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Sukuk
(Islamic Bond)
Structuring, Operation & performance
in Housing & Construction Industry

A Special Presentation for

Behria Town.
Zubair Mughal
AlHuda :Centre of Islamic Banking and Economics
info@alhudacibe.com, www.alhudacibe.com
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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
 WAPDA’s 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 WAPDA’s 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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Our Credible Advisory Services
 Formulation of complete Structure including
 Sharia Structuring
 Regularity framework
 Setting up SPV (Special Purpose Vehicle)
 Accounting and Reporting Principles
 Issuing, Listing and Rating
 Secondary market required infrastructure for
payment and settlement procedures.
 Awareness and Marketing Making.

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Glossary

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