Sukuk
(Islamic Bond)
Hamad Rasool
Director : First WAPDA Sukuk Co.
Director: First Credit Investment Bank.
Director: WAPDA Finance
1
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.
2
Introduction
3
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
4
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
5
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

6
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
7
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

8
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

9
Parties Involved
Merchant Banker :
 Credit Rating Agency:
 Legal & Tax Counsel:
 Auditor

10
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

11
Ideal models for structuring of
Sukuk Especially focused on
Construction Industry.
12
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)

13
Sukuk Al-Ijara based Model
14
Sukuk al Istismar (51% Ijarah structuring)
15
Global Sukuk Issues
16
Global Sukuk Cumulative
Issuance
17
Global Sukuk Issuance
18
Sukuk Issuing in Construction Industry
Name
Emaar
Amlak
UEM Builders
Aldar
Com. RE
Motorway
Country
UAE
UAE
Malasiya
Behrain
Kuwait
Pak
Volum
$65 m
$200 m
$82 m
$100 m
$100 m
$600 m
Date
July 2004
July 2005
Jan-2006
Oct – 2005
May 2005
Jan-2005
Tenor
5 years
5 years
7 years
5 years
5 years
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)
19
CASE STUDIES
Case study of Sukuk Relatively with
Construction industry.
WAPDA Sukuk for upraising Mangla Dam
 Motorway Sukuk

20
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
21
Transaction Structure
22
Transaction Structure
23
Offering Summery
24
Motorway Sukuk
25
Glossary
26