Review on several Sukuk

products issued worldwide:

Towards Globally Accepted Sukuk

Ijlal A. Alvi

CONTENTS

Current trends and developments in Sukuk a market

overview
Total Sukuk Issuance
Global Sukuk Issuance
Sukuks in the Pipeline
Corporate Sukuk
Sukuk Funds
Innovative Structures and Trends
Utility Companies issuing Sukuk
Traits of a globally accepted Sukuk / Model that can be
adopted
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK

CURRENT TRENDS AND DEVELOPMENTS

IN SUKUK A MARKET OVERVIEW

Global and local sovereign/corporate Sukuk market currently

exceeds an aggregate issuance value of approximately US$ 47
billion to date and is expected to surpass the US$150 billion mark
before the end of this decade

Up till November 2006, US$17.3 billion in Sukuks have been issued,

up 46% from the whole of last year

Malaysian Sukuk issuance to date stands at US$32 billion

approximately

GCC issuance of Sukuk accounts for US$13 billion of the global

total, with a growth rate of around 45% a year since 2001

REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:

TOWARDS GLOBALLY ACCEPTED SUKUK

CURRENT TRENDS AND DEVELOPMENTS

IN SUKUK A MARKET OVERVIEW
UNITED KINGDOM

Over the past two years London based financial institutions have
arranged more than a dozen Sukuk issuances on behalf of Middle
Eastern clients, all of them structured in offshore jurisdictions

London Stock Exchange listed its first sukuk the US$ 200 million
offering by National Central Cooling Company (Tabreed) PJSC. This
should pave the way for further Sukuk listings on the regulated
European markets. Sukuks have previously been listed in
Luxembourg and Dublin

Britain is set to introduce new regulatory framework and tax reforms

to support the domestic issuance of Sukuk by next year

REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:

TOWARDS GLOBALLY ACCEPTED SUKUK

CURRENT TRENDS AND DEVELOPMENTS

IN SUKUK A MARKET OVERVIEW
UNITED STATES

A US company entered the Sukuk market for the first time with East
Cameron Gas Companys US$ 166 million issue in July to
consolidate assets and fund development of gas fields. The Sukuk
was also the first Islamic bond using hydrocarbon reserves as an
asset class

CHINA

The Kuwait Finance House is set to launch the first Islamic bond
issue in China. The US$ 200 million Sukuk for a Chinese private
sector corporate firm will be used to fund a power plant project

REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:

TOWARDS GLOBALLY ACCEPTED SUKUK

CURRENT TRENDS AND DEVELOPMENTS

IN SUKUK A MARKET OVERVIEW
JAPAN

Japanese governments Bank for International Cooperation (JBIC),

is working with Bank Negara, Malaysias Central Bank and private
Malaysian banks to issue a Sukuk to attract Middle Eastern liquidity.
When materialized Japan will become the first Group of Seven to
issue an Islamic bond

JBIC has assembled a board of advisors comprising of four Shariah

scholars from Saudi Arabia, Malaysia and Pakistan

Bank of Tokyo-Mitsubishi UFJ Ltd., is allying with Malaysian bank

CIMB Group Bhd., to sell financial services including Japanese
potential corporate Sukuk

REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:

TOWARDS GLOBALLY ACCEPTED SUKUK

CURRENT TRENDS AND DEVELOPMENTS

IN SUKUK A MARKET OVERVIEW
INDONESIA

Indonesia is in the midst of revising tax and other regulations to

support sovereign and corporate Islamic bond issuance. One of the
first Sukuk to come out to market could be a US$ 650 million deal
from Jakarta Monorail, aimed at easing the Indonesian capitals
transport network. The legal framework is expected to be in place for
the first issue by the first quarter of 2007

REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:

TOWARDS GLOBALLY ACCEPTED SUKUK

TOTAL SUKUK ISSUANCE WORLDWIDE

(AS OF NOVEMBER 2006)
50,000

47,012

45,000

Size in Million US$

40,000
35,000
30,000
25,000

20,576

20,000
15,000

11,829

10,000
5,000
0

336

780

819

2000

2001

2002

5,725

6,947

2003

2004

2005

Year
Source: IFIS
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK

2006

Total
issued

GLOBAL SUKUK ISSUANCE WORLDWIDE

(AS OF NOVEMBER 2006)
18,000

15,539

16,000

Size in Million US$

14,000
12,000
10,000
8,000

6,585

6,000
4,000

2,501

2,000

780

800

2001

2002

3,288

1,585

0
2000

2003

2004

2005

2006

Total issue d

Year
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK

TOTAL SOVEREIGN/CORPORATE SUKUK

ISSUANCE WORLDWIDE (AS OF NOV 2006)
45,000

40,523
40,000

Size in Million US$

35,000
30,000
25,000

18,782

20,000
15,000

11,122

10,000

336
0

2000

250 530
2001

19

800

2002

6,488

5,468

4,545

5,000

1,180
2003

1,479
2004

1,793

707
2005

2006

Year
Corporate Sukuk Issued

Sovereign Sukuk Issued

REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:

TOWARDS GLOBALLY ACCEPTED SUKUK

Total
issued

GLOBAL SOVEREIGN/CORPORATE SUKUK

ISSUANCE WORLDWIDE (AS OF NOV 2006)
12,000

10,008

Size in Million US$

10,000

8,000

5,469

6,000

5,531

4,000

2,582
2,000

1,180
530

800
250

1,479
1,022

1,116

707

405

0
2001

2002

2003

2004

2005

2006

Total issue d

Year
Corporate Sukuk Issued

Sovereign Sukuk Issued

REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:

TOWARDS GLOBALLY ACCEPTED SUKUK

In

2000

2001

2002

2003

2004

2005

REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:

TOWARDS GLOBALLY ACCEPTED SUKUK

es
ia

do
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at
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M

Ba

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Br
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ei
Ku
w
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16000
14000
12000
10000
8000
6000
4000
2000
0
hr
ai

Size in Million US$

TOTAL SUKUK ISSUANCEISSUANCE-COUNTRYWISE

(AS OF NOVEMBER 2006)

2006

2002

2003

2004

Q
at
ar
Sa
ud
iA
ra
bi
a
Pa
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In
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2001

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2000

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Ba
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Ku
w
ai
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4500
4000
3500
3000
2500
2000
1500
1000
500
0

ra
in

Size in Million US$

GLOBAL SUKUK ISSUANCEISSUANCE-COUNTRY WISE

(AS OF NOVEMBER 2006)

2005

2006

Source: IFIS
REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:
TOWARDS GLOBALLY ACCEPTED SUKUK

SUKUKS IN THE PIPELINE

Country
United Arab Emirates
Saudi Arabia

Approx Amount
US $ million
24,240
2,773

Qatar

482

Bahrain

200

Kuwait

150

Malaysia

4,040

Indonesia

817

Japan

400

Brunei

300

China

200

Total

33,602

REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:

TOWARDS GLOBALLY ACCEPTED SUKUK

CORPORATE SUKUK
THE SAUDI BASIC INDUSTRIES CORPORATION SABIC
SUKUK

The transaction has achieved a number of firsts:

SABIC is the first company to take advantage of the recent changes

in the Saudi Capital Markets Law. It issued Saudi Arabias first
public fully tradable Sukuk, a 20-year issue of up to US$ 800 million
(largest ever corporate Sukuk issuance in the region)

The first to be admitted to CMA's Official List and to be

settled/cleared through Tadawul and is also the first to be approved
by a Shariah Committee of a Saudi Arabian Bank (SABB Amanah
Shariah Supervisory Committee)

REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:

TOWARDS GLOBALLY ACCEPTED SUKUK

CORPORATE SUKUK

Although the Sukuk expires in 2026, making it the longest dated

Islamic bond in history, investors can redeem the bond at face value
from SABIC in five years. The unique Sukuk structure is directly
underpinned by a real business activity and provides for structured
returns satisfying the institutional need for this important Shariahbased asset class with 49% allotted to pension, mutual & other
funds, 15% to Corporates & Institutions and 36% to banks in Saudi
Arabia

It will be listed on the Saudi bourse and is a potential benchmark for

future corporate, municipal and project Sukuks in the GCCs largest
economy. It is seen as a key step towards developing the countrys
largely equities-based financial markets

REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:

TOWARDS GLOBALLY ACCEPTED SUKUK

SUKUK FUNDS
SANAD SUKUK FUND

The worlds first GCC oriented Sukuk fund that provides direct
access to Sukuk for Islamic banks, trade-finance funds, private
banks, as well as directly to individual investors

The fund will invest 75% in Sukuk and 25% in Shariah compliant
syndications in order to enhance the yield, with a primary focus on
the GCC region

An important effect of the Sanad Sukuk Fund launch, targeted to

quickly reach US$100 million or more, will be the impact on Sukuk
market activity. This may substantially increase secondary market
trading which will foster increased issuance of securities

REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:

TOWARDS GLOBALLY ACCEPTED SUKUK

INNOVATIVE STRUCTURES AND

TRENDS
HYBRID SUKUK

Based on various demands of investors, a more diversified kind of

Sukuk, hybrid or mixed Sukuk emerged in the market. The assets
can comprise of Istisnaa, Murabaha as well as Ijara

Islamic Development Bank issued the first Hybrid Sukuk for US$
400 million. The assets comprised 66% Sukuk al-Ijara,
31%Murabaha and 3% Sukuk al-Istisnaa

The hybrid Sukuk structure represents the potential of new

structures and benefits to the investors

REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:

TOWARDS GLOBALLY ACCEPTED SUKUK

INNOVATIVE STRUCTURES AND

TRENDS
CONVERTIBLE SUKUK - PCFC SUKUK

The Dubai based port operator Ports, Customs and Free Zone Corporation
(PCFC) issued the largest Sukuk to date, raising US$3.5 billion

This Sukuk-al-Musharaka structure was issued to bid for a takeover of P&O to

make PCFC one of the three largest port operators in the world

It is the first Sukuk to be convertible into equity upon an IPO. The Sukuk was
targeted in particular at Islamic investors interested in the booming IPO market
in the Middle East. Therefore PCFC structured a Sukuk which was the
equivalent of pre-IPO convertible bond

The PCFC Sukuk was significantly oversubscribed. The transaction

demonstrates the continuing demand for sukuk products and the flexibility of
sukuk, which can be adapted to meet the specific financing needs of issuers

REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:

TOWARDS GLOBALLY ACCEPTED SUKUK

INNOVATIVE STRUCTURES AND

TRENDS
EXCHANGEABLE SUKUK - KHAZANAH SUKUK

Worlds first Shariah compliant exchangeable bond. The US$750

million issue is a benchmark for global Islamic investors and
conventional equity-linked investors

The certificates represent interests in a trust constituted by the

issuer and are exchangeable into shares of Telekom Malaysia
Berhad (TM)

REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:

TOWARDS GLOBALLY ACCEPTED SUKUK

10

INNOVATIVE STRUCTURES AND

TRENDS
TABREED SUKUK

Tabreeds US$ 200 million, five year global corporate Sukuk on behalf of
National Central Cooling Company

The issue was launched to raise funds for asset purchase as well as future
expansion

The transaction structure involved both a construction (Istisnaa) phase, during

which Tabreed undertakes to construct and deliver cooling plants, and a leasing
(Ijara) phase, during which Tabreed agrees to lease plants

During Istisnaa period, profit to the holder is paid, similar to a performance

bond

The Tabreed Sukuk is also the first to be listed on the London Stock Exchange.
This paves the way for further Sukuk issues to be listed on the regulated
European markets

REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:

TOWARDS GLOBALLY ACCEPTED SUKUK

UTILITY COMPANIES ISSUING

SUKUKS

Large companies with regular income flows such as utility

companies, whether power, water, oil or gas are the biggest
potential issuers of Sukuk

At times these projects may be overly leveraged but it is possible

that part of the debt may be converted into a Sukuk that are serviced
by the utility nature of the underlying asset, such as reliable income
streams based on long term contracts with governments

REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:

TOWARDS GLOBALLY ACCEPTED SUKUK

11

UTILITY COMPANIES ISSUING

SUKUKS
PAKISTAN WATER AND POWER DEVELOPMENT
AUTHORITY - WAPDA SUKUK US$ 134 MILLION

The 7-year, US$ 134 million Sukuk has been issued to partially
finance its Mangla Dam raising project

State Bank of Pakistan has granted the Ijara (Leasing) WAPDA

Sukuk as Statutory Liquidity Requirement (SLR) eligible security for
approved banks

REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:

TOWARDS GLOBALLY ACCEPTED SUKUK

TRAITS OF A GLOBALLY ACCEPTED

SUKUK / MODEL THAT CAN BE
ADOPTED

Well researched

Innovative and forward thinking

Shariah views willing to acknowledge

Global appeal buy ins from many global

institutions

REVIEW ON SEVERAL SUKUK PRODUCTS ISSUED WORLDWIDE:

TOWARDS GLOBALLY ACCEPTED SUKUK

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THANK YOU

13