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Sukuk

The document discusses Sukuk, an Islamic financial certificate similar to bonds. It defines Sukuk, explores reasons for growing Sukuk markets, advantages for issuers and investors, factors to consider in issuances, typical structures, global issuance levels, and provides case studies of Sukuk related to infrastructure projects in Pakistan.

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AlHuda Centre of Islamic Banking & Economics (CIBE)
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108 views23 pages

Sukuk

The document discusses Sukuk, an Islamic financial certificate similar to bonds. It defines Sukuk, explores reasons for growing Sukuk markets, advantages for issuers and investors, factors to consider in issuances, typical structures, global issuance levels, and provides case studies of Sukuk related to infrastructure projects in Pakistan.

Uploaded by

AlHuda Centre of Islamic Banking & Economics (CIBE)
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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1

Sukuk
(Islamic Bond)
Structuring, Operation & performance

ALHUDA
Centre of Islamic Banking and Economics
[email protected], www.alhudacibe.com
042-5858990-8407850 2
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.

3
Growing Sukuk
 Liquidity Management for 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

4
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

5
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

6
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

7
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

8
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

9
Parties Involved
 Merchant Banker :
 Credit Rating Agency:
 Legal & Tax Counsel:
 Auditor

10
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

11
Ideal models for structuring of
Sukuk Especially focused on
Construction Industry.

12
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)

13
Global Sukuk Issues

14
Global Sukuk Cumulative
Issuance

15
Global Sukuk Issuance

16
CASE STUDIES

Case study of Sukuk Relatively with


Construction industry.

 WAPDA Sukuk for upraising Mangla Dam


 Motorway Sukuk

17
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
18
Transaction Structure

19
Transaction Structure

20
Offering Summery

21
Motorway Sukuk

22
Glossary

23

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