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Case studies in sukuk ijarah structure
This document contains information about three different sukuk structures: 1. TNB Malaysia sukuk involved TNB issuing sukuk to fund a power plant project, with guarantees from TNB and implicit backing from the Malaysian government reducing default risk. 2. Qatar Global Sukuk was used to fund construction of a medical city, with the sukuk structure involving the SPV leasing land from Qatar and selling it upon maturity. 3. Nakheel sukuk was the largest ever at $3.52 billion to develop Dubai Waterfront, but faced issues during the financial crisis despite guarantees, and questions around applicable law for the guarantees.
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Case studies in sukuk ijarah structure
- 1. CASES STUDIES IN SUKUKIJARAH STRUCTURE GROUP 2 ZUHAIRA NADIAH AIMI NADIRAH NURUN NADIA
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- 3. INTRODUCTION •TNB Malaysia haswon tender launched by Energy Commission of Malaysia to design, supply, construction, commissioning, operation and maintenance of a 1,071.43MW combined cycle gas-fired power plant to maintain the reserved margin above 20% for Peninsular Malaysia. Project site located in Prai,Butterworth,Penang, •TNB awarded the project to TNB Prai and TNB Prai created a SPV to undertake the project and acted as the Issuer of the Sukuk which is the TNB NE. •TNB Prai as the project company was awarded a concession for the design, construction, ownership, operation and maintenance of CCGT power plant in Prai, Penang, under a 21-year PPA. The generated electrical power will then be purchased by the TNB, pursuant to a PPA.
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- 7. ANALYSIS OF ISSUES ISSUESEXPLANATION Sukuk Default •There will be less possibility for sukuk default as this Sukuk been aided by TNB as the Sponsor/rolling guarantee to TNB NE (Issuer) •Ultimately, as TNB is indirectly owned by the government, this alone serves the basis for the market confidence in all its corporate issuances.
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- 9. INTRODUCTION •The Government ofQatar through the Qatar Global Sukuk (QGS) has issued a rated trust certificates (Sukuk) which ultimately been used for the general funding purposes to raise Shariah compliant funds. •The purpose of this Sukuk is to mobilise resources for the construction of Hamad Medical City (HMC) in Doha. •This Sukuk has been listed in Luxembourg Stock Exchange and the Labuan International Finance Exchange.
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- 12. QATAR (LESSEE) QATAR (SELLER) S P V INVESTORS / SUKUK HOLDERS SUKUK STRUCTURE Certificate proceed Certificate proceed Title to LandParcel Periodic and dissolution distributions amount Lease rental and exercise price on a dissolution event SPV leases the land parcel to Qatar for 7 years terms and sells on dissolution event
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- 15. INTRODUCTION •Nakheel Sukuk wasissued in Dubai and is the largest sukuk offering ever executed in the world, USD $ 3.52 billion. •Sukuk issuance took place on 14th December 2006 by Nakheel Development Limited, its SPV arranged by Dubai Islamic Bank. •The purpose is to build a city twice the size of Hong Kong Island, with skyscrapers for 1.5 million residents, all ringed by a 75 km canal at Dubai Waterfront.
- 16. No. Subject Details 1.Type of Sukuk Ijarah 2. Purpose Property development at Dubai Waterfront 3. Assets DWF South & Crescent Lands 4. Obligor Nakheel Holdings (1, 2, 3) 5. Issuer/SPV Nakheel Development Limited 6. Lead Manager Dubai Islamic Bank/Barclays Capital 7. Issue size USD $ 3.52 Billion 8. Issue date 14th December 2006 9. Maturity date 14th December 2009 10. Tenor 3 Years SUKUK DETAILS
- 17. No. Subject Details 11.Governing Law English Law & UAE Law 12. Guarantor Dubai World 13. Documentations a. Purchase Agreement b. Lease Agreement c. Servicing Agency Agreement d. Sale undertaking e. Purchase undertaking f. Agency declaration g. Declaration of Trust h. Security Agency Agreement
- 18. SUKUK HOLDERS NAKHEEL DEVP.LIMITED (ISSUER) NAKHEEL HOLDINGS 1 NAKHEEL CO. PJSC NAKHEEL HOLDINGS 2 1. Certificates Sukuk Proceeds 2. Sukuk Assets Purchase Price 3. Funds 4. 3-yr lease of Sukuk Assets SUKUK STRUCTURE 5. Lease payments 6. Profits distribution
- 19. ISSUES Issue Explanation Credit Crisis• Even though there is a guarantee made by Dubai World, but due to credit crisis the situation has led to near-default sukuk repayment. Declaration of trust and the guarantees were governed by English Law • The UAE courts probably would not recognize the jurisdictional choice of the parties. Contradictory issue pertaining guarantee made by Dubai World • There was a disclaimer clause in the prospectus stating that the Govt. of Dubai will not have liability in respect of the Sukuk. • However, guarantee was made by the Dubai World (state- owned co.) – implicitly it was guaranteed by the govt.
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