Sukuk : A Viable Funding Option - PowerPoint Presentation

Slide1

Sukuk : A Viable Funding Option

HIGH-LEVEL WORKSHOP ON SUKUK

Moscow,

Russia

15-17 December 2014

Presented by:

Arshad

Ismail

Slide2

2

CONTENT

SECTION

INTRODUCTION TO ISLAMIC CAPITAL MARKETS

SUKUK

PART I : OVERVIEW

PART II : DEVELOPING THE SUKUK MARKETPART III : STRUCTURING ANALYSISPART IV : COMMON SUKUK STRUCTURESPART V : GLOBAL MARKET TRENDSPART VI : MALAYSIA AS CROSS BORDER SUKUK MARKETPLACESELECTED SUKUK TRANSACTION HIGHLIGHTS

2

Slide3

Introduction to Islamic Capital Markets

Slide4

Islamic

Capital Markets operate

in line with

Shariah principles. Shariah

is basically Islamic law that is derived primarily from the Quran and Sunnah.Shariah essentially allows all economic activities unless there is a clear prohibition. The prohibited activities include:-

The legal relationships in Islamic finance are NOT about “LENDING” and “BORROWING” but instead about trade and/or equity participation including “SALE”, “PURCHASE”, “LEASE”, “CONSTRUCTION”, “INVESTMENT”, “AGENCY” and “PARTNERSHIP”.

4

What

are

Islamic Capital Markets?

Shariah

essentially allows all economic activities unless clearly prohibited

Slide5

What are

Shariah

Principles?Shariah principles form the basis of Shariah-compliant financial transactionsVarious products are available in the Islamic Capital Markets including Shariah-compliant equities, Sukuk, unit trusts,

Shariah indices, exchange traded funds and crude palm oil futures contracts.

The products can be structured based on one or more Shariah principles:

LEASE CONTRACT

IJARAH(Leasing)ISTISNA’(Purchase Order)WAKALAH BIL ISTITHMAR (Investment Agency)AGENCY CONTRACT

MUDHARABAH

(Profit-Sharing)

MUSHARAKAH

(Joint Ventures)

MURABAHAH

(Cost Plus Sale)

SALE AND PURCHASE CONTRACTS

PARTNERSHIP CONTRACTS

Slide6

Sukuk

PART I : OVERVIEW

Slide7

What are

Sukuk

?Bonds are financial obligations arising from conventional borrowing and lending, whereas Sukuk represent ownership/interest in an assetSukuk have various definitions depending on jurisdiction including:“A document or certificate which represents the value of an asset.” – Securities Commission Malaysia“An Islamic investment certificate which represents an undivided beneficial ownership of an underlying asset…which grants investors a share of an asset along with the cash flows and risk commensurate with such ownership.” – Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)

Regardless of the jurisdiction or technical definition, the concept of

Sukuk is universal and differs from a conventional bond in the following respects:

Features

SukukConventional Bonds

Issuer

Issuer’s principal activities or the use of proceeds must not contradict

Shariah

No restriction

Approvals

Must

be approved by the relevant regulatory body and

Shariah

Adviser. In certain jurisdictions, together with the

Shariah

regulatory body

Must be approved by the relevant regulatory body

Form

Based on

trade transaction

, represented by sale, lease, investment or joint venture contracts

Based on model of borrowing/lending

Slide8

What are

Sukuk

? (Cont’d)Features

Sukuk

Conventional Bonds

Utilisation

of ProceedsShould not contradict

Shariah

No restriction

Asset requirement

Yes

Typically no

, except for Asset Backed Securities and secured transactions

Security

Can be structured as

clean or secured

Credit Enhancement / Ring-fencing

Can be included as features of both instruments

Use of Special

Purpose

Vehicle (SPV) as issuing conduit

Required under selected structures to facilitate the underlying

Shariah

contracts and target investors

Typically

not required

except for Asset Backed Securities transactions when bankruptcy remoteness is required

Exposure to Bigger Market

Sukuk

enjoy a

wider investor base from both sets of investors

– Islamic & conventional, thereby maximizing demand for the securities

Sukuk

may also lead to better profiling/exposure for issuers and enhance their credit profile in new markets

Conventional bonds are not acceptable to Islamic investors. As such, limited exposure to conventional investors only

Slide9

Features

Sukuk

Conventional Bonds

Programme

/ Issuance Cost

Lead Manager/Lead Arranger fees are similar to conventional bonds transactions

Documentation costs could be marginally higher

Shariah

Advisory fee

No additional

Shariah

Advisory Fee

Documentation

In addition to the common issue documents, additional documents to evidence the Islamic transactions

Common issue documents such as

Programme

Agreement/ Facility Agreement, Subscription Agreement,

etc

Tax Incentives (in Malaysia)

Tax deductibility on issuance expenses for selected structures:

Ijarah

and

Wakalah

No tax incentives on issuance expenses

Risk

Both conventional bonds and

Sukuk

are exposed to credit risk and market risk

What are

Sukuk

? (Cont’d)

Slide10

To tap into a

new and wider investor base

(Islamic and conventional funds)

Potential pricing competitiveness

vis-a-vis conventional bonds

Diversification of investors

Alternative source of funding - Provides issuers option to tap a new funding source (in addition to the bank market and conventional fixed income investors)Tax Incentive in Malaysia – Tax deductibility on issuance expenses for selected structuresWhy Sukuk?Key Advantages of Issuing Sukuk10

Slide11

Sukuk

PART II : DEVELOPING THE SUKUK MARKET

Slide12

Policy Principles

What should be done?

Creating a "level playing field"

Sukuk

structures typically involve purchase or lease of, or investment into, underlying assets which may attract tax and/or stamp duties, depending on the jurisdiction

Regulators have to look at the economic substance of the Islamic financial transactions and make the necessary amendments to the tax legislation in order to ensure

Sukuk will be at par with bondsDrawing on the Malaysian experience, all taxes, levies and duties that would otherwise be payable on the underlying transactions have been

neutralised

. Thereby placing

Sukuk

on a level paying field vis-à-vis

bonds

Also, profits/returns payable under Sukuk

are treated similar to “interest” for tax purposes.

Regulation for

Shariah

Advisory

In Malaysia, the

Shariah

Advisory Council of Securities Commission Malaysia acts as the sole authoritative body to advise on

Shariah

matters pertaining to Islamic capital market products

Alternatively, other jurisdictions including United Kingdom and Hong Kong have taken the approach to be guided by the resolutions of

Shariah

advisor(s) appointed for the respective

Sukuk

transactions

Developing the

Sukuk

Market

Making Islamic

Capital Markets effective, efficient

and

conduciveDepending on a country’s existing regulations on capital market transactions and its legal and tax framework, the development of Sukuk in a new market would typically involve the following:

Slide13

Policy Principles

What should be done?

Evolving Regulatory Landscape

The Islamic Finance industry is still growing and evolving, as such the regulatory framework in Malaysia does not encompass all known Islamic structures in the industry.

Securities Commission Malaysia provides the flexibility

to new

Shariah structures which may not be covered under current regulations

Broadening the Investor Base

Broadening the local investors base is fundamental to create demand in investment into local

Sukuk

issuances by the government, government linked agencies, state owned enterprises and corporate

Incentives to Encourage Growth of the Market

In order to encourage growth of the

Sukuk

market in Malaysia, the government introduced incentives such as tax deduction/exemptions to issuers/investors in order to boost issuance of/investment in

Sukuk

e.g.

no withholding tax for profit/coupon for non-resident investors under Malaysia’s Income Tax Act

Developing the

Sukuk

Market (Cont’d)

Making Islamic

Capital Markets effective, efficient

and

conducive

Slide14

Sukuk

PART III : STRUCTURING ANALYSIS

Slide15

Parameters

Example

Issuer

Typically, a special purpose vehicle

Facility

Trust Certificates Programme

Islamic Structure

Including Musharakah, Ijarah, Wakalah or such other structure as advised by the Shariah Adviser

Rating

Ratings issued by international rating agencies namely, S&P’s, Moody’s and Fitch

Utilisation of Proceeds

Capital expenditure, general corporate purposes and working capital, all for purposes which do not contradict Shariah

Mode of Issue

Bought deal/Private Placement/Bookbuilding. International Sukuk transactions (Reg S/Rule 144A) are typically issued via bookbuilding

Conditions Precedent

Standard bond documentation conditions precedent including execution of legal documentation, regulatory approvals, and statutory documents

Representations and Warranties

Standard bond documentation representations and warranties including the issuer having the capacity to enter into the transactions, the issuer being in compliance with applicable laws and regulations, and not being in breach of the Transaction Documents

Events of Default

Including a default in payment obligations and a breach of any conditions of the Transaction Documents

Positive Covenants

Perform certain obligations including complying with all terms and conditions under the Transaction Documents, and with all applicable laws and regulations

Negative Covenants

Not do certain things e.g. amending its statutory documents which would be inconsistent with the Transaction Documents, reducing its issued and paid-up capital,

and pledge or secure assets after the securities have been issued

Information Covenants

Including submission of audited accounts

Transaction Documents

Including but not limited to the Programme Agreement, Trust Deed and other asset related documents

Governing Law

English Law. Asset related documents are typically governed by local law

Typical Terms and Conditions of a

Reg

S USD

Sukuk

Transaction

Structuring

Sukuk

15

Slide16

Execution process: Typical timeline is approximately 12 - 16 weeks

Weeks

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

A

B

C

D

E

G

F

Financial/Legal/ Technical Due Diligence

Appointment of Parties

Legal, financial & technical due diligence

Preparation & review of cashflow projections

Engaging with relevant rating agencies

Submissions to regulatory authorities

Cashflow Preparation & Review

Ratings Process

Regulatory Approval

Documentation

Marketing & Distribution

Issuance

Programme Agreement, Trust Deed & asset related documents

Prepare marketing material

Marketing of offering, including roadshow

Launch

Final OC & Listing

Compliance with CPs

Settlement

Shariah Review & Approval

Shariah approval on T&Cs

Shariah approval on documentation

H

16

Structuring

Sukuk

Slide17

Note: For programme size of up to USD1.0 billion in nominal value (or its equivalent in any other currencies)

Indicative Fees and Expenses for

Reg

S USD

Sukuk Transactions

Indicative Upfront Fees

Indicative Amount (USD)Arranger/Manager/Bookrunners Fees

Depending on credit of the issuer

Legal Fees

International Legal Counsel – Issuer

175,000 – 220,000

International Legal Counsel – Arranger

150,000 – 170,000

Domestic Legal Counsel – Issuer

Depending on the jurisdictions

Domestic Legal Counsel – Arranger

Depending on the jurisdictions

Reporting Accountant Fee

150,000 – 200,000

Shariah

Advisory Fee

25,000

Listing Agent Fee

10,000

Fiscal Agent Fee

30,000

SPV’s Establishment Expenses

Depending on the jurisdictions

Miscellaneous (e.g. out-of-pocket expenses)

30,000

TOTAL (USD)

(excluding Arranger/Manager/

Bookrunners

Fees, Regulatory Fees* and Rating Fees**)

690,000 – 845,000

*if applicable

**

Corporate rating flat fee of USD 70,000 and issuance rating of 0.05% to 0.07% of issuance size or USD 50,000, whichever is higher.

Indicative Annual Recurring Fees

Indicative Amount (USD)

Fiscal Agent Fee

30,000

Rating Surveillance Fee

60,000

SPV Corporate Services Expenses

Depending on the jurisdictions

TOTAL (USD)

90,000

17

Structuring

Sukuk

Slide18

Note: For Islamic MTN programme size of up to MYR1.0 billion in nominal value, 1

st

issue in 2tranches

Indicative Fees and Expenses for MYR Bonds and Sukuk

Indicative Upfront Fees

Conventional Bonds

SukukIndicative Amount (MYR)Indicative Amount (MYR)

Legal Counsel Fee (Arranger)

130,000 – 180,000

200,000

– 250,000

Reporting Accountant Fee (if applicable)

100,000 – 150,000

100,000 – 150,000

Securities Commission Fee

51,000

51,000

Rating Fee

600,000

600,000

Shariah Advisory Fee

N/A

75,000

Trustee Fee

10,000

10,000

Agency Fee

75,000

75,000

BNM Depository Fees

30,000

30,000

FAST Charges & RENTAS Annual Fees

1,400

1,400

Miscellaneous (e.g. out-of-pocket expenses)

30,000

30,000

TOTAL (MYR)

1,027,400 - 1,127,400

1,172,400

– 1,272,400

(excluding Arranger/Manager/Bookbuilding Fees*)

 

 

 

Indicative Annual Recurring Fees

 

Indicative Amount (MYR)

Agency Fees

75,000

75,000

Rating Surveillance Fees400,000400,000Trustee50,00050,000RENTAS Annual Fees4,0004,000TOTAL (MYR) 529,000529,000 18Structuring Sukuk

Slide19

The issuance of Sukuk is managed by the lead managers via the following modes:

Modes of Issuance

19

Structuring

Sukuk

Slide20

20

Bookbuilding

– Typical Global Roadshow Destinations for Reg S USD Sukuk

transactions

Marketing typically includes a “deal” roadshow to generate higher interest amongst investorsThe roadshow would usually cover key financial centres in Switzerland, Germany, South Korea, Hong Kong, Singapore, Kuala Lumpur, Abu Dhabi, Dubai, Riyadh, Bahrain and London, among others. It would enable issuers to engage potential key/anchor investors for the offering

Location

Duration

Format

Kuala Lumpur

1 day

1-1 Meetings/Group Presentation

Singapore

1 day

1-1 Meetings/Group Presentation

Hong Kong/South Korea

2 days

1-1 Meetings/Group Presentation

Middle East (Abu Dhabi / Dubai /

Riyadh / Bahrain)

3 days

1-1 Meetings/Group Presentation

Europe

2 days

1-1 Meetings/Group Presentation

Kuala Lumpur

Singapore

Hong Kong

London

Middle East

Proposed Roadshow Locations

Roadshow Schedule Illustration

Structuring

Sukuk

Slide21

Common Islamic Structures for

Sukuk

IssuancesProposed Islamic structures depend on the issuer’s nature of business and the availability of tangible assets, amongst other considerations

Murabahah

(Cost Plus Mark up Sale)

Wakalah

(Agency)Ijarah(Lease)Description

Contract for a sale and purchase of asset(s)

Cost and profit margins are made known upfront and agreed by parties involved

Investment agency contract whereby a party

authorises

another party to act on behalf of the former based on the agreed terms and conditions

Government of Malaysia issued the first sovereign USD

Sukuk

structured under the

Shariah

principle of

Wakala

in 2011

Lease-based contract whereby a

lessor

(asset owner) leases out an asset to a lessee at an agreed lease rental for a predetermined lease period. The ownership of the leased asset shall always remain with the lessor

Most common and popular Islamic structure for issuers globally, either on sale-and-leaseback or head-lease and sub-lease basis

Nature of Issuer’s Business

Commonly adopted by companies which are asset light or restrictions on transfer of tangible assets

Commonly adopted by companies which are asset light or restrictions on transfer of tangible assets

Commonly adopted by companies which have sufficient fixed assets to allocate for the proposed issuance as the underlying assets will be locked up to maturity of the

Sukuk

Issuing Entity

International

Sukuk

typically involves setting up of a special purpose vehicle as the issuing entity, whereas in Malaysia, the fundraising entity itself also assume the role of the issuer.

Slide22

Common Islamic Structures for

Sukuk

IssuancesProposed Islamic structures depend on the issuer’s nature of business and the availability of tangible assets, amongst other considerations

Murabahah

(Cost Plus Mark-up Sale)

Wakalah

(Agency)Ijarah(Lease)Underlying Assets

Tangible asset is required, but not Issuer’s own assets

Typically involves use of commodity(

ies

) purchased from, and sold to commodity brokers

Required, subject to minimum of 51% of the value of the assets portfolio

Leasable asset required to match 100% of the issuance size

Legal title of asset typically remains with the original registered owner. Investors as beneficial owner of the assets

Marketability

Gaining prominence in the Malaysian

sukuk

market.

Tradability restriction for certain investors as the

Sukuk

represent debt/receivables

Acceptable to the majority of global

Shariah

scholars

.

Most common and popular Islamic structure for both issuers and investors globally including GCC (Gulf Cooperation Council)

Notable Issuances

Cagamas

Berhad

(2013)(RM)

Golden Assets International Finance (2012)(RM)

TH Plantations (2012)(RM)

Qatar Islamic Bank (2013)(USD)

Islamic Development Bank (2012, 2011)(USD)

Government of Malaysia (2011)(USD)

Kuveyt

Turk (2014)(USD)

Government of Turkey (2013, 2012)(USD)

Government of Indonesia (2013, 2012)(USD)

Government of Dubai (2013, 2012)(USD)

Government of Qatar (2012)(USD)

Dependence on Issuer’s Tangible Assets

Low

High

Slide23

Sukuk

PART IV : COMMON SUKUK STRUCTURES

Slide24

24

Purchase Assets

Declare Trust & Issue Sukuk Ijarah

Rental

Sale Agreement

Lease Assets

Asset Purchase Price

Company

(Lessee/ Obligor/ Servicing Agent)

2

3

6

5

2

4

Purchase Undertaking

5

Servicing Agency Agreement

Exercise Price

6

Sukukholders

SPV

(Trustee)

1

1

Proceeds

24

Sukuk

Ijarah

(Lease)

Slide25

25

25

Sukuk

Ijarah

(Lease)

Case Study: Government of UK GBP200million Certificates

This structure diagram was extracted from the prospectus dated 30 June 2014

Slide26

Commodities < 49%

Tangible > 51%

Issue Sukuk

sale of commodities at Sale Price

Purchase of commodities on spot

Sale of commodities on spot

Periodic Distributions

Purchase Undertaking

Assets

Sukuk proceeds

Issuer

Appoint as Wakeel

Purchase Order

Leases Assets

Substitution Undertaking

Sukukholders

Exercise Price

Exercise Price

5(

i

)

2

8

8

1(a)

1(b)

1(b)

7

6

3

4

5(ii)

5

(iii)

5(iv)

Company (Purchaser)

Company (

Wakeel

/Original Owner/Lessee/ Obligor)

SPV

(Trustee)

Bursa

Suq

Al-

Sila

’

Commodity Buyer

Commodity Suppliers

26

Sukuk

Wakalah

(Agency)

Slide27

27

Sukuk

Wakalah (Agency)Case Study: Government of Malaysia USD2,000million Certificates

This structure diagram was extracted from the prospectus dated 28 June 2011.

Slide28

Intangible Asset (Commodity

Murabahah

)

(<

66% outstanding Sukuk proceeds at all times)

Tangible Asset

(>34% outstanding Sukuk proceeds at all times)Islamic Structure Challenges and Highlights

Structure and Diagram of

Cashflows

MEXIM’s

Sukuk

issuance was designed to raise Islamic funding to build

MEXIM’s Islamic banking and finance business.MEXIM’s

Sukuk

were

widely marketed to Middle Eastern based investors to promote and develop Malaysia’s global

Sukuk

market.

Majority of Middle Eastern based investors only permit

Sukuk

with asset based

Sukuk

structures such as

Ijarah

,

Musharakah

,

Mudarabah

and

Wakalah

to be tradable.

The following challenges were faced when structuring MEXIM’s

Sukuk: Islamic investors tradability requirements, requiring asset based Sukuk (backed by tangible assets); andMEXIM’s lack of tangible assets to provide for its Sukuk given that it is a conventional bank.The Wakalah structure (as illustrated on the right) conceived for this exercise addressed the key issues faced by MEXIM with the following:MEXIM will only require to source/identify tangible assets of 34% of the Sukuk issuance proceeds;The tangible asset component can first be sourced externally and gradually substituted with MEXIM’s growing Islamic banking assets business through a substitution undertaking agreement; andThe intangible asset component of the Wakalah portfolio (Commodity Murabahah) supports the remaining portion of Wakalah portfolio to reduce the required tangible assets.MEXIM (Wakeel)MEXIM(Obligor)Bursa Malaysia Islamic Services Sdn BhdBursa Suq Al-Sila’EXIM Sukuk

Malaysia

Berhad

(Issuer, Trustee and Purchaser and Seller of Tangible and Non-Tangible Assets)

Sukukholders

MEXIM

(Purchaser and Seller of Tangible Assets)

Wakalah

Agreement

Incentive Fee

Deferred Sale Price

Sale of Commodities

Purchase of Commodities

Purchase Price

Purchase of Tangible Assets and Non-Tangible AssetsExercisePriceSale of Tangible Assets and Non-Tangible AssetsCost price of purchase of commoditiesSale of CommoditiesProceeds from Sale PriceSukuk Issue ProceedsPeriodic Distribution Amount and Distribution Amount

Cash Movements

Non-Cash MovementsSubstitution Undertaking Agreement

Sukuk

Wakalah (Agency)Case Study: Exim Sukuk Malaysia Berhad’s USD1.0 billion Multi-Currency Sukuk Issuance Programme28This structure diagram was extracted from the prospectus dated 27 September 2013.

Slide29

Sukukholders

represented

by Trustee

Company

(as Purchaser/ Issuer)

Company as

Purchase Agent on behalf of Sukukholders

Bursa

Suq

Al-

Sila

’

Commodity BuyerCommodity Suppliers

4

4

Sukuk Proceeds

Issue Sukuk

1

Agency Agreement

Sale of Commodities

5

7

Sale Price = Purchase Price +

profit margin

2

Purchase Order with Undertaking to Purchase

Commodity Trading Participant (CTP)

6

6

Selling Price = Sukuk Proceeds

Sale of Commodities on spot

3

Purchase Price = Sukuk Proceeds

Purchase Commodities on spot

3

29

29

Sukuk

Murabahah

(Cost Plus Mark-up Sale)

Slide30

Sukuk

PART V : GLOBAL MARKET TRENDS

Slide31

31

The international Sukuk market is relatively small compared to the global debt market.

However, the Sukuk market has experienced exponential growth as evidenced by an aggregate outstanding amount of USD257.6 billion

1

as at 3Q 2014.

Source:

Bloomberg – International bonds market

vs

global Islamic bonds market (excluding securities with maturities equal to or less than 12 months)

1.

Excluding government short term securities

International

Bonds (Conventional &

Sukuk

)

International

Sukuk

(including Ringgit

Sukuk

)

USD

3,082

bln

USD

37

bln

31

Global

Sukuk

Market – Current State

Slide32

32

Government and financial sectors dominated the primary global

Sukuk

market in 2014.

Source:

Bloomberg (based on total issuance amount of USD57.98billion)(as at 3Q 2014)

1

.

Excluding government

short term securities

Global

Sukuk

Market – Current State

Slide33

Trends in the Global

Sukuk

Market

33

The year 2014

has been

a ground-breaking year in the Islamic capital markets as we witness non-Muslim majority global financial centres tap the global Sukuk market for their sovereign funding needs:July 2014: UK became the first country outside of the Muslim majority nations to issue Sukuk

. The £200 million (

USD343

million)

issue

with maturity of 5 years

, priced at 2.036%, was 11.5 times oversubscribed attracting orders of more than £2 billion from global investorsSeptember 2014: The Hong Kong government's USD1 billion five-year Sukuk, priced at 2.005%, were oversubscribed 4.7 times with orders of US$4.7 billion

September 2014: South

Africa, the third non-Muslim

majority country

to issue sovereign

Sukuk

, issued

USD500 million

Sukuk

which were

more than four times

oversubscribed

, with an order book of

$

2.2 billion.

The

Sukuk

, with

maturity of 5 years and 9

months, were

priced at 3.90% with a spread of 180 b.p. above the corresponding mid-swap benchmark rateOctober 2014: Luxembourg issued its debut €200 million (USD253 million) five-year Sukuk, with an order book that was more than two times oversubscribed. The AAA-rated sovereign Sukuk were priced at a profit rate of 0.436%Other non-Muslim majority countries including Australia and Thailand have also expressed interest to tap the global Sukuk Market.

Slide34

34

Issuer

Amount Outstanding

(GBP mil)

Coupon (%)

Issue Date

Maturity Date

Remaining Tenure (years)

Yield to Maturity (%)

Price

Islamic Structure

United Kingdom Gilt

(1¾% TREASURY GILT 2019 )

30,212.43

1.75

22 Nov 2013

22 July 2019

4.62

1.345

101.81

N/A

HM Treasury UK Sovereign

Sukuk

Plc

200.00

2.036

2 July 2014

22 July 2019

4.62

1.304

103.27

Ijarah

(Head Lease and Sub Lease)

Pricing Analysis – Government of UK

Source:

Bloomberg – Historical Prices (as of 8 Dec)

The UK

Sukuk’s

yield move in tandem with the conventional UK Gilt

The market data shows that there are more demand for the UK

Sukuk

in the secondary market compared to the conventional

UK

Gilt, given that the UK

Sukuk

is priced higher than the conventional

UK Gilt

Slide35

Global Sukuk Issues by Issuer Type (in USD mil)

Snapshot of the Global

Sukuk MarketMalaysia continues to lead the world in sukuk, with over 63% market share in 2Q14

Global Sukuk Issuance

Yearly Comparison

Global Sukuk Issues 2

Q14 vs. 2Q13Global Sukuk Issues by Size & No of DealsGlobal Sukuk Trends by Quarter

Source:

Zawya

2Q14 Report

Global Sukuk Issues by Structure in 2

Q14

Global Sukuk Issues by Currency in 2

Q14

Global Sukuk Issues by Country in 2

Q14

Global Sukuk Issues by Sector in 2

Q14

Slide36

Sukuk

PART VI : MALAYSIA

AS CROSS BORDER SUKUK MARKETPLACE

Slide37

37

Last Issue Date

Issuer

Country

Industry

Amount Issued (MYR)

Obligor

Rating

Maturity

Coupon (%)

5/8/2014

Golden Assets International Finance Ltd

Singapore

Financials

375,000,000.00

Golden Assets International Finance

AA2s

5Y

5.35

30/6/2014

TF

Varlik

Kiralama

Anonim

Sirketi

Turkey

Financials

800,000,000.00

Turkiye

Finans

Katilim

Bankasi

AS

AA3

5Y

6.00

18/3/2014

Bumitama

Agri

Ltd

Indonesia

Consumer Staples

500,000,000.00

Bumitama

Agri LtdAA35Y5.258/11/2013ABHC Sukuk BhdSaudi ArabiaConsumer Discretionary120,000,000.00 Al Bayan Group Holding CompanyAA3s1Y4.231/7/2013Tadamun Services BhdSupranationalFinancials300,000,000.00 Islamic Development BankAAA5Y3.66/6/2013First Resources LtdSingaporeConsumer Staples600,000,000.00 First Resources LtdAA27Y4.3530/4/2013Bahrain Mumtalakat Holding Co BSCBahrainFinancials150,000,000.00 Bahrain Mumtalakat Holding Co BSCAA25Y5.3531/1/2013Noble Group LtdHong KongEnergy300,000,000.00 Noble Group LtdAA23Y4.310/12/2012National Bank of Abu Dhabi PJSCArab EmiratesFinancials500,000,000.00 National Bank of Abu Dhabi PJSCAAA15Y4.753/8/2012Development Bank of Kazakhstan JSCKazakhstanFinancials240,000,000.00 Development Bank of Kazakhstan JSCAA25Y5.518/6/2012Gulf Investment Corp GSCKuwaitFinancials325,000,000.00 Gulf Investment Corp GSCAAA10Y to 15Y5.1 to 5.35/3/2012Abu Dhabi National Energy CoArab EmiratesUtilities650,000,000.00 Abu Dhabi Water & Electricity AuthorAA110Y4.65Malaysia : Cross Border Sukuk MarketplaceMalaysia has seen a number of cross-border MYR Sukuk transactions including issuers from neighbouring countries

Slide38

Note

: Charts are based on issuances by

12 foreign

issuers (MYR

12.72Billion

;

USD4.04 Billion Equivalent) Source: Bloomberg (as of 26th August 2014)38Malaysia : Cross Border Sukuk

Marketplace

Malaysia has seen a number of cross-border MYR

Sukuk

transactions including issuers from neighbouring countries

Slide39

Indicative Rating Mapping

International Rating Agencies

Malaysian Rating Agencies

S&P

Moody’s

Fitch

RAM

MARC

Investment Grade

AAA

Aaa

AAA

AA+

Aa1

AA+

AA

Aa2

AA

AA-

Aa3

AA-

A+

A1

A+

A

A2

A

Investment Grade

A-

A3

A-

AAA

AAA

BBB+

Baa1

BBB+

AA1

AA+

BBB

Baa2

BBB

AA2

AA

BBB-

Baa3

BBB-

AA3

AA-

Speculative Grade

A1

A+

BB+

Ba1BB+A2ABBBa2BBA3A-BB-Ba3BB-BBB1BBB+ B1BBBB2BBB B2 BBB3BBB- B3 Speculative GradeBB1BB+BB2BBBB3BB-B1B+B2BB3B-C1CC2C3DDLong Term Rating Scale39Malaysia : Cross Border Sukuk MarketplaceMalaysia has seen a number of cross-border MYR Sukuk transactions including issuers from neighbouring countries

Slide40

Selected

Sukuk

Transaction Highlights

Slide41

The establishment of a 10-year benchmark

Sukuk

reinforces Malaysia’s position as a leading international Islamic financial centre. The Sukuk assets under the Wakala principle comprise (i

) a tangible asset component consisting of leasable assets and

Shariah-compliant shares; and (ii) a Murabaha receivable component arising from a sale of Shariah

-compliant commoditiesThe Wakala

Global Sukuk represents a number of “firsts”:First global sovereign USD Sukuk for 2011;First global sovereign USD Sukuk structured under the Shariah principle of Wakala;Largest dual-tranche global sovereign USD

Sukuk at issue; and

First 10-year global sovereign USD

Sukuk

and lowest absolute yields, achieved by an Asian sovereign for a new USD issuance

The deal was significantly oversubscribed by 4.5 times, attracting interest in excess of USD9.0 billion and was fully distributed to over 320 global investors

June 2011USD2.0 billion

Transaction Overview

Transaction Highlights

Issuer

Wakala

Global

Sukuk

Berhad

Facility

Sukuk

Size

Series 1:

USD1.2 billion

Series 2:

USD0.8 billion

Tenure

Series 1:

5 years

Series 2:

10 years

Coupon

Series 1:

2.991% (UST + 145 bps)

Series 2:

4.646% (UST + 165 bps)

Maybank

KE’s

Role

Joint Malaysian Adviser, Joint

Bookrunner

, Joint Lead Manager

Issuance Date

28 June 2011

Transaction Details

Distribution AnalysisWakala Global Sukuk Berhad is a single purpose vehicle established by the Government of Malaysia, owned by the Minister of Finance (Incorporated) and the Federal Lands Commissioner, to undertake the proposed Sukuk issuance of up to USD2 billion in nominal valueThe Wakala Sukuk establishes a new benchmark in the Islamic capital markets. Wakala Global Sukuk offering was structured under the Shariah principle of WakalaWAKALA GLOBAL SUKUK BERHAD

Joint Malaysian Adviser Joint BookrunnerJoint Lead ManagerTrust Certificates

Demand breakdown (in USD billion)Allocation by geography (%)USD Sovereign Sukuk: Wakala Global Sukuk

Berhad’s

USD2.0 billion Islamic Trust CertificatesFirst global sovereign USD Sukuk structured under the principle of Wakala

Slide42

Overview on Issuer

Transaction Highlights

Issuer

Perusahaan Penerbit SBSN Indonesia I

Facility

Trust Certificates

Size

USD650 million

Tenure

5 years

Issue date

4 March 2009

Maturity

4 March 2014

Rating

Moody’s: Ba3; S&P: BB-; Fitch: BB

Issue Price

100

Regulatory Format

Reg

S / 144A

Maybank

KE’s Role

International Co-Manager

Transaction Details

Perusahaan

Penerbit

SBSN Indonesia I was established in Indonesia on 21 October 2008 by the Republic of Indonesia, with its registered office at the Ministry of Finance of the Republic of Indonesia

The issuer is a special purpose vehicle formed solely for the purpose of participating in the USD650 million Trust Certificates and is a wholly-owned subsidiary of the Republic of Indonesia

On 4 March 2009, the Government of Indonesia via a Perusahaan

Penerbit

SBSN Indonesia I, a special purpose vehicle, issued USD650.0 million in Trust Certificates, representing the Government of Indonesia’s first ever sovereign

Sukuk

issuance

The Trust Certificates facility received a rating of Ba3 from Moody’s, BB- from S&P, and BB from Fitch

The Trust Certificates were listed on SGX-ST in Singapore

As International Co-Manager,

Maybank

KE assisted the Government of Indonesia to successfully place out the Trust Certificates to Investors

March 2009

USD650 million

PERUSAHAAN PENERBIT SBSN INDONESIA I

International Co-Manager

Trust Certificates

USD Sovereign

Sukuk

: Perusahaan

Penerbit SBSN Indonesia I’s USD650.0 million Islamic Trust CertificatesThe Government of Indonesia’s first ever sovereign Sukuk issuance

Slide43

USD Government-Linked Corporate

Sukuk

: Sime Darby’s Inaugural USD SukukDiversification of USD funding sources led to its foray in the Reg S Sukuk marketSime

Darby’s Funding Requirements

Inline with the Sime

Darby Group’s global business, Sime Darby required access to foreign currency debt capital market funding. Sime Darby’s USD funding had traditionally been dominated by bank borrowings, and

Sime Darby wanted to diversify its funding base into the USD debt capital markets.Our Funding SolutionBy establishing a multi-currency sukuk programme (the “Multi-Currency Sukuk Programme”), Sime Darby can issue sukuk in a host of international currencies including USD.

Sime Darby, one of the largest listed government linked-companies in Malaysia would then be able to make its debut appearance in the international

Reg

S markets and tap new and large investor pools in the Middle East.

Issuer

Sime

Darby Global

Berhad

(wholly-owned subsidiary of

Sime

Darby)

Facility

Multi-Currency Sukuk

Programme

Programme Size

USD1.5 billion in nominal value

Format

Reg

S

Structure

Islamic (

Ijarah

)

Issuance Size and Tenure

5 years::

USD400 million

10 years:

USD400 million

Programme and Issuance Ratings

A/A/A3 by S&P, Fitch and Moody’s

Maybank

KE’s

Role

Joint Principal Adviser, Joint Lead Arranger, Joint Lead Manager, Dealer, Listing Agent (Bursa Malaysia)

Programme

and Issuance Salient Terms

Transaction Highlights

Stronger Rating Than Malaysia’s Sovereign Rating:

programme

ratings of A, A and A3 from S&P, Fitch and Moody’s respectively and similar ratings for the first issuance – higher than the international sovereign rating of the Government of Malaysia.

Successful International Reception: 9-day international roadshow spanning Asia, Europe and the Middle East saw the participation of over 180 institutional investors.Overwhelming Response: despite the heavy supply in the primary USD bond market, Sime Darby Global was able to attract a very strong order book of more than USD8.0 billion, or an over-subscription rate of over 10 times via 376 orders.Tight Yields Set New Pricing Benchmarks: (i) lowest ever coupon by any corporate globally in the USD sukuk market (ii) lowest ever USD coupon in a sukuk format by an Asian issuer (iii) lowest ever coupon by a Malaysian issuer in the USD market, in both the 5- and 10-year tenures.January 2013USD800 millionSIME DARBY GLOBAL BERHADJoint Principal Adviser, Joint Lead Arranger, Joint Lead Manager, Dealer, Joint Shariah Adviser, Listing AgentSukukAwards & RecognitionBest Deal of the Year (Malaysia) 2013

Best Foreign Currency Bond Deal 2013

Best Islamic Finance Deal 2013Bank Negara Malaysia “Emas” Status

Best Corporate

Sukuk

/ New Sukuk 2014

Slide44

USD Government-Linked Corporate

Sukuk

: Exim Sukuk Malaysia Berhad’s USD1.0 billion Multi-Currency Sukuk Issuance ProgrammeThe world’s first EXIM bank to issue USD sukuk

February 2014

USD300 million

EXIM SUKUK MALAYSIA BERHADJoint Principal Adviser, Joint Lead Arranger, Joint Lead Manager, Joint Bookrunner

SukukTransaction OverviewTransaction Highlights

Issuer

EXIM Sukuk Malaysia

Berhad

Facility

Multicurrency Sukuk Issuance

Programme

Programme Size

USD1.0 billion

Programme Tenure

Perpetual

Issuance Size

USD300 million

Issuance Tenure

5 years

Issuance Date

19 February 2014

Rating

A- by Fitch Ratings and A3 by Moody's

Mode of Issuance

Bookbuilding

Maybank

KE’s Role

Joint Principal Adviser, Joint Lead Arranger, Joint Lead Manager, Joint

Bookrunner

Distribution Analysis

The world’s first EXIM bank to issue USD sukuk.

The inaugural Sukuk offering was priced at 140 basis points over US Treasuries (UST), which is equivalent to an all-in yield of 2.874% per annum, which was tightened from the initial price guidance of 165 basis points over UST.

The Sukuk was executed intra-day following strong investor demand. The Sukuk was oversubscribed by approximately 10.6 times, attracting more than USD3.0 billion orders and was fully distributed to over 185 Islamic and conventional investors.

On 19 February 2014, Export-Import Bank of Malaysia

Berhad

(“

MEXIM

”) issued its USD300.0 million, 5-year

Reg

-S Sukuk (“

Sukuk

”) issuance via EXIM Sukuk Malaysia

Berhad

, pursuant to its USD1.0 billion Multicurrency Sukuk Issuance

Programme (the “Programme”). The Sukuk is structured under the Shariah principle of Wakala comprising of a tangible asset component; and a Murabaha receivable component arising from a sale of Shariah-compliant commodities. The issue was accorded credit ratings of A- by Fitch Ratings and A3 by Moody's, which are on par with the Malaysian sovereign ratings. Transaction Details

Slide45

USD

Sukuk

: IDB

Trust Services

Limited’s USD1.5 billion Islamic Trust Certificate IssuanceStrong demand from investors worldwide and aggressive pricing

Transaction Overview

The Islamic Development Bank (“IsDB”) is a supranational developmental bank, established in 1975. Owned by 56 member countries of the Organization of Islamic Cooperation (“OIC”), the IsDB’s

primary objective is to foster the economic development and social progress of member countries and Muslim communities in non-member countries.

Issued by IDB Trust Services Limited pursuant to its USD10.0 billion Trust Certificates

Programme

, the USD1.5 billion, 5-year issuance is guaranteed by the

IsDB

and rated the highest possible ratings by S&P, Fitch and Moody’s.The net proceeds will be used for IsDB’s general corporate purposes.

Issuer

IDB Trust Services Limited

Guarantor

The Islamic Development Bank

Facility

Trust Certificate Issuance

Programme

Programme

Size

USD10.0 billion

Issue Size

USD1.5 billion in nominal value

Profit Rate

2.11%

Issue Date

25 September 2014

Tenure

5 years

Programme and Issue Ratings

AAA, AAA,

Aaa

by S&P, Fitch and Moody’s, respectively

Format

Reg

S

Listing

London Stock Exchange, Bursa Malaysia (under the Exempt Regime) and NASDAQ Dubai

Maybank

KE’s Role

Joint Lead Manager and Joint

Bookrunner

Clearing Systems

Euroclear

Bank S.A./N.V. and

Clearstream

Banking,

societé

anonyme

Salient TermsTransaction HighlightsWorldwide investor demand: There was strong demand for this Sukuk from investors globally; with final allocation of 59% to investors from Middle East and North Africa (“MENA”), 27% to investors from Asia and 14% to investors from Europe.Aggressive-pricing and oversubscription: The transaction collated a strong order book which closed at approximately USD2.0 billion, 2.0 times the initial target issue size of USD1.0 billion. Upsizing and low all-in profit rate: Due to overwhelming demand, the transaction was upsized to USD1.5 billion at the lowest end of the spread, with final price at 10bps above the Mid-Swap (“MS”) against the initial price guidance of 10-15bps above MS. At MS + 10bps, the all-in profit rate is 2.11% for the 5year Sukuk.September 2014USD1.5 billionIDB TRUST SERVICES LIMITEDJoint Lead Manager, Joint BookrunnerIslamic Trust CertificatesInvestor Type Geographical BreakdownDistribution Analysis

Slide46

Thank You

arshad.mi@maybank.com.my

For more information, please visitwww.maybank.com