Camille Paldi, CEO of the Franco-American Alliance for Islamic Finance (FAAIF), a US citizen with an MA in Islamic Finance from Durham University (UK), explains sukuk to a US audience at the Chicago Islamic Finance Conference.

1. Sukuk Has Tremendous Potential in the USA
as a Capital Raising Instrument
Camille Paldi, CEO of the Franco-American Alliance for Islamic Finance (FAAIF), a US
citizen with an MA in Islamic Finance from Durham University (UK), explains sukuk to a
US audience at the Chicago Islamic Finance Conference.
USA, June 12, 2014 -- Sukuk is derived from the word sakk, which can mean legal
instrument, deed, and cheque. Sakk can also mean to strike a seal on a paper document.
The first sukuk transaction took place in Damascus, Syria in the Great Mosque of
Damascus (Umayyad Mosque) in the 7th Century AD. Syria is a treasure house of culture
and history. Tawriq (from wariq) means to render something into cash. Taskik (from
Sakk) is also used as securitization though literally refers to the process of dividing the
assets into papers (Sukuk). Tawriq is defined as: “transforming a deferred debt for the
period between the establishment of the debt and the maturity period into papers, which
can be traded in the secondary market.” (in Majallah Majma ‘Al Fiqh’)
The Global Sukuk Industry
In 1990, in Malaysia Shell MDS Sdn Bhd issued a sukuk ijarah worth RM 125 million.
Issuances grew 145% in 2006 compared to 2005 to reach US$27 Billion. The sukuk
market peaked at US$47 Billion in 2007 and dropped by 55% to US$21 Billion in 2008.
The market recovered in 2009 to reach a total issuance of US$31 Billion, which was
higher than the total issuance in 2006. 2012 saw US$110 Billion in sukuk issuances while
2013 tapered off with US$79 Billion.
Sukuk in the USA
The US has seen two major sukuk issuances including the East Cameron Gas Sukuk,
which was the first ever musharakah sukuk in America backed by oil and gas assets
maturing in 2006 and the General Electric Sukuk, which is an ijarah sukuk backed by
aircraft leases due for maturity in November, 2014. Although the Cameron Gas Sukuk
experienced some technical difficulties, the General Electric Sukuk is performing well
and there is a large potential for sukuk in the United States as a capital raising instrument

2. for American firms. In fact, both the state of New York and the state of Illinois have
initiated state bills in their legislatures enabling sukuk transactions.
The East Cameron Gas Sukuk Summary
East Cameron Partners LP (“ECP” or the “Originator”) is an independent oil and gas
exploration and production company, based in Houston, Texas whose producing assets
consisted of two gas properties located offshore of the State of Louisiana, USA. East
Cameron Partners (ECP) issued sukuk of USD165.67 million in July 2006 with a
maturity period of 13 years. This was the first sukuk issued by a company based in the
United States and rated by Standard & Poor’s. The underlying contract was musharakah
(co-ownership/joint venture) in which sukuk investors own so called Overriding Royalty
Interest (ORRI) in two gas properties located offshore the State of Louisiana through an
SPV acting as a trustee of sukuk holders. The SPV was called East Cameron Gas
Company (ECGP) and incorporated in the Cayman Islands. The originator also
contributed its funds into the musharakah. The assets of the musharakah were co-owned
by the sukuk holders and the originator company ECP. The sukuk were secured by a
mortgage on the assets of the issuer, which included the ORRI and secured accounts. The
sukuk were initially rated CCC+ by Standard & Poor’s and then downgraded to CC and
finally D. The East Cameron Gas sukuk had a fixed payment of 11.25% annually.
However, there was also a variable component because the sukuk returns depended upon
the production quantities (the overriding royalty interest (ORRI) specified a fixed
quantity of natural gas be delivered to the SPV). It also contained a redemption feature by
where a percentage of the sukuk would be redeemed if production exceeded a certain
level.
Instead of being solely used to support the capital and operating costs of drilling and
operating wells in the Gulf of Mexico for East Cameron Partners, the proceeds were also
used to pay most of the conventional debt of the company. This brought the debt- to-
equity ratio of the company to a Shariáh compliant level, however, also bankrupted the
sukuk. On October 16, 2008, East Cameron Partners filed for bankruptcy protection
under chapter 11, claiming its inability to pay the periodic returns on its USD166 million
sukuk issued in June 2006.
The General Electric Sukuk Summary
Sukuk Name: GE Capital Sukuk
Issue Size: USD $500,000,000.00
Closing Date: Shari’ah structure: Ijarah
Currency: USD
Maturity/Tenor: 5 years due for maturity in November 2014
Underlying Assets: Aircraft leases
Rated by: Standard & Poor’s
Rating: AA+

3. Payments: Semi- annually (May and November, due in 2014)
Return: 3.875%
The sukuk instrument is growing in popularity around the world as an innovative
financing instrument and a way to raise funds for various projects, business expansion,
and increased competitiveness, which attracts ethical and creative investors worldwide.
The USA should consider taking advantage of this opportunity on a wider scale in order
to attract investments in the USA. Contact Camille Paldi at camille@faaif.com.
About Company
FAAIF Limited is a management consultancy firm servicing clients in Islamic banking
and finance and takaful. FAAIF Events is an events production and management
company. Ilovetheuae.com is an online marketing and media, business, and legal
consultancy.
Contact:
Camille Paldi
FAAIF
Dubai, UAE
+971 (0)56 950 0562
camille@faaif.com
http://www.faaif.com