The Sukuk Summit 2007

SURVEY OF CURRENT SUKUK STRUCTURES SCOPE FOR FUTURE DEVELOPMENT OF HYBRID, EXCHANGEABLE & DERIVATIVE SUKUK

Badliysah Abdul Ghani Executive Director / CEO CIMB Islamic Bank Berhad 21 June 2007

Contents

Section 1 Section 2 Section 3 Section 4

Development of Sukuk Structures Current Trends: Hybrid Sukuk Features of Future Sukuk Conclusion

Section 1 Development of Sukuk Structures

Malaysia The land of Sukuk innovation

The worlds various Sukuk structures originated from Malaysia:1990 - First Bai-Bithaman Ajil Islamic debt securities Shell MDS Sdn Bhd 1994 First Sukuk Mudharabah Cagamas Berhad Worlds first IRMBS 2001 First Sukuk Ijarah corporate bond Kumpulan Guthrie Berhad 2002 First Sukuk Ijarah sovereign bond Government of Malaysia 2003 First tradable Sukuk Istisna SKS Power Sdn Bhd 2005 First Sukuk Musyarakah Musyarakah One Capital Berhad 2006 RM Sukuk by Shariah principle
Mudharabah 7.5%

Bai' Bithaman Ajil 6.2% Murabahah 9.4% Istisna' 2.1% Ijarah 4.9%

Musyarakah 70.0%
Source: SC Annual Report 2006

Sukuk Development in the Global Market

List of Rated USD Sukuk
Issuer Kumpulan Guthrie Bhd. Malaysia Global Sukuk Inc. LMC Bahrain Sukuk Co.

Principle
Ijarah Ijarah Ijarah

Amount
USD150 million USD 600 million USD 250 million

Year 2001(expired in 2006)

2002 2003

Rating
BBB+(MARC) A3 (Moodys), A- (S&P) A (S&P)

The bulk of USD Sukuk are issued by companies within the GCC Most USD Sukuk adopt Ijarah or Musyarakah as the underlying Islamic principle The first Ijarah and Musyarakah deals in the GCC were executed after Malaysia had done the same in 2001 and 2005 for Kumpulan Guthrie Bhd and Musyarakah One Capital Bhd respectively

Solidarity Trust Service

Qatar Global Sukuk BMA International Sukuk Sarawak Corp Sukuk Inc. Gold Sukuk DMCC IDB Trust Services Ltd. Pakistan Int. Sukuk Co. Abu Dhabi Islamic Bank East Cameron Gas SIB Sukuk Co. Ltd. Tabreed 06 Financing Corporation DIB Sukuk

Ijarah
Ijarah Ijarah Ijarah Musyarakah Ijarah Ijarah Musyarakah Musyarakah Istisna / Ijarah Musharakah

USD 400 million

USD700 million USD 250 million USD 350 million USD 200 million USD500 million USD600 million USD800 million USD225 million USD200 million USD750 million

2003
2003 2004 2004 2005 2005 2005 2006 2006 2006 2006 2007

BBB (S&P)
AA-(S&P) A (S&P) Aaa1(Moodys), A-(S&P) A(S&P) AAA(S&P) B1(Moodys), B+(S&P) A2(Moodys), A (Fitch) CCC+ (S&P) BBB(S&P) BBB-(S&P) A1(Moodys),A(S&P)

Musyarakah USD165.75 million

MBB Sukuk
DIFC Sukuk

Musharakah
Mudharabah

USD300 million
USD1.5 billion

2007
2007

BBB+(S&P)
A+ (S&P)

Source : Bloomberg Q1 2007

Section 2 Current Trends: Hybrid Sukuk

Scope for Hybrids

Islamic Convertible Bonds
Year 2006 2007 2007 Issuer PCFC Development FZCO Aldar Properties PJSC IIG Funding Limited Amount (USDmil) 3,500 2,530 200 Islamic Principle Musyarakah Mudharabah Mudharabah Tenure 2 years 5 years 5 years Country UAE UAE Kuwait

Began in 2006
Occurring in GCC Trend expected to follow

In 2007, two companies based in the U.A.E have announced plans to issue convertible Sukuk worth a combined total of USD1.3 billion. Islamic Exchangeable Bonds In 2006, Khazanah Nastional Berhad (the Malaysian Governments investment arm) issued the worlds first Shariah-compliant exchangeable bond Largest exchangeable instrument issued out of Asia ex Japan in the year 2006 to date Largest ever exchangeable bond out of Malaysia Distribution by Geography USD750 million Sukuk exchangeable into ordinary shares of RM1.00 Middle East 27% each of Telekom Malaysia Listed on Labuan International Financial Exhange and Hong Kong Stock Exchange Certificates immediately traded up after pricing Still remains as the only Islamic exchangeable bond in the world
Others 73%

Section 3 The Features of Future Sukuk

The Features of Future Sukuk Derivatives

Malaysia has been at the forefront of developing the Islamic financial derivatives market. Islamic derivative products in Malaysia that have been approved by the Central Bank of Malaysia consist of:Islamic Profit Rate Swap (IPRS) Islamic Cross Currency Swap (ICCS) Forex Forward / Forex swap Shariah Compliant Option based on Urbun concept Call Warrants Commodity Futures Recent Developments In November 2006, two Malaysian Islamic financial institutions broke new ground in Islamic finance with both banks agreeing to execute a derivative master agreement to document Islamic Derivative transactions. The document is the first of such industry initiative in the world to standardize a document governing Islamic derivative transactions In July 2006, two banks in Malaysia signed the first Islamic cross currency swap deal

There is immense potential in the Derivative Sukuk universe and Malaysia will undoubtedly spearhead the innovation

Section 4 Conclusion

Conclusion
Due credit should be given to the Government of Malaysia for encouraging product innovation in the Islamic capital market The Sukuk market is vibrant and dynamic in Malaysia and the GCC. It is encouraging to see issuers from other parts of the world following suit. It is inevitable for new products to enter the Sukuk market as the industry grows It is true that the Sukuk market is now relatively more sophisticated than what it once was but much more work needs to be done in the future

Contact Details
Badlisyah Abdul Ghani Executive Director / CEO CIMB Islamic Bank Berhad 1s Floor, Menara Promet, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia. Tel: +603 2116 1234, Fax: +603 2144 8509 Email: badlisyah.abdulghani@cimb.com Website: www.cimbislamic.com

Appendix

Appendix
Islamic structure for Khazanahs Islamic Exchangeable Bonds
Sukukholders

i.

Rafflesia

Orchid

Khazanah

Two special purpose companies, Rafflesia Capital Ltd. (Rafflesia) (the Issuer) and Orchid Capital Ltd. (Orchid) will be held in trust for the benefit of charities to be nominated by Khazanah. ii. Khazanah will sell the Exchange Property, comprising the beneficial ownership of Shariah- compliant assets, i.e. shares to Orchird, which in turn sells the beneficial ownership in the shares to Rafflesia. iii. Khazanah will retain the voting rights attached to TM shares. Rafflesia has the beneficial interest over TM shares which it holds in trust for the Sukuk holders. iv. The Issuer then issues the Exchangeable Trust Certificates which evidence the beneficial ownership interests of Sukuk holders in the shares. v. Expected fixed periodic payments will be provided in cash out of the dividends paid out by the shares.