This document provides information about Sukuk (Islamic bonds), including definitions, the growing market for Sukuk, structures used to issue Sukuk, parties involved, challenges, and case studies of Sukuk related to the construction industry. Some key points: - Sukuk are the Islamic equivalent of bonds, where investors have ownership of assets to generate returns rather than interest. They are often issued through a special purpose vehicle. - The market for Sukuk is growing significantly, with estimates of $25 billion outstanding by 2006 and $50 billion by 2008 as Islamic financial institutions seek new investment instruments. - Common structures for Sukuk issuance include Mudarabah, Murab

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Sukuk
(Islamic Bond)
Hamad Rasool
Director : First WAPDA Sukuk Co.
Director: First Credit Investment Bank.
Director: WAPDA Finance

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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.

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Introduction

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Growing Sukuk
 Liquidity Management of 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

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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

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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

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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

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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

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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

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

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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

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

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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)

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Sukuk Al-Ijara based Model

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Sukuk al Istismar (51% Ijarah structuring)

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Global Sukuk Issues

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Global Sukuk Cumulative
Issuance

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Global Sukuk Issuance

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Sukuk Issuing in Construction Industry
Name Country Volum Date Tenor
Emaar UAE $65 m July 2004 5 years
Amlak UAE $200 m July 2005 5 years
UEM Builders Malasiya $82 m Jan-2006 7 years
Aldar Behrain $100 m Oct – 2005 5 years
Com. RE Kuwait $100 m May 2005 5 years
Motorway Pak $600 m Jan-2005 5 years
WAPDA, Penang Port and bridge , Sanctuary Building-U k, Sukuk, Zam
Zam tower KSA etc also has been issued sukuk related to construction
Industry list attached for further consideration)

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CASE STUDIES
Case study of Sukuk Relatively with
Construction industry.
 WAPDA Sukuk for upraising Mangla Dam
 Motorway Sukuk

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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

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Transaction Structure

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Transaction Structure

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Offering Summery

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Motorway Sukuk

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Glossary