Evolution of Sukuk Market Trends and Issuances from 2001 to 2015
The corporate Sukuk market witnessed significant growth and development from 2001 to 2015, as showcased in the data presented at the World Bank and Arab Monetary Fund Seminar in Abu Dhabi. The issuance of both international and domestic Sukuk experienced notable increases, with diverse contributions from sovereign, corporate, and quasi-sovereign entities.
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Corporate Sukuk Market Day Three World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 Session 1 2: Ijlal Ahmed Alvi Chief Executive Officer IIFM
800,000 737,142 700,000 600,000 500,000 400,000 300,000 200,000 137,499 138,170120,854 92,403 100,000 52,978 50,041 24,26437,904 33,837 17,600 13,698 9,465 7,057 1,371 1,172 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 - March Grand Total Source: IIFM Sukuk Database World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 1
35,000 29,567 30,000 25,605 25,000 20,169 20,000 13,859 15,000 12,082 10,000 8,444 7,000 6,565 4,098 5,000 3,413 2,503 2,140 1,680 1,130 425 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 - March Total International Sukuk Issued $138.680 bio Source: IIFM Sukuk Database World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 2
130,000 117,331 120,000 112,565 110,000 100,000 91,286 90,000 83,960 80,000 70,000 60,000 48,880 50,000 36,182 40,000 30,904 30,000 22,124 21,755 20,000 11,035 10,286 6,962 5,377 10,000 747 241 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 - March Total Domestic Sukuk Issued $599.634 bio Source: IIFM Sukuk Database World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 3
Jan 2001- Dec 2008 Jan 2009- Dec 2013 Sovereign, 5,459, 15% Sovereign, 24,749, 38% Quasi- Sovereign, 4,500, 12% Corporate, 30,122, 46% Quasi- Sovereign, 10,446, 16% Corporate, 27,273, 73% Jan 2014-March 2015 Sovereign, 8,711, 24% Corporate, 7,911, 22% Quasi-Sovereign, 19,510, 54% Source: IIFM Sukuk Database World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 4
2009-2013 2001-2008 Sovereign, 30,938, 30% Corporate, 86,857, 22% Corporate, 72,080, 69% Quasi- Sovereign, 28,330, 7% Quasi- Sovereign, 655, 1% Sovereign, 278,452, 71% Jan 2014-March 2015 Corporate, 23,142, 23% Quasi-Sovereign, 6,659, 6% Sovereign, 72,520, 71% Source: IIFM Sukuk Database World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 5
Hybrid Sukuk , 7,559, 12% Sukuk Al Wakalah , 8,787, 13% Islamic Exchangeable Sukuk , 4,040, 6% Sukuk Al Musharakah, 11,411, 18% Sukuk Al Murabahah, 6,835, 10% Sukuk Al Ijarah, 18,847, 29% Sukuk Al Mudharabah,7,825, 12% Source: IIFM Sukuk Database World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 6
Sukuk Al Wakalah , 2,962, 2% Sukuk Al Salam , 1, 0.001% Bai' Bithaman Ajil , 12,682, 7% Hybrid Sukuk , 26,657, 15% Sukuk Al Musharakah, 47,835, 26% Islamic Exchangeable Sukuk , 408, 0.224% Sukuk Al Murabahah, 45,684, 25% Sukuk Al Ijarah, 36,297, 20% Sukuk Al Istisna'a, 3,469, 2% Sukuk Al Mudharabah, 6,084, 3% Source: IIFM Sukuk Database World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 7
BND 0.11% IDR 0.57% BHD 0.01% AED 4% TRY 0.61% JOD 0.07% SGD 0.41% SAR 14% KWD 0.18% QAR 0.08% MVR 0.002% PKR 0.88% OMR 0.07% MYR 79% Source: IIFM Sukuk Database World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 8
GBP 0.50% EUR 0.18% JPY 0.04% CNY 0.24% MYR 7% USD 92% Source: IIFM Sukuk Database World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 9
France 0.0003% Hong Kong 0.08% Brunei Darussalam 0.08% USA 1% China 0.04% Germany 0.02% Japan 0.08% Indonesia 1% Bahrain 1% Jordan 0% UK 0.14% Kuwait 1% Luxembourg 0.02% UAE 19% Turkey 2% Sudan 0.05% Singapore 1% Saudi Arabia 12% Qatar 2% Malaysia 60% Pakistan 1% Oman 0.05% Mauritius 0.05% Maldives 0.001% Source: IIFM Sukuk Database World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 10
Perpetual 2% 12 Months 10% 11Years 24% >12 Months 5Years 37% >6years 10Years 27% Source: IIFM Sukuk Database World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 11
World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 12
World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 13
Long Tenor Global Sukuk Issuances 80,000 226 492 60,000 40,000 79 $57 bio $58 bio 20,000 $22 bio 0 10 Years 11 Years - 20 Years >20 Years Value Number of Issues Total Long term Sukuk $137 bio (2001-July 2014) The Sukuk market across the globe has historically suffered from a lack of longer maturity tenors, which presents a pressing problem for banks, financial institutions, pension funds and insurance companies which are trying to match durations of their liabilities in a Shari ah compliant manner. The last five years, however, have seen a trend towards longer maturity issues from all parts of the world, especially from Malaysia. As of 2013, longer maturity Sukuk issues of tenors ten years and above form almost 20% of the total Sukuk issued as against 9.5% in 2009 with the greatest surge seen in the group with tenors between 10 and 20 years. World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 14
Amount in USD Mio or Equivalent Issue Year Issuance Currency International/ Domestic Tenor (Months) Issuer Issuer Country United Arab Emirates United Arab Emirates United Arab Emirates United Arab Emirates Structure 2015 Emirates Airlines USD International Sukuk Al Ijarah 913 120 2015 Sharjah Islamic Bank USD International Sukuk Al Wakalah 500 60 2015 Dubai Islamic Bank USD International Sukuk Al Mudharabah 1,000 Perpetual 2014 Flydubai USD International Sukuk Al Wakalah 500 60 2014 The Goldman Sachs United States United Arab Emirates USD International Sukuk Al Wakalah 500 60 2014 Al Hilal Bank Kuveyt T rk Participation Bank USD International Sukuk Al Mudharabah 500 Perpetual 2014 Turkey USD International Hybrid Sukuk 500 60 2014 Banque Saudi Fransi Saudi Arabia United Arab Emirates Saudi Arabia SAR Domestic Sukuk Al Ijarah 533 120 2014 2014 2014 Emaar Malls Group Saudi Telecom Saudi Investment Bank Saudi Arabia USD SAR SAR International Domestic Domestic Sukuk Al Wakalah Hybrid Sukuk Hybrid Sukuk 750 533 533 120 120 120 2014 Turkiye Finans Turkey United Arab Emirates USD International Sukuk Al Murabahah 500 60 2014 Damac Properties National Commercial Bank USD International Sukuk Al Ijarah 650 60 1,300 2014 Saudi Arabia United Arab Emirates SAR Domestic Hybrid Sukuk 60 2013 Source: IIFM Sukuk Database GEMS Education USD International Sukuk Al Mudharabah 200 Perpetual World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 15
Emaar Malls Group Sukuk Transaction Summary Issuer EMG Sukuk Limited Obligor Emaar Malls Group LLC ( EMG ) Country of Transaction United Arab Emirates Issue Type Fixed Rate Trust Certificates Issue Size USD 750 million Issue Rating Baa2 (Moody s) / BBB- (S&P) Pricing Date 11 June 2014 Issue Date 18 June 2014 Tenor 10-year Maturity 18 June 2024 Profit Rate 4.564% Issue Format Reg S only Listing Nasdaq Dubai Governing Law English Law and Dubai Law Joint Lead Managers ADIB, AHB, DIB, ENBD Capital, FGB, Mashreq, Morgan Stanley, NBAD, Noor Bank, Standard Chartered Bank and UNB Emaar Malls Group LLC is a leading owner and operator of shopping malls in Dubai having established some of the most iconic malls and entertainment and lifestyle centres in the UAE which serve as a major attraction to international visitors. The Company s portfolio of companies comprises of four shopping malls and 31 community shopping centres which are strategically located in key areas of Dubai, benefitting from population growth and increasing tourist attractions. Emaar Malls is also preparing for a potential initial public offering over the course of 2014 where it will float minimum 15% of its share capital. World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 16
Emaar Malls Group Structure Diagram Emaar Malls as purchaser of Wakala Assets (Obligor) Emaar Malls as seller of Wakala Assets Emaar Malls as Servicing Agent Payment of Exercise Price Revenues from Wakala Assets Proceed s Purchase Undertaking/Sale Undertaking Wakala Assets Sale and Purchase Agreement Service Agency Agreement Issuer and Trustee Proceed s Periodic Distribution Amounts and Dissolution Distribution Amounts Certificate s Declaration of Trust Legend: Certificateholders = cash flows = agreement/asset transfer World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 16
GEMS MEA Sukuk Transaction Summary Issuer Issue Rating Status Format Pricing Date Settlement Date Issue Size Maturity Date GEMS MEA Sukuk Limited Not Rated Unsecured and subordinated Regulation S 14th November 2013 21st November 2013 USD 200,000,000 Perpetual 12.00% p.a., semi-annual payments, reset after 5-years to a new fixed rate equal to the then 5-year USD Mid Swap + Initial Credit Margin + Profit Rate Step-up (5%) One time step-up of 5.0% on 21 November 2018 1.465% 10.535% Cumulative, with deferral, at Mudareb s discretion as detailed in the Preliminary Prospectus Varkey family ceases to directly and indirectly control or own 50%+ of the business) call at the face amount together with any outstanding payments (if not called 500bps profit rate step-up); Irish Stock Exchange and Nasdaq Dubai English Law Structuring advisor and Joint Bookrunner Profit Rate Profit Rate Step-Up Mid-swap Level Reoffer Spread vs Midswap Profit Rate Payment Deferral: Change of Control Listing Governing Law ADIB GEMS Education Ltd. founded in 1968 is the world s biggest privately-owned operator of schools. The GEMS global education business (GEMS Education), operating through GEMS MENASA TopCo (Cayman) Limited (TopCo) and its subsidiaries, is among the world s largest providers of high quality private education and related services. GEMS Education has grown, since its inception with a single school in Dubai (Our Own English High School (OOEHS)), which continues to operate today, to a network as at 30 September 2013 of 48 schools operating in eight countries around the world. As at 31 March 2013, the Group employed 9,595 education professionals, specialists and staff. Apart from kindergarten to secondary school offerings the Group also provides educational consulting services to governments and third party private schools in the MEA region through its EdSol brand. World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 18
GGEMS MEA Sukuk Structure Diagram World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 19
Al Hilal Bank Perpetual Tier 1 Sukuk Transaction Summary Issuer AHB Tier 1 Sukuk Limited Obligor Al Hilal Bank P.J.S.C. Obligor Ratings A (S&P) / A (Fitch) Format Reg S Only Structure Sukuk al Mudarabah Sukuk Type Subordinated Tier 1 Capital Certificates Pricing / Settlement Date 24 June 2014 / 30 June 2014 Optional Call Date 30 June 2019, and on every fifth anniversary thereafter 30 June 2019, and every 5 years thereafter to a new fixed rate based on the then prevailing 5- year US Mid Swap Rate + the Initial Credit Margin Rate Reset Date Tenor Perpetual Issue Size USD 500 million Profit Rate 5.500% Governing Law English, law Issue Price /Spread 100 / MS + 373 bps Al Hilal Bank s Role Joint Lead Manager/Bookrunner World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 20
Al Hilal Bank Perpetual Tier 1 Sukuk Structure Diagram The Issuer will issue Certificates (which shall be perpetual and accordingly shall not have a fixed redemption) to the Certificateholders and collect the trust certificate Proceeds therefrom. Pursuant to a Mudharabah Agreement between AHB (as Mudareb) and the Issuer (as Raab-al-Maal), aMudharabah will be constituted where under the Trust Certificate Proceeds will be contributed by the Issuer as the initial Mudharabah Capital. TheMudharabah shall commence on the date of the payment of the Mudharabah Capital to AHB by the Issuer and shall terminate on the date that the Trust Certificates are redeemed in full. World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 21
Damac Properties Sukuk Transaction Summary Issuer Alpha Star Holding Limited Damac Properties Obligor Country of Transaction United Arab Emirates Sukuk Al Ijarah Structure Issue Size USD 650 million Issue Rating BB by Standard and Poor s Credit Market Services Europe Limited. 18 June 2014 Issue Date Tenor 5-year Maturity April 2019 Profit Rate 4.970% per annum. Listing London Exchange /Nasdaq Dubai Governing Law English Law and Dubai Law Joint Lead Managers ADIB, Barclays Bank PLC, Citigroup, Global Markets Limited, Deutsche Bank AG, London Branch, Dubai Islamic Bank, Emirates NBD Capital and National Bank of Abu Dhabi Damac in dual listing should encourage more UAE-based companies listed abroad to do the same. With 41 companies from the Middle East and North Africa currently listed on the LSE, analysts and business executives cited London s lack of constraints as one of the main reasons for listing there. World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 22
Damac Properties Sukuk Structure Diagram World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 23
Recent Developments in Sukuk Market CIMB plans first Collateralised Sukuk in RM1Bio fund-raising bid CIMB Group Holdings Bhd plans to sell a sukuk backed by a pool of loans, becoming the world s first Islamic bank to sell the type of collateralised debt that contributed to the global financial crisis. Emirates Airline UK guaranteed Sukuk of US$ 913 Bio Emirates , the Dubai-based airline, issued an Islamic bond that will be guaranteed by Britain's export credit agency, The deal assumes significance as this is the first time the export credit agency has guaranteed a Sukuk, as Islamic bonds are known. Malaysia s Danajamin guarantees aim to diversify Sukuk market Malaysia's $40 billion sovereign wealth fund Khazanah Nasional plans to issue a sukuk worth up to one billion ringgit ($279.17 million) to help fund schools. Malaysia Sovereign Sukuk dual-tranche $1.5 Bio The government of Malaysia priced a dual-tranche $1.5 billion Sukuk after attracting orders of $9.0 billion from Asia, Europe, the Middle East and the United States. The dual tranche 10 and 30-year Sukuks were priced at 115 basis points (bp) and 170bp over US Treasuries respectively, representing a tightening of 20bp and 15bp from the price guidance given. World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 24
Recent Developments in Sukuk Market Indonesia plans alternative Sukuk structures to boost volumes Indonesia is aiming to boost volumes of Sukuk by introducing new assets to support the transactions. The government is considering the use of state goods and services as underlying assets on its Sukuk, which have previously relied on projects and infrastructure assets under the ijara or wakala strutacure Malaysia's KLK to multi-currency Sukuk Malaysian plantation company Kuala Lumpur Kepong (KLK) Bhd will raise up to 1.6 billion ringgit ($431.9 million) from Sukuk Issuance Kazakhstan s Sovereign Sukuk Kazakhstan s parliament has approved a new Islamic finance law, moving the nation a step closer to launching its first sovereign Sukuk Sukuk Express National Bonds Corporation, the leading sharia-compliant savings and investments company in the UAE, has launched 'Sukuk Express', a new service that allows customers to deposit up to AED20,000 daily in their National Bonds accounts via 1,000 quick payment machines World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 25
Conclusion It is no surprise that the domestic market is very much Sovereign led, as the domestic market needs local currency instruments to manage their liquidity while the domestic investors prefer to invest in their home currency so as not to be exposed to currency risk. It is likely that most of the Sovereign will keep a bigger share of the local market as Islamic finance activities grow around the globe, more countries will issue Sukuk in their home currency as part of the Government's own funding needs and to develop benchmark curve to facilitate growth of their domestic market. Investors in the local market need to maintain Risk Free assets in their portfolio and the Sovereign provides, just that. In the international cross border market, Corporates were the earlier dominant issuers but only after Sovereign or Quasi Sovereign laid the foundation that provided confidence in the Sukuk as an acceptable and viable instrument (eg. Bahrain, UAE, Malaysia, Qatar, and Islamic Development Bank). World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 26
Conclusion In addition many new Sovereign / Quasi Sovereign issuers lent support to the Sukuk market, (eg. Government of Malaysia, Government of Turkey, Saudi Electricity Company, Islamic Development Bank, Emirates Airlines, Ras Al Khaimah etc.). Not only these chunk size Sukuk issuance from high credit quality issuer helped absorb some of the liquidity but in doing so, liquidity remains high and is paving the way for more Sovereign Debutant Sukuk. The Sukuk Mutual Funds space is taking shape with number of banks having set up their own Sukuk Fund to offer to their private clients, this is a positive sign, that the Sukuk market is coming of age. Development of the Sukuk Fund is timely, as the current split between Sovereign and Corporate risk is very much desirable, since it offers investors and fund managers with a good mix of Sovereign and Corporate risk to consider. The choice offers the fund manager to not only diversify credit risk but also take into account their risk return profile in allocating to their portfolio. World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 27
About International Islamic Financial Market (IIFM) IIFM is the international Islamic financial market s organization focused on the Islamic Capital & Money Market (ICMM) segment of the Islamic Financial Services Industry (IFSI). It was founded in 2002 by the collective efforts of the Islamic Development Bank, Autoriti Monetari Brunei Darussalam, Bank Indonesia, Central Bank of Bahrain, Central Bank of Sudan and the Bank Negara Malaysia (delegated to Labuan Financial Services Authority) as a neutral and non-profit organization. Besides the founding members, IIFM is also supported as member by certain regulatory and government bodies such as, The National Bank of Kazakhstan, Indonesian Financial Services Authority, as well as by a number of international and regional financial institutions and other market participants as its members. Given IIFM growing presence as a key standard setting organization; IIFM Board of Directors in its 31st board meeting held during 2014 made a strategic decision to expand IIFM scope of work as it is the only standard setting organization which develop standardized Islamic financial contracts and product templates. The BOD approved the inclusion of Corporate Finance & Trade Finance segment in addition to existing focus of Capital & Money Market standard agreements and products templates. This to further enhance the development of Islamic financial industry globally through its documentation and Islamic products unification efforts which are much needed for a robust, transparent and vibrant industry. To date IIFM has published number of key Standard Master Agreements, including: IIFM Master Collateralized Murabahah Agreement & its Operational Guidance Memorandum Interbank Unrestricted Master Investment Wakalah Agreement & its Operational Guidance Memorandum ISDA/IIFM Tahawwut (Hedging) Master Agreement & Explanatory Memorandum Mubadalatul Arbaah (Profit Rate Swap) Standard Documentation (Single Sale Structure) Mubadalatul Arbaah (Profit Rate Swap) Standard Documentation (Two Sale Structure) Master Agreements for Treasury Placement & Structure Memorandum IIFM is also in the process of developing several important documentation and product standards related to the Islamic financial market. It has also published global Sukuk reports (first, second and third editions) and organized a number of seminar and workshops. World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 28
IIFM Mandate In the Islamic Financial Services Industry there are three main standard setting bodies with clear mandate for each. No overlapping in their mandates They complement one another through a constructive cooperation and collective action as the basis of the relationship between them. The Institutions are as follows: Name of institution Headquarter/Office Date of establishment Mandate 1 AAIOFI: Accounting and Auditing Organization for Islamic Financial Institutions Manama Kingdom of Bahrain 26 February, 1990 in Algiers. Then registered on 27 March, 1991 in the Kingdom of Bahrain General Shari ah rulings & Accounting Standards. 2 IFSB: Islamic Financial Services Board Kuala Lumpur Malaysia Inaugurated officially on 3rd November 2002 and started operations on 10th March 2003 Regulatory and Supervisory aspect of the Islamic Financial Industry. 3 IIFM: International Islamic Financial Market Manama, Kingdom of Bahrain Became officially operational on April 1, 2002 but revised strategic Plan implemented in 2007 Product and documentation standardization of all financial contracts & product templates globally 4 CIBAFI: General Council for Islamic Banks And Financial Institution Manama, Kingdom of Bahrain Established in 2001. Representing the Islamic financial services industry globally, defending and protecting its role World Bank, Arab Monetary Fund Seminar on Development of Sukuk Markets, Abu Dhabi, April 19-23, 2015 29
Shukaran Wassalamu Alaikum International Islamic Financial Market (IIFM) Office No. 72, 7th Floor, Zamil Tower (Main Tower), P.O. Box: 11454, Manama, Kingdom of Bahrain Tel: +973 17500161 , Fax: +973 17500171, Email: info@iifm.net, Website: www.iifm.net Disclaimer: The information herein has been obtained from sources believed to be reliable but cannot be guaranteed. The views or opinions expressed are subjected to change at any time. Neither the information nor any opinion expressed can be construed as a solicitation for the purchase or sale of any securities. International Islamic Financial Market disclaims liability in this respect.
