costless in an Islamic
  system
• Islam recognizes capital as a factor of
  production but it does not allow the factor to
  make a prior or predetermined claim on the
  productive surplus in the form of interest
• Profit-sharing is the method recommended by Islam
  
• In Islam, the owner of capital can legitimately
  share the profits made by the entrepreneur
• What makes profit sharing permissible in Islam,
  as opposed to interest, is that in the case of
  the former it is only the profit-sharing ratio,
  not the rate of return itself, that is
  predetermined

Profit-sharing methodology drives Islamic
finance solutions
4
Principles of Islamic finance (cont)
Compliance with Islamic principles

• Any predetermined payment over and above the
  amount of principal is prohibited
• The investor must share in the profits or losses
  arising out of the enterprise or commercial
  activity for which the capital was provided
• As defined in the Shariah, Islamic finance is
  based on the belief that the provider of capital
  and the user of capital should equally share the
  risk of business ventures
• Islamic finance is fundamentally based on assets
• Money is only a medium of exchange, a way of
  defining the value of asset it has no value in
  itself, and therefore should not be allowed to
  give rise to more money, via fixed interest
  payments, simply by being put in a bank or lent
  to someone else
• Gharar (Uncertainty, Risk or Speculation) is also
  prohibited
• This term denotes a contract between two parties
  where one may be exploited
• This includes misdescription or ignorance of
  goods, or their price encompasses a sale of
  goods which the seller is not in a position to
  deliver and/or the making of a contract which is
  conditional upon an unknown event
• Investments should only support practices or
  products that are not forbidden or discouraged by
  Islam (Alcohol, Armaments, Tobacco)

5
Industry evolution growth over the last 30 years
The Islamic finance industry has grown rapidly
over the past ten years

• Islamic finance has followed in the wake of
  innovations in the global financial services
  industry
• A natural progression of the Islamic finance
  industry
• Competitive retail landscape
• Increasingly sophisticated corporate banking
  products
• Innovative capital market solutions

6
Major instruments in Islamic finance
Islamic finance encompasses a wide range of
products comparable to traditional banking
products from current accounts and home
financing to syndicated finance and capital
markets which have been adapted to comply with
Sharia requirements
Sukukrepresenting certificates of ownership
straddle a majority of Islamic finance structures
7
Sukuk An Overview
8
Sukuk an overview

• Sukuk is a Shariah compliant capital market
  instrument
• By nature, it is analogous to conventional asset
  backed securities (with several exceptions)
• Business activities/assets that would be used as
  underlying assets backing the Sukuk would need to
  be Shariah-compliant. The proceeds of the Sukuk
  must be used for Shariah-compliant purposes only
• Government of Bahrain (2001), Government of
  Malaysia (2002), State of Qatar (2003),
  Department of Civil Aviation, Dubai (2004),
  Government of Pakistan (2005), Government of
  Brunei (2006) and Ras Al Khaimah Investment
  Authority (2007)

• Can be structured as a Regulation S and Rule 144A
  transaction and rated by an international rating
  agency
• Sukuk can be issued under various structures
• The most widely used one is Sukuk Al-Ijara, a
  lease based instrument
• The primary subscriber can resell the Sukuk in
  the secondary market the secondary market buyer
  will be the new pro-rata beneficial owner of the
  underlying assets

Sukuk vs. Conventional Bond
9
Summary of Sukuk Structures
10
Sukuk Ijara with tangible assets
Most widely used structure and accepted Sukuk
structure Islamic lease-based securities,
similar to Equipment Trust Certificates and Unit
Trusts Tradable in secondary market Main
Documentation Purchase Agreement Lease
Agreement Service Agency Agreement Purchase
Undertaking Sale Undertaking Declaration of Trust
11
Sukuk Ijara with tangible assets and Istisna
contracts
Allows Issuer to execute a Sukuk Ijara even if
there is a lack of tangible assets to achieve
benchmark sized financing Accepted by Shariah
Main Documentation Purchase Agreement Lease
Agreement Istisna Agreement Service Agency
Agreement Purchase Undertaking Sale
Undertaking Declaration of Trust
12
Sukuk Market and GCC Market Overview
13
Sukuk market trends and themes
Due to the global credit crisis volume has fallen
dramatically In 2008(YTD) c. US7.8 billion has
been issued, compared to c. US13.8 in 2007
Malaysia vs. ROW

• Source Dealogic, HSBC Amanah Analysis
• Country, currency, tenor analysis is based on
  domestic and international issuances excluding
  Malaysia (19 November 2008)

14
GCC market developments
The GCC has not been ensconced from the global
credit crisis Like many emerging markets, the
worst may be yet to come
CDS Spreads (5yr)
Source Bloomberg HSBC Analysis
15
Regional equity performance
Regional equity markets have been hammered over
the past few months The real estate sectormost
significantly in Dubaihas lead the dive
Source Bloomberg
16
GCC market update pricing environment
Regional CDS spreads have widened significantly
over the past month In particular Dubai
sovereign and sovereign-linked CDS spreads have
widened by c.200bps over the past month Credit
spreads on debt from all sectors have increased
dramatically as witnessed by the HSBC/DIFX Indexes
Regional CDS Spreads
950
1000
900
740
725
800
710
690
650
700
600
445
500
370
360
325
325
400
285
300
210
215
195
150
200
100

Bahrain Gov
ABC
NCB
TAQA
ADCB
Abu Dhabi Gov
Samba
Dubai Gov
Qatar Gov
RasGas
Group
Bank
Mashreq
Bank
Dubai
Saudi Gov
Emirates
Emirates
DP World
Holdings
HSBC-DIFX Indexes
Source Bloomberg HSBC Analysis (17 November
2008)
17
GCC government support
18
Islamic finance investor base
Islamic Issuers
Islamic Investors
Islamic Assets Global Distribution
More than two thirds of Islamic funds are from
the Middle East
Source Bloomberg HSBC Analysis (17 November
2008)
19
Middle East investors by products
20
HSBC Islamic Finance Credentials
21
HSBC Amanah a powerhouse in Islamic capital
markets
GCC Sukuk Issuance 2007 2008 YTD
MENA Region Domestic Bonds 2008 YTD
HSBC has been the clear and consistent number one
lead manager of GCC bond issuances each year
since 2003, both by number and volume of new
issues HSBC will bring unparalleled experience
and market intelligence to the lead management of
Sukuk/ Bond issuance HSBC has developed the most
comprehensive investor coverage and knowledge
inside and outside the Middle East for regional
Sukuk/ Bond issuance
Source Bloomberg, 15th Oct, 2008
Source Bloomberg, 15th Oct, 2008
Selected GCC Sukuk issues
Selected Awards
22
HSBC Amanah GCC Sukuk credentials
The HSBC Amanah Sukuk team, based in Dubai and
Riyadh, has been active since 2000 and has been
the clear leader in the Sukuk marketin terms of
deal size, issuances, and innovationever since
23
HSBC Amanah non-GCC Sukuk issues and notable
awards
Excluding regional Malaysian Ringgit denominated
issuances, HSBC Amanah continues to be the leader
by every measure of Sukuk underwriting since 2002
24
Leading the way in innovative transactions
HSBC has set the standard in the Islamic finance
space, executing a wide range of firsts in the
market
25
Selected Sukuk Deal Summaries
26
Saudi Binladin Group SAR 1bn Sukuk
On 1 September 2008, Purple Island
Corporation launched a 5-year SAR1,004 million
Sukuk guaranteed by Saudi Binladin Group
(SBG) The deal was a successful issuance
despite being unrated and issued during the slow
summer period HSBC is the sole manager /
bookrunner for this offering
Transaction overview
Breakdown by geography
Issuer Purple Island Corporation (SPV registered
in the BVI and owned by certain members of the
Binladin Group owners Rating Not
rated Guarantor SBG Maturity 1 September
2013 Issue Amount SAR 1,004 million (equivalent
USD200 million) Profit 7 fixed Listing Riyadh S
ole Manager/ Bookrunner HSBC
Transaction highlights
Breakdown by investors

• The Sukuk Mudaraba was SBGs debut Sukuk issuance
  into the Saudi debt capital markets
• The transaction opened up to new investor base
  for SBG
• First ever unrated Sukuk of its size to be
  successfully distributed entirely within the
  Kingdom Sukuk issued through an offshore vehicle
  which is registered, cleared and settled through
  Tadawul (also a first for the Kingdom) and Sukuk
  relating to Makkah developments
• The Sukuk will enhance Saudi Binladins position
  in this sector and complete one of the first
  boutique hotels in Makkah

27
SABIC SAR 5bn Sukuk al-Istithmar
On 26 May 2008, SABIC issued a SAR 5 billion
Sukuk, targeted at Saudi and GCC investors This
is the first rated Sukuk in the Kingdom, and
rated level to issuer rating. It was also the
first public Sukuk in Saudi Arabia to allow
investors to subscribe with as little as a
minimum of SAR10,000 Notwithstanding continuing
market volatility and tightening liquidity, the
issue attracted substantial demand, resulting in
an order book of more than 50 accounts nearly
1.3x the ceiling established by the Saudi
regulator
Transaction overview
Breakdown by geography
Issuer Saudi Basic Industries Corporation
(SABIC) Rating A SP Issue Date 26 May
2008 Maturity 15 May 2028 (first Put 15 May
2013) Issue Amount SAR 5 billion (equivalent
USD1.3 billion) Profit 3m SAR Sibor 48
bps Listing London and Dubai Joint Lead
Manager HSBC Joint Bookrunner HSBC
Transaction highlights
Breakdown by investors

• This transaction further consolidates HSBCs
  position as the number one lead manager of Saudi
  Arabian Sukuk issuance. HSBC has again
  demonstrated its dominance in the Saudi capital
  market by Lead Managing, Structuring and
  Bookbuilding the fourth Saudi Arabian Sukuk
  SABICs third Sukuk issuance in less than two
  years
• HSBCs input and assistance allowed the Sukuk to
  become the first in Saudi Arabia to be rated at
  the time of issuance
• After opening up the SAR Sukuk market in 2006,
  HSBC has led ALL SAR public Sukuk issuances,
  aggregating SAR 21bn in size
• Final distribution again achieved investor
  diversification, with banks comprising only 32
  of the issue. Retail investors comprised more
  that half of the total in terms of number, and
  HSBC attracted new/first-time investors

28
RAKIA US325m Investment Sukuk
On 26 November 2007, Ras Al Khaimah
Investment Authority (RAKIA) priced and
launched a 5 year US325m Sukuk The deal was a
successful US denominated issuance during a
volatile market conditions HSBC was a joint lead
manager/bookrunner for this offering The
transaction reinforces HSBCs leading position in
Islamic capital markets and also HSBCs position
as the number one lead manager of Middle East
bond issuance
Transaction overview
Breakdown by geography
Issuer RAKIA Sukuk Company Limited Obligor The
Ras Al Khaimah Investment Authority
Rating Unrated Guarantor Government of Ras Al
Khaimah Maturity 5 December 2012 Issue
Amount US325 Profit 3m US Libor 150
bps Listing London and Dubai Joint Lead
Manager HSBC Joint Bookrunner HSBC
Transaction highlights
Breakdown by investors

• The deal was successfully closed despite
  difficult and volatile market conditions. At the
  time of closing, another transaction in the
  market for a Dubai government linked entity was
  aborted due to poor demand from investors
• The transaction was over-subscribed beyond the
  issue size of US325m with 27 accounts
  participating in the issue
• Final distribution achieved investor
  diversification, with banks comprising 53 of the
  issue while corporates, private banks and fund
  managers made up the remaining 47
• HSBC played a crucial role in the successful
  closing of the transaction by generating almost
  two-thirds of the order book

29
SABIC SAR8bn Sukuk al-Istithmar
On 6 August 2007, SABIC issued a SAR 8bn
Sukuk, targeted at Saudi and GCC investors. HSBC
was a joint lead manager/bookrunner and sole
regional coordinator for this landmark
offering This is the largest-ever Sukuk/bond
issued by a Saudi entity and the largest
non-equity linked Sukuk in the region by a
publicly quoted corporate, beating the recent
record set by Saudi Electricity Company (sole led
by HSBC)
Transaction overview
Breakdown by geography
Issuer Saudi Basic Industries Corporation
(Sabic) Rating Not rated Maturity 15 July
2027 (first Put 15 July 2012) Issue Amount SAR
8bn (US2.1bn) Coupon 3m SAR SIBOR 38
bps Joint Lead Manager HSBC Sole Regional
Coordinator HSBC
Transaction highlights
Breakdown by investors

• Despite external market volatility and mid-way
  increase in issuance ceiling, an orderbook of SAR
  10bn in size was built up, allowing the company
  to issue at the revised ceiling of SAR 8bn. Half
  the allocated orders in number went to retail
  investors
• Final distribution achieved investor
  diversification, with bank comprising only 40 of
  the issue. Retail investors comprised half the
  total in terms of number, and HSBC attracted
  new/first-time investors
• HSBC is the only house to have Sukuk approved by
  a Saudi Shariah Committee (SABB Amanah Shariah
  Committee). The transaction firmly reinforces
  HSBCs position as the leading Sukuk/DCM house
  and emphasizes its leadership in the Kingdoms
  capital market

30
QREIC US300m 5 year Sukuk
On 27 July 2007, Qatar Real Estate Investment
Co (Alaqaria) priced and launched a US300m 5
year Sukuk issue This is the first rated Sukuk
for a Qatari corporate HSBC acted as Sole Lead
Manager and Bookrunner for the issue
Transaction overview
Breakdown by geography
Issuer Qatar Alaqaria Sukuk Company Obligor Qata
r Real Estate Investment Co. Q.S.C. Obligor
Ratings A2 (Moodys) / BBB (Fitch) Issuer
Ratings A2 (Moodys) / BBB (Fitch) Maturity 2
August 2012 Issue Amount US300m Profit 3m US
Libor 73 bps Listing London Lead
Manager HSBC Bookrunner HSBC
Transaction highlights
Breakdown by investors

• This is the first rated Sukuk for a Qatari
  corporate
• The deal was priced at US3m L 73 bps, the
  tighter end of the initial price guidance of
  75bps area in a volatile market environment.
• HSBC Financing Solutions Group successfully acted
  as the ratings advisor in this exercise as well
  as advising on structuring the Sukuk to receive
  the same ratings as the Company
• The transaction reinforces the Groups leading
  position in Islamic Capital and highlights the
  seamless and successful co-operation between
  Investment Banking, Amanah, Debt Capital Markets
  and the Financing Solutions Group teams in
  providing integrated value-added proposition to
  Alaqaria

31
Saudi Electricity Company SAR 5bn Sukuk
al-Istithmar
On 23 July 2007, Saudi Electricity Company
(SEC) issued its debut SAR 5bn (US1.3bn)
Sukuk This is the largest-ever Sukuk or bond
issued from Saudi Arabia and the largest
non-equity linked Sukuk in the region by a
publicly quoted corporate Although purely a
domestic transaction, the issue attracted
substantial demand with a final order book of SAR
7bn from 33 accounts, nearly 3 times SECs
issuance target
Transaction overview
Breakdown by geography(issue is restricted to
Saudi nationals and entities only)
Issuer Saudi Electricity Company
(SEC) Rating Not rated Issue Date 23 July
2007 Maturity 15 July 2027 (first Put 15 July
2012) Issue Amount SAR5bn (US1.3bn) Profit 3m
SAR Sibor 45 bps Sole Boookrunner HSBC Sole
Lead Manager HSBC
Transaction highlights
Breakdown by investors

• This transaction represents the largest Sukuk or
  bond issuance (domestic or international) by a
  Saudi Arabian issuer
• Final distribution achieved SECs goal of
  investor diversification, with banks comprising
  about 50 of the issue
• The issuance highlights the Groups ability to
  harness domestic SAR liquidity, even during
  turbulent external market conditions
• The success of this issuance reinforces the
  Groups position as the leading Sukuk and bond
  house and its leadership in the Kingdoms debt
  markets

32
Maybank US300m Subordinated Tier 2 Sukuk
On 18 April 2007, Malayan Banking Berhad
(Maybank) successfully priced a landmark
US300m Subordinated Lower Tier 2 Sukuk The
transaction represents the worlds first ever
subordinated bank capital Sukuk and showcases
HSBCs continued leadership in innovation in the
Islamic capital markets HSBC acted as Joint Lead
Manager and Joint Bookrunner on this prestigious
transaction
Transaction overview
Breakdown by geography
Issuer MBB Sukuk Inc. Obligor Malayan Banking
Berhad Obligor Ratings A3 / A- / A- Issue
Ratings Baa1 / BBB / BBB Pricing / Settlement
Date 18 / 25 April 2007 Maturity / Call Date 25
April 2017 / 2012 Re-offer Spread 6m US Libor
33 bps Listing Singapore and Labuan Joint Lead
Manager Bookrunner HSBC
Transaction highlights
Breakdown by investors

• HSBC was able to leverage off Maybanks many
  credit strengths to price at 6m US Libor 33
  bps, the tight end of initial guidance (of 35 bps
  /- 2 bps). This represented the tightest ever
  pricing in US Dollars for a Malaysian borrower
  and also the tightest ever USD Sukuk pricing
  globally (excluding supranational borrowers)
• Combined with an aggressive but transparent
  pricing strategy, the transaction attracted
  almost US2.4bn of orders, an oversubscription of
  over 7x
• Strong interest in the transaction was seen from
  both Islamic and conventional investors, with
  over 70 accounts in the book. Every Islamic order
  brought into the book was done so by HSBC on a
  sole basis

33
ADIB US5bn Trust Certificate Programme
On 30 November 2006, ADIB priced and launched
its debut debt capital market issue
US800million 5 year Sukuk issue under the
programme This is the first rated Trust
Certificate Programme by a commercial bank and
the largest in size among all trust certificate
programmes This transaction reinforces HSBCs
leading position as an arranger of Islamic EMTN
issuance HSBC was the arranger of the only
other Shariah-compliant EMTN Programme in 2005
Transaction overview
Breakdown by geography
Issuer ADIB Sukuk Company Ltd Obligor Abu Dhabi
Islamic Bank PJSC (ADIB) Rating A2 (Moodys)
/ A (Fitch) First Issue Date 12 December
2006 Maturity Date 12 December 2011 Issue
Amount US800m Coupon 3m US Libor 40
bps Lead Manager HSBC Sole Arranger/Bookrunner
HSBC
Transaction highlights
Breakdown by investors

• The transaction was 2 times oversubscribed (total
  order book being close to US1bn) beyond the
  initial target issue size of US500m, with 47
  accounts participating in the issue
• The issue was upsized to US800m after the high
  allocation demand from the participating
  accounts. Non-Middle Eastern investors accounts
  for 50 of the order book, which is the highest
  ever achieved by a commercial bank Sukuk issue
• The transaction highlights the seamless and
  successful co-operation between CIBM Amanah, Debt
  Capital Markets and the Ratings and Capital
  Advisory teams and reinforces the Groups leading
  position in the Islamic Capital Markets

34
Khazanah US750m Exchangeable Islamic Bonds
On 27 September 2006, Khazanah successfully
issued US750m of Shariah compliant Islamic bonds
which are exchangeable into shares of Telekom
Malaysia This transaction marks The
first-ever Shariah compliant exchangeable bond
transaction The largest equity-linked issue
ever out of Malaysia The largest equity-linked
issue in Asia ex-Japan since January 2005
Transaction overview
Breakdown by geography
x
No. of accounts
Issuer Rafflesia Capital Limited
Obligor Khazanah Nasional Berhad Underlying
shares Telekom Malaysia (TM) Base issue
size US650m Greenshoe US100m or 15.4 of base
issue size Tenor 5 Years Periodic payment
1.25 per annum payable annually Yield 5.07 Exc
hange premium 19 Redemption amount 121.14
Reference share price MYR9.1143 (VWAP on
pricing date) Exchange price MYR10.85 Issuers
call option After 3 years subject to
130 Listing HKSE and Labuan HSBC role Joint
Bookrunner and Joint Lead Manager
Transaction highlights
Breakdown by investors

• The offering was upsized from an initial size of
  US500m to US750m after overwhelming demand from
  international investors during the first two days
  of bookbuilding
• A well devised marketing strategy was implemented
  to educate Middle Eastern investors on the
  innovative exchangeable bond structure and
  conventional investors on the Islamic aspects of
  the structure
• The book was over-subscribed by about 6 times the
  initial issue size with high quality demand from
  dedicated CB specialists, Middle Eastern Islamic
  and conventional investors and some fixed income
  funds
• HSBC played a key role in assisting Khazanah
  achieve its key objective of maximizing demand
  from the Middle East by generating over 50 of
  the demand from the region
• Demand was well diversified with the Middle East
  comprising 29 of allocations, Europe 41, Asia
  26 and offshore US accounts taking 4

35
SABIC SAR3bn Sukuk Istithmar
On 29 July 2006, SABIC issued a SAR 3bn (US
800m) Islamic bond (Sukuk Al-Istithmar). HSBC was
sole bookrunner and lead manager for this debut
transaction This is the first corporate
Sukuk/bond in Saudi Arabia and the first public
bond issuance in Saudi Arabia it is also the
largest in the region by a publicly quoted
corporate It is also the first tradable
Sukuk/bond in the Kingdom and the first to be
cleared through the Saudi Stock Exchange
Transaction overview
Breakdown by geography
Issuer Saudi Basic Industries Corporation
(Sabic) Rating Not rated Issue Date 29 July
2006 Tenor 5 years Issue Amount SAR 3bn
(US800m) Coupon 3m SAR SIBOR 40 bps Sole
Bookrunner HSBC
Transaction highlights
Breakdown by investors

• The Sukuk structure utilised an existing business
  as the underlying assets and is the first one
  where the company itself is the issuer rather
  than an SPV
• While purely a domestic transaction, the issue
  attracted substantial demand with a final order
  of over SAR 4.3 billion, allowing issuance at the
  maximum approved size (SAR 3 billion). Final
  distribution achieved Sabics objective in
  diversifying its investor base and will act as a
  catalyst to the Kingdoms debt capital market
• This landmark transaction firmly highlights
  HSBCs debt credentials in Saudi Arabia and
  reinforces HSBCs position as the number one lead
  manager of Middle East Bond issuance

36
Tabreed US200m 5 year Sukuk
On Monday 10th July, Tabreed priced and
launched a 5-year US200 million Sukuk via
Tabreed 06 Financing Corporation The offering
represents the first internationally rated
corporate Sukuk globally and the underlying
Istisna-Ijara structure is the first of its kind.
It offers an innovative solution to issuers
lacking assets to achieve benchmark sized
Shariah-compliant financing
Transaction overview
Breakdown by geography
Issuer Tabreed 06 Financing Corporation Obligor
National Central Cooling Company (PJSC)
(Tabreed) Rating BBB- (SP) Issue Date 20
July 2006 Maturity Date 20 July 2011 Issue
Amount US200m Coupon 6m US Libor 125
bps Joint Bookrunner HSBC Global
Coordinator HSBC
Transaction highlights
Breakdown by investors

• In addition to being the first investment grade
  corporate Sukuk globally, the offering is also
  the first unsupported (by a sovereign guarantee,
  explicit or implicit) corporate rating in the GCC
  region
• A total order size of US285m was achieved
  however the Issuer opted to limit the total
  amount of the offering to US200m
• Following the allocation process, 75.5 of the
  Sukuk were placed in the Middle East, 13.8Asia
  and 9.7 Europe

37
Islamic Republic of Pakistan - US600m 5 year
Sukuk
Breakdown by geography
Transaction rationale
Issuer The Islamic Republic of
Pakistan Rating B Issue Date 27 January
2005 Maturity Date 27 January 2010 Issue
Amount US 600 million Coupon 6m US Libor
220 bps Reoffer Spread 6m US Libor 220
bps Joint Bookrunner HSBC
On Tuesday 18th January 2005, HSBC acted as Joint
Lead Manager and Bookrunner on the Islamic
Republic of Pakistans US600m Sukuk Floating
Rate Trust Certificates issue The highly
successful transaction is the debut Sukuk
offering from Pakistan and represents the first
international Sukuk issue by a non investment
grade obligor
Breakdown by investor type
Transaction highlights

• As a result of substantial investor appetite the
  issue was upsized to US600m from an initially
  anticipated US500m
• With 82 investors participating in the offering,
  the issue achieved widespread geographical
  distribution and account diversification
• The Sukuk structure diversified Pakistans
  investor profile to include Islamic investors
  whist simultaneously embracing conventional bond
  accounts
• Of the total order book, 48 of orders were given
  jointly to Citigroup HSBC, while a further 45
  of the book comprised of orders obtained by HSBC
  exclusively

38
IDB US500m 5 year Sukuk
On Wednesday 15th June, Islamic Development
Bank priced and launched the inaugural Sukuk
issue under its US1bn EMTN Programme The
transaction has a maturity of 5 years and was
priced at Libor 12 bps With this issue, IDB has
effectively re-positioned its credit in the
market and created a strong benchmark for future
issuance
Transaction overview
Breakdown by geography
Issuer IDB Trust Services Ltd. Obligor The
Islamic Development Bank Rating AAA (SP) / AA
(Fitch) Issue Date 15 June 2005 Maturity Date
22 June 2010 Issue Amount US500m Coupon 6m
US Libor 12 bps Joint Bookrunner HSBC
Transaction highlights
Breakdown by investors

• The Sukuk successfully achieved IDBs objective
  of investor diversification final allocations
  saw two-thirds of the deal placed outside the
  Middle East
• The final order book exceeded US700m and
  contained 29 orders, including ticket sizes up to
  US100m
• The quality of the order book was clearly
  demonstrated by strong participation from central
  banks Approximately a third of the deal was
  allocated to these investors
• Pricing and launch followed a road show that
  visited centres in Asia, Europe and the Middle
  East

39
The Government of Dubai US1bn 5 year Sukuk
On Thursday 28th October the Government of
Dubai, acting through Department of Civil
Aviation (DCA), issued a US1bn Islamic bond
issue (Sukuk al-ljara). HSBC was joint
bookrunner and lead manager Due to
over-subscription and a final order book over
US1.2bn, the deal was increased in size from an
initial US750m This transaction consolidates
HSBCs position as the number one lead manager of
Middle East sukuk issuance
Transaction overview
Breakdown by geography
Issuer The Government of Dubai, acting through
DCA Rating Unrated Issue Date 28 October
2004 Maturity Date 4 November 2009 Issue
Amount US1bn Coupon 6m US Libor 45
bps Reoffer Spread 6m US Libor 45 bps Joint
Bookrunner HSBC
Transaction highlights
Breakdown by investors

• The purpose of the financing is for the expansion
  and development of Dubai International Airport,
  reflecting Dubais fast growing status as a major
  regional and global hub
• The deal achieved a diversified book by investor
  type with around 70 of the deal placed among
  non-Islamic investors. Investor types included
  central banks, banks, supranationals, corporates,
  insurance and pension companies and private banks
• This is Government of Dubais debut international
  sukuk issue - in 2003 HSBC lead managed an AED
  1.5 billion domestic bond issue
• Although the pre-marketing roadshow only visited
  the GCC region, the deal still achieved 16
  placement outside the Middle East

40
State of Qatar US700m 7 year Sukuk
The State of Qatars issuance was only the
second time that a sovereign has issued
internationally rated and listed Islamic
securities, and it was the first time that a
Sukuk al-Ijara had been issued from the GCC under
the Regulation S format The final order book
closed more than twice subscribed at US1.2bn.
The deal was increased from US500m to US700m,
the largest ever international Islamic financing,
restricted by the underlying asset that is valued
at approximately US700m
Transaction overview
Breakdown by geography
Issuer State of Qatar Rating A Issue Date 30
September 2003 Maturity Date 9 October
2010 Issue Amount US700m Coupon 6M US Libor
40 bps Sole Bookrunner HSBC
Transaction highlights
Breakdown by investors

• Having announced initial price guidance in a
  range of 38-43 bps, the deal was priced at 40
  bps over Libor. This was despite Qatars fixed
  rate US bond due 2009 trading at Libor 55 bps
  at the time of pricing. The appeal of the Sukuk /
  FRN product, together with the rarity value of
  new Qatar sovereign issuance, enabled strong
  book-building at the lower margin
• Qatar achieved its objective of broadening its
  investor base as new investors accounted for
  about two-thirds of the allocated orders and
  around three-quarters of the issue amount
• Qatar maintained a balanced distribution between
  liquidity-orientated and buy-and-hold investors
  and an equal split between Islamic and
  conventional accounts. This ensures sufficient
  secondary market liquidity for the notes, as
  Middle East investors are typically reluctant to
  trade

41
Federation of Malaysia US600m 5 year Sukuk
Most Innovative Bond Issue of the Year THE
ASSET Most Innovative Capital Markets
Transaction of the Year FINANCEASIA Best
Asian Sovereign Bond EUROMONEY Most
Innovative Bond Deal of the Year FINANCEASIA
Sovereign Bond of the Year ASIAMONEY Deal
of the Year INSTITUTIONAL INVESTOR
Transaction overview
Breakdown by geography
Issuer Federation of Malaysia Rating BBB/Baa2 I
ssue Date 3 July 2002 Maturity Date 3 July
2007 Issue Amount US600m Coupon 6 month US
Libor plus 95 bps Sole Bookrunner HSBC
Transaction highlights
Breakdown by investors

• The deal was priced on 25 June late evening at
  US Libor 95bp At the tightest end of the
  price talk range
• The order book closed more than 2 times
  oversubscribed at US1.1bn
• An equal split between Islamic and conventional
  accounts to ensure sufficient secondary market
  liquidity for the Sukuk
• First sovereign Islamic bond issue to be rated by
  international rating agencies (Moodys SP) and
  to be listed on the Luxembourg Stock Exchange.
  First Islamic bond to be distributed under Reg. S
  and Rule 144A
• Initial price guidance on 20 June At US Libor
  95bp area. Interest from Asia alone grew to over
  US600 million. The momentum enabled Malaysia to
  tighten price guidance to a range within 92 - 95
  bps

42

• Issued by HSBC Bank Middle East Limited, PO Box
  66/4604, Dubai, UAE, which is incorporated in
  Jersey, Channel Islands and regulated by the
  Jersey Financial Services Commission to carry on
  investment business under the Financial Services
  (Jersey) Law 1998. Services are subject to the
  Bank's terms and conditions.
• HBME is a member of the HSBC Group of companies
  (the HSBC Group), any member of which may trade
  for its own account as Principal, may have
  underwritten an issue within the last 36 months
  or, together with its Directors, officers and
  employees, may have a long or short position in
  securities or instruments or in any related
  instrument mentioned in this document. Brokerage
  or fees may be earned by any member of the HSBC
  Group or persons associated with them in respect
  of any business transacted by them in all or any
  of the securities or instruments referred to in
  this document.
• The information in this document is derived from
  sources believed to be reliable but which have
  not been independently verified. HSBC Bank makes
  no guarantee of its accuracy and completeness and
  is not responsible for errors of transmission of
  factual or analytical data, nor is it liable for
  damages arising out of any persons reliance upon
  this information. All charts and graphs are from
  publicly available sources or proprietary data.
  The opinions in this document constitute the
  present judgment of HSBC Bank, which is subject
  to change without notice.
• This document is neither an offer to sell,
  purchase or subscribe for any investment nor a
  solicitation of such an offer. This document is
  intended for the use of institutional and
  professional customers and is not intended for
  the use of private customers.
• This document is not intended for distribution in
  the United States of America or to US persons.
  This document is intended to be distributed in
  its entirety. No consideration has been given to
  the particular investment objectives, financial
  situation or particular needs of any recipient.
  Any transaction will be subject to HSBC Banks
  Terms of Business.
• HSBC Bank Middle East LimitedIncorporated in
  Jersey, Channel IslandsRegistered Office HSBC
  House, EsplanadeSt.Helier, Jersey JE4
  8UBChannel IslandsMember of HSBC Group