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SUKUK

SUKUK

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Published by: alhudacibe on Dec 20, 2010
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02/03/2013

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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 (µSPV¶) 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 Emaar Amlak UEM Builders Aldar Com. RE Motorway Country UAE UAE Malasiya Behrain Kuwait Pak Volum $65 m $200 m $82 m $100 m $100 m $600 m Date July 2004 July 2005 Jan-2006 Oct ± 2005 May 2005 Jan-2005 Tenor 5 years 5 years 7 years 5 years 5 years 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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