The document discusses a proposed securitization structure for a real estate finance company (REFC) to issue corporate bonds with sukuk features. The structure involves the REFC selling its mortgage receivables to a special purpose vehicle (SPV) that would issue debt securities (bonds) to investors to finance the purchase. This allows the REFC to monetize illiquid assets and raise cash while transferring credit risk to investors. The structure is similar to conventional securitization but aims to comply with Shariah principles by giving bondholders partial ownership of the underlying assets.

1. Corporate Bonds for Real EstateCorporate Bonds for Real Estate
with Sukuk Featureswith Sukuk Features
ORIX Investment Bank Pakistan LimitedORIX Investment Bank Pakistan Limited
International Islamic Finance and
Investment Symposium 2006
December 7, 2006
Presented By:
Naim Farooqui
Managing Director

2. Real Estate AcquisitionReal Estate Acquisition
Transaction StructureTransaction Structure
Bank Syndication
Debt -Rs. 150 m
Corporate House
Equity – Rs. 121 m
Office Building
Equity + Debt
Rs. 271 m
Company 1
Company 2
Company 3
Company 4
PurchasePurchase
RentedRented
RentalsRentals
1

3.  Securitization is a process for institutions to turn theirSecuritization is a process for institutions to turn their
locked up assets i.e. mortgages in the instant case,locked up assets i.e. mortgages in the instant case,
which are illiquid and lumpy, into tradable securitieswhich are illiquid and lumpy, into tradable securities
such as bonds.such as bonds.
 Securitization is an open market selling of financialSecuritization is an open market selling of financial
instrument backed by asset’s cash flow or asset valueinstrument backed by asset’s cash flow or asset value
(mortgages).(mortgages).
 A contractual arrangement whereby the REFC sells itsA contractual arrangement whereby the REFC sells its
mortgage receivables to a special purpose vehiclemortgage receivables to a special purpose vehicle
(SPV).(SPV).
 SPV issues debt instruments (bonds) to finance theSPV issues debt instruments (bonds) to finance the
purchasepurchase
Making a Case for Securitization forMaking a Case for Securitization for
A Real Estate Finance Company (REFC)A Real Estate Finance Company (REFC)
2

4. Securitization Structure
Real Estate
Finance Company
Real Estate
Finance Company
MortgagesMortgages
Normal REFC Business
Operations
Extension of Loans
For Real Estate
Housing Mortgage
Receivables
SPVSPV
Cash Proceeds Raised
Via Issuance of Debt
Securities
InvestorsInvestors
Debt
SecuritiesCash
Receivables
Key Issues To be Addressed
1. Non-Recourse Element
2. Accounting Clearance
3. Legal Issues
4. Market For Instrument
5. Regulatory Aspects
6. Security Mechanisms
Trustee
Trustee
Safeguarding Investors
Interest
Typical Structure
Mortgage Backed
Securitization
3
Private Placements Public Placements

5.  Originator: entity that generates receivablesOriginator: entity that generates receivables
 Issuer of the securities: SPV (any form, usuallyIssuer of the securities: SPV (any form, usually
trust, corporation, partnership, etc.)trust, corporation, partnership, etc.)
 Advisor/Arranger: structures transaction; preparesAdvisor/Arranger: structures transaction; prepares
documentation alongside legal, liaison withdocumentation alongside legal, liaison with
auditorsauditors
 Underwriter: who places securities in the marketUnderwriter: who places securities in the market
Structure of SPVStructure of SPV
4

6.  Custodian: entity that holds receivables as agentCustodian: entity that holds receivables as agent
and bailee for the trustee or trusteesand bailee for the trustee or trustees
 Servicer: who collects receivables and transfersServicer: who collects receivables and transfers
funds to accounts of trusteesfunds to accounts of trustees
 Trustee: who deals with the administration—Trustee: who deals with the administration—
holds receivables; receives payment onholds receivables; receives payment on
receivables, makes payment to security holdersreceivables, makes payment to security holders
 Rating agencies: JCR-VIS, PACRA.—helps inRating agencies: JCR-VIS, PACRA.—helps in
structuring; determine opinions needed, etc.structuring; determine opinions needed, etc.
Structure of SPV…contd.Structure of SPV…contd.
5

7.  Why Securitize?Why Securitize?
 Lower-cost financingLower-cost financing
 Liquidity crunches?Liquidity crunches?
 Equity savingEquity saving
 Leverage restrictionsLeverage restrictions
 Reduction of assets – create liquidity toReduction of assets – create liquidity to
the companythe company
 Matched funding / fundingMatched funding / funding
strategystrategy
 EarningsEarnings
 Originator capitalizes the future cash flowOriginator capitalizes the future cash flow
General Benefits of SecuritizationGeneral Benefits of Securitization
6

8.  To owner/originatorTo owner/originator
 Alternative financing instrumentsAlternative financing instruments
 Improve liquidity in the balance sheetImprove liquidity in the balance sheet
 Reinvestment and freeing up the low-yield assetsReinvestment and freeing up the low-yield assets
 Transfer the interest rate risks to SPVTransfer the interest rate risks to SPV
 Reducing corporate gearingReducing corporate gearing
 To bondholders/investorsTo bondholders/investors
 New Investment opportunities for diversificationNew Investment opportunities for diversification
 Direct participation in real estate market by small investorsDirect participation in real estate market by small investors
 Building as collateralBuilding as collateral
 To Real Estate MarketTo Real Estate Market
 An active secondary capital market for institutionalAn active secondary capital market for institutional
investmentinvestment
 Alternative Financing OptionsAlternative Financing Options
Summing Benefits for allSumming Benefits for all
StakeholdersStakeholders
7

9. Similarities of SUKUK with the proposed structureSimilarities of SUKUK with the proposed structure
The proposed structure though based on conventionalThe proposed structure though based on conventional
model can easily be converted into a Shariah Compliantmodel can easily be converted into a Shariah Compliant
Sukuk Bond. It has the following characteristics whichSukuk Bond. It has the following characteristics which
are important elements of Sukuks:are important elements of Sukuks:
 Corporate Bonds are easily Tradable –Corporate Bonds are easily Tradable – Similarly, SUKUKSimilarly, SUKUK
being liquid real assets, are easily transferred and traded in thebeing liquid real assets, are easily transferred and traded in the
financial market.financial market.
 Corporate Bonds can be Rated –Corporate Bonds can be Rated – Credit rating increase theCredit rating increase the
credibility of financial instruments. SUKUK are easily analyzed bycredibility of financial instruments. SUKUK are easily analyzed by
international and regional rating agencies which facilitates theirinternational and regional rating agencies which facilitates their
marketability.marketability.
Differences in Main features:Differences in Main features:
 Sukuk have share holding in the underlying asset while BondsSukuk have share holding in the underlying asset while Bonds
are purely a debt instrument.are purely a debt instrument.
 Sukuk are limited to Sharia permissible ventures/products.Sukuk are limited to Sharia permissible ventures/products.
ConclusionsConclusions
8

10. Recent Deals
July 2003
Rs. 150 Million
International Housing
Finance Limited
Brookes Pharmaceutical
Limited
July 2003
Ittehad Chemicals
Limited
Rs. 250 Million
Listed Term Finance
Certificates
July 2003
National Police
Foundation Security
Services Limited
Rs. 38 Million
Lease Syndication
Baluchistan Glass
Limited
Rs. 200 Million
Debt Syndication
July 2003
Debt Syndication
Rs. 100 Million
July 2003
Crescent Ujala Limited
Rs. 150 Million
August 2003
Fidelity Investment
Bank Limited
Sept 2003
Rs. 400 Million
Privately Placed Term
Finance Certificates
Grays Leasing Limited
Privately Placed Term
Finance Certificates
Rs. 130 Million
Oct 2003
Debt Syndication
Rs. 100 Million
Nov 2003
Sigma Leasing Limited
Orient Petroleum Inc
Privately Placed Term
Finance Certificates
Rs. 300 Million
Dec 2003
Crescent Standard
Investment Bank Limited
Rs. 125 Million
Lease Discounting
Syndication
Dec 2003
Crescent Steel & Allied
Products Limited
Jan 2004
Privately Placed Term
Finance Certificates
Rs. 300 Million
Sindh Abadgar Sugar
Mills Limited
March 2004
Rs. 100 Million
Debt Syndication
Al Zamin Leasing
Modaraba Limited
Rs. 50 Million
Lease Discounting
Syndication
May 2004
Indus Dyeing &
Manufacturing Company
May 2004
Rs. 100 Million Rs. 500 Million
Eden Developers Pvt
Limited
Debt Syndication
June 2004 June 2004
Rs. 110 Million
International Brands
Pvt Limited
Debt Syndication
Big Bang Communications
Pvt Limited
Rs. 32 Million
Debt Syndication
June 2004
Telecard Limited
Al Noor Sugar Mills
Limited
June 2004
Rs. 100 Million
Debt Syndication
June 2004
Rs. 200 Million
Debt Syndication
Mortgage Backed
Bridge Financing
Commercial Paper Debt Syndication
Orient Petroleum Inc
Rs. 1 Billion
Sept 2003
First Oil & Gas Securitization
Company
Securitization
Orient Petroleum Inc
April 2005
Rs. 1.2 Billion
Naimat Basal oil & Gas
Securitization Company
Securitization
PILCORP
Sept 2002
Rs. 100 Million
First Securitization Trust
Company
Lease Receivables
Securitization
ORIX Securitization Transactions
Completed
July 2003
Rs. 150 Million
International Housing
Finance Limited
Brookes Pharmaceutical
Limited
July 2003
Ittehad Chemicals
Limited
Rs. 250 Million
Listed Term Finance
Certificates
July 2003
National Police
Foundation Security
Services Limited
Rs. 38 Million
Lease Syndication
Baluchistan Glass
Limited
Rs. 200 Million
Debt Syndication
July 2003
Debt Syndication
Rs. 100 Million
July 2003
Crescent Ujala Limited
Rs. 150 Million
August 2003
Fidelity Investment
Bank Limited
Sept 2003
Rs. 400 Million
Privately Placed Term
Finance Certificates
Grays Leasing Limited
Privately Placed Term
Finance Certificates
Rs. 130 Million
Oct 2003
Debt Syndication
Rs. 100 Million
Nov 2003
Sigma Leasing Limited
Orient Petroleum Inc
Privately Placed Term
Finance Certificates
Rs. 300 Million
Dec 2003
Crescent Standard
Investment Bank Limited
Rs. 125 Million
Lease Discounting
Syndication
Dec 2003
Crescent Steel & Allied
Products Limited
Jan 2004
Privately Placed Term
Finance Certificates
Rs. 300 Million
Sindh Abadgar Sugar
Mills Limited
March 2004
Rs. 100 Million
Debt Syndication
Al Zamin Leasing
Modaraba Limited
Rs. 50 Million
Lease Discounting
Syndication
May 2004
Indus Dyeing &
Manufacturing Company
May 2004
Rs. 100 Million Rs. 500 Million
Eden Developers Pvt
Limited
Debt Syndication
June 2004 June 2004
Rs. 110 Million
International Brands
Pvt Limited
Debt Syndication
Big Bang Communications
Pvt Limited
Rs. 32 Million
Debt Syndication
June 2004
Telecard Limited
Al Noor Sugar Mills
Limited
June 2004
Rs. 100 Million
Debt Syndication
June 2004
Rs. 200 Million
Debt Syndication
Mortgage Backed
Bridge Financing
Commercial Paper Debt Syndication
Orient Petroleum Inc
Rs. 1 Billion
Sept 2003
First Oil & Gas Securitization
Company
Securitization
Orient Petroleum Inc
April 2005
Rs. 1.2 Billion
Naimat Basal oil & Gas
Securitization Company
Securitization
PILCORP
Sept 2002
Rs. 100 Million
First Securitization Trust
Company
Lease Receivables
Securitization
ORIX Securitization Transactions
Completed
9

11.  Thank You!Thank You!