Prepared by:
Fatimah 1000411,
Aida 1000080,
Khairul 1000156,
Nadzri 0900343
Cheah 1000164
BK 6503/5503 Sep – Dec 2010 Semester
INCEIF, Kuala Lumpur
17 OCT 2010
OUTLINE OF PRESENTATION
• What is Sukuk
• Summary of ELITE Musyarakah Sukuk
• Shariah Parameters
• Aqad
• Financial Reporting & Legal Documentation
• Maqasid al-Shariah
• Conclusion
SUKUK : DEFINITION
Literal Meaning
Sukuk (Arabic: ‫ صكوك‬,plural of
check"
‫صك‬Sakk) means "legal instrument, deed,
Technical Meaning
Sukuk refer to securities / certificates / papers with the features of liquidity,
tradability and “cash equivalence”
AAOIFI’s definition of Investment Sukuk – Standard 17(2):
“Investment sukuk are certificates of equal value representing undivided
shares in ownership of tangible assets, usufruct and services (in the
ownership of) the assets of particular projects or special investment activity.
Malaysian Securities Commission’s “Guidelines on the Offering of Islamic
Securities” in Appendix 1 (B) defines sukuk as “a document or certificate
which represents the value of an asset”
Contract Structure
Sales based
BBA, Murabahah, Salam, Istisna’
Lease based
Ijarah, Ijarah Muntahiyah bi Tamlik
Partnership based
MUSYARAKAH, Mudarabah
Agency based
Wakalah
SUKUK
MUSYARAKAH : DEFINITION
“A partnership arrangement between two parties or more to
finance a business venture whereby all parties contribute
capital either in the form of cash or in kind for the purpose of
financing the business venture. Any profit derived from the
venture will be distributed based on a pre-agreed profit
sharing ratio, but a loss will be shared on the basis of equity
participation.”
Important Principles:
(i) Capital & Profit are not guaranteed
(ii) Profit distribution follow exactly capital invested or preagreed ratio
(iii)Loss according to capital invested
Key Transaction
Issuer
Seafield Capital Bhd
Instrument
RM 1.5 bil Musyarakah Sukuk Programme
Ratings (by RAM
Rating Services Bhd)
AA2
Issuance date
27 May 2009
Islamic contract
Musyarakah
Underlying asset /
venture
Investment in the Trust Asset, comprising the
respective Trust Units of Concession Assets
Lead arranger
CIMB Investment Bank Bhd
Shariah adviser
CIMB Shariah Islamic Committee
Purpose of issue
To meet ELITE’s funding requirements
Trustee
Universal Trustee (Malaysia) Bhd
Sukuk Holders
Sukuk
Sukuk
sale
proceeds
Seafield Capital
(Issuer)
Sale of
beneficial
ownership
Sale
undertaking deed
Purchase
undertaking deed
ELITE
(Obligor)
Sale price
Sale price
Puncak Tulus
(SPV 1)
Sale of Beneficial
Ownership
ELITE
Owner of
Consessionaire
Aqad
Agents of
Contract
Transaction 1 - Sale of Beneficial Ownership in the Concession Agreement between
ELITE and Pucak Tulus (SPV).
Transaction 2 - Subsequent sale of the Beneficial Ownership in the Concessionary
Agreement between Puncak Tulus (SPV) to Seafield (Issuer).
Transaction 3 - Sale of Sukuk between Seafield and Sukukholders.
Musyarakah Contract is formed among the investors.
Trustee Management Company and Beneficiaries (Sukuk Holders)
Purchase Undertaking Deed between ELITE and Seafield (Issuer)
Objectives
of
Contract
Refinance ELITE’s existing borrowings
Fund the fees, costs, expenses and other amounts payable in relation to the Sukuk
program
Remaining amount for general funding, capex and working cap of ELITE
Sale: To transfer the ownerships in financial asset (in the form of trust units).
Musyarakah: To share the profit derived from ELITE’s toll revenue and income under
Concession Agreement.
Trust Deed: To protect the rights and interest of the Beneficiaries.
Purchase Undertaking: Promise to repurchase the Trust Units
Subject
matter
Financial Asset (trust units), Beneficial Ownership in the Concession Assets, Debts.
Offer and
acceptance
Offer and Acceptance are done in writing, Initial Public Offerings and other legal
documentations.
Observations:
 Sale Contracts:
- Objective: Transfer of ownership. There is no transfer of legal ownership
from ELITE to SPV1, SPV1 to Issuer and Issuer to Sukuk Holders. AAOIFI Rules
On Sukuk No.21
- Subject Matter- Financial Asset/trust units ( To refinance BAIDS taken earlier
worth RM 850 million).


Musyarakah contracts- Objective: Profit/Loss Sharing
- Participation in the equity.
- But, there is no risk taking. The requirements of Top Up account, Purchase
Undertaking, Capital and profit are secured. No real profit/loss sharing.
Purchase Undertaking
- Promise to repurchase at Par Value ( The capital)
- Is it valid? How does it affect Musyarakah Contract?
- Is it enforceable in the court of law?
Nevertheless, the Sukuk is valid per SAC’s Securities Commission Malaysia
Guidelines.

Purchase undertaking for capital protection –
is it valid?
◦ Page 29 of PT & C, ELITE is obliged to buy
Sukukholders’ interest at Exercise Price upon
occurence of Maturity Date or early dissolution of
Sukuk.
◦ AAOIFI in Nov 2007, raised concerns –
◦ purchase undertakings are allowed for ijarah, and
not other contracts.
◦ liquidity facilities via loan from issuer also
disallowed


Financial reporting – aims to provide information
transparency – to all parties involved in sukuk
transaction.
ELITE verifies that:
◦ Trust units are reported as non current asset in the
balance sheet of ELITE – complies with application of al
bay principles

However, the legal and beneficial rights of the
underlying asset (trust units) are only transferred
to SPV1 and to issuer. AAOIFI Feb 2008 ruled that
a sukuk is not Shariah compliant when the SPV
fails to transfer ownership of asset to the
holders.




What is the asset? Unit trust.
Purpose – to re-finance BaIDS of RM 800 mil.
Ownership of underlying asset – in the form
of security asset
Does it comply with the ownership
requirements?
 issuance of debt against debt (al kali bi al kale) is
forbidden by fiqh

Implications for maqasid:
◦ Debt creation
◦ Limited recourse for sukuk holders


Securing of
benefits
(Manfa’ah);
and
Repelling of
Harm
(Madarrah)
Manfa’ah
Mudarrah




The Musyarakah Sukuk is exercised to raise funds to refinance debt.
There are fiqh / aqad / maqasid implications
◦ Are musyarakah principles suitable for such an objective?
◦ Perhaps BBA or Inah type contracts are by nature more
representative of the objective
At legal documentation and financial reporting levels, the following
concerns were raised:
◦ Capital and return guaranteed but AAOIFI restricts purchase
undertaking only to ijara
◦ Islamic law of contract stipulates that musyarakah is participatory
financing for a genuine business venture. Is debt refinancing a
valid business venture?
This sukuk can be better repositioned based on other bay
contracts, e. g. BBA.
THANK YOU