Cross-Border Sukuk Issues David Testa, Executive Director Head of Islamic Finance, WestLB London Sukuk Summit Royal Horseguards Hotel, 21 June 2007 - PowerPoint PPT Presentation

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Cross-Border Sukuk Issues David Testa, Executive Director Head of Islamic Finance, WestLB London Sukuk Summit Royal Horseguards Hotel, 21 June 2007

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Title: Islamic Finance An Introduction Author: cupok Last modified by: claire Created Date: 10/24/2005 9:05:46 AM Document presentation format: Custom – PowerPoint PPT presentation

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Title: Cross-Border Sukuk Issues David Testa, Executive Director Head of Islamic Finance, WestLB London Sukuk Summit Royal Horseguards Hotel, 21 June 2007


1
Cross-Border Sukuk Issues David Testa, Executive
Director Head of Islamic Finance, WestLB London
Sukuk Summit Royal Horseguards Hotel, 21 June
2007
2
WestLB and Islamic Finance Expansion
Innovation Two Case Studies Stimulants for
Continued Growth
3
WestLB Islamic Finance Highlights
  • WestLB has arranged and underwritten
  • over 15 Islamic financings since the beginning of
    2005
  • principal aggregate amount of over US6.0bn

Source Dealogic Loanware, no. of facilities
4
Expansion and Innovation
  • Important Market New but fast growing niche in
    the global capital markets
  • Growing at approximately 10-15 per annum
  • SP estimate the market to be approximately
    US400bn, with a potential of US4 trillion
    (report Oct 2006)
  • Islamic finance markets strong growth over the
    last 2-3 years
  • total volumes just over US8bn in 2004
  • over US28bn in 2006
  • over half the volume in 2004 originated from
    Malaysia, but the balance has shifted, with
    financings in the GCC accounting for some US15bn
    of the 2006 total
  • BUT still a niche within a niche
  • Over US2 trillion of conventional bonds and
    short-term note issuance in 2006
  • Total GCC syndicated loan volumes for 2006
    reached over US65bn

5
Expansion Innovation
  • A new product - the first GCC sovereign Sukuk
    issued in 2001
  • Rapid growth
  • 2005 volume of issuance 55 issues in 2005
    raising US9.6bn
  • 2006 volume of issuance 66 issues raising
    US17.0bn
  • 2007 40 issues totalling US33.8bn announced
  • Volumes in GCC increasing
  • 2005 11 issues raising US2.3bn
  • 2006 17 issues raising US6.4bn
  • 2007 US50bn commonly forecast

Source IFIS
6
Expansion Innovation
Sukuk Statistics Q2 2007 by Country Up to 10th June 2007 Sukuk Statistics Q2 2007 by Country Up to 10th June 2007 Sukuk Statistics Q2 2007 by Country Up to 10th June 2007
Country Total issued in USD (Million) No. of Issues
United Arab Emirates 4,945.90 6
Saudi Arabia 600.00 1
Malaysia 5,858.17 35
Kuwait 200.00 1
Pakistan 16.48 1
Bahrain 101.00 7
Sum Total of all Countries 11,721.55 51
Source IFIS (Islamic Finance Information Service) Source IFIS (Islamic Finance Information Service) Source IFIS (Islamic Finance Information Service)
GCC Total US5,846.9m (15 issues representing
49.9 of total issuance)
7
Expansion Innovation
  • Convertible issues
  • Dubai Ports Authority US3.5bn Musharaka Sukuk
  • Nakheel US3.52bn Pre-IPO Sukuk (including
    look-back rights)
  • Exchangeable issues
  • Aabar Petroleum US460m Sukuk issue ? Mudarabah
    structure
  • Aldar Properties US2.53bn Sukuk issue ?
    Mudarabah structure
  • Put and Call Options
  • SABIC US8000m 20 year Sukuk issue with 5 year
    put
  • The Investment Dar US150m Musharaka Sukuk due
    2011
  • Put and call options at the end of year 3
  • Co-ownership structure
  • Sharjah Islamic Bank US225m Sukuk Certificates
    due 2011
  • Co-ownership structure utilising assets in SIBs
    Islamic portfolio
  • MTN Programmes
  • Saad Group US5bn programme

8
Expansion Innovation Wide Appeal of Sukuk
Issues
  • Sukuk issues consistently appeal to both Islamic
    and conventional investors

Issue Launch Spread Bookrunners Comments
Dubai Civil Aviation US 1bn, 5 yr Sukuk, (Dec 2004) 45bp 27 distribution outside of the Middle East Islamic money represented slightly in excess of 30 of the book
IDB Trust Services, US 500mn (June 2005) 14.3bp more than 90 of the accounts were conventional buyers Asia 35, Europe 26, the Middle East 32 Banks took 43, central banks 23, corporates 12, agencies 10, insurance 2
Sharjah Islamic Bank US225m (October 2006) 65bp the first rated Sukuk by a bank 25 accounts participatedwith Middle Eastern investors taking 58 of the paper, Europeans 34 and Asian investors 8 Banks bought 84 of the deal and funds 16
Source DEALOGIC Bondware
9
Expansion Innovation Secondary Market Sukuk
secondary market activity still very limited
  • Over 100 Sukuk issues listed on Bloomberg (SUKU)
    only a small minority are priced
  • Very few secondary trades
  • Primary market still to gain critical mass
  • Islamic investors on a learning curve too

Source SUKU pages Bloomberg
10
Expansion and Innovation
  • Global spread Islamic finance is spreading
    beyond the GCC and South-East Asia
  • Germany August 2004 Anhalt-Saxony 100m Sukuk
  • Kazakhstan March 2005 US50m commodity murabaha
    for Bank TuranAlem
  • Turkey October and December 2005 US50m
    commodity murabaha for TSKB and US44m true
    murabaha for FFK Fon Leasing
  • USA June 2006 US165m Sukuk for East Cameron
    Partners (Texas)
  • Japan August 2006 JBIC US300-500m Sukuk issue
    announced and still under investigation
  • China September 2006 US250m Sukuk announced to
    finance a Chinese power project
  • UK April 2007 Government to review feasibility
    of Sukuk issue
  • UK May 2007 225m Islamic LBO for Aston Martin
    acquisition from Ford Motor Company by The
    Investment Dar and consortium
  • Sole arranger WestLB

11
Islamic Finance Focus on the UK
  • UK initiatives
  • Labour Government
  • "long-term ambition to make Britain the gateway
    to Islamic finance and trade
  • Aiming to make the City of London one of the
    worlds leading centres for Islamic finance
  • Retail focus in the UK "Islam is Britain's
    second-largest faith, and Muslims are involved in
    every walk of British life
  • Islamic Bank of Britain
  • Wholesale Islamic banking in the UK "Islam is
    Britain's second-largest faith, and Muslims are
    involved in every walk of British life
  • European Islamic Investment Bank
  • Bank of London and the Middle East
  • Further licence applications with the FSA
  • Legislation to facilitate the offering of Islamic
    finance products in the UK
  • Alternative financing arrangements
  • Initial retail focus
  • Finance Act 2005 ijara structures extended to
    commercial property
  • Finance Act 2006 wakala and diminishing
    musharaka

12
The names Bond.Islamic Bond
13
Aston Martin first fully Sharia-compliant LBO in
the UK
  • WestLB is Mandated Lead Arranger, Underwriter and
    Bookrunner
  • Joint Mandated Lead Arrangers
  • Bahrain Islamic Bank
  • EIIB
  • Standard Bank
  • 225m Islamic facilities
  • 200m term
  • 25m revolver

14
Aston Martin - Day 1 Commodity Murabaha Structure
Participants
  • Aston Martin transaction
  • MLA, Underwriter and Bookrunner WestLB
  • Murabaha Agreement between Bidco and WestLB as
    Investment Agent
  • Mudaraba Agreement between WestLB and the
    syndicate banks
  • Two tranche structure
  • 200m term facility
  • 25m revolving facility
  • 8 year final maturity, 5 year put option
  • Profit rate 3 or 6 month LIBOR 295bp

1. Participations
3. Spot payment
Investment Agent (WestLB)
Metals Supplier
2. Metals
7. Deferred payment
4. Metals
5. Metals
Bidco
Metals Buyer
6. Spot payment
15
Aston Martin - long-term structure Musharaka
WORK IN PROGRESS
  1. Facility commitments
  2. AML identifies Asset Pool to contribute to
    Musharaka
  3. Purchase price for interest in Asset Pool
  4. IA and AML co-own assets
  5. Balance of cash to Musharaka to apply to the
    co-owned assets
  6. Co-owned assets transferred to Musharaka
  7. IA leases its interest in its proportion of the
    co-owned assets back to AML
  8. Purchase undertaking exerciseable on event of
    default
  9. AML appointed as manager of Musharaka

Participants
Purchase Undertaking
Aston Martin Lagonda
1.
Investment Agent
Lease Agreement
Asset Pool
2.
Co-ownership interests
Co- owned Assets
3.
Musharaka JV (managed by Aston Martin Lagonda)
Management Agreement
16
Saudi Arabia - First Off-Shore Sukuk
Issuer DAAR International Sukuk Company (a limited liability company incorporated in the Cayman Islands)
Guarantor Dar Al-Arkan Real Estate Development Company (DAAR)
Issue US600,000,000 Trust Certificates due 2010
Maturity 3 years, bullet
Floating Rate 3-month US LIBOR
Coupon US LIBOR plus 200bp
Issue Type Sukuk al-Ijara
Joint Lead Managers and Joint Bookruners ABC Islamic Bank (E.C.) Arab National Bank Standard Bank Plc Unicorn Investment Bank, B.S.C. (c) and WestLB AG, London Branch
17
Dar Al Arkan US600m Sukuk Al Ijara
SUKUK HOLDERS
ISSUER (DAAR International Sukuk Co.)
DAAR
SAUDI SPV
18
Stimulants for Continued Growth
  • Expansion of Islamic banking system eg, in the
    GCC and UK
  • GCC funding needs
  • Infrastructure requirements/real estate
  • Corporate Islamicisation listed companies and
    family companies
  • Europe
  • Event-driven financing
  • Continued FDI
  • Asia widening interest following Malaysias lead
    (Singapore, Japan, Indonesia, Thailand)
  • Developing harmonisation/standardisation
  • Central Bank of Bahrain
  • AAOIFI
  • Islamic Financial Services Board
  • Gaps in the market
  • Islamic Sukuk/Mudarabah funds

19
WestLB Contacts
Islamic Finance Origination
Structuring David McCaig
Telephone (44) 20 7020
7532 Head of Emerging Markets Fax
(44) 20 7020 7530 Managing Director
e-mail david_mccaig_at_westlb.co.
uk David Testa
Telephone (44) 20 7020
3622 Head of Islamic Finance Fax
(44) 20 7020 7530 Executive Director
e-mail david_testa_at_westlb.co.u
k Mobile (44) 7770 435 312 Walid Sarieddine
Telephone ( 44) 20 7020 7533
Director Fax ( 44) 20
7020 7530 e-mail
walid_sarieddine_at_westlb.co.uk Mobile (44)
7769 670 660 Sami Neffati Telephone
( 44) 20 7020 7523 Manager Fax
( 44) 20 7020 7530 e-mail
sami_neffati_at_westlb.co.uk Mobile (44)
7825 420 765
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