Islamic Finance An Introduction
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Transcript Islamic Finance An Introduction
Cross-Border Sukuk Issues
David Testa, Executive Director
Head of Islamic Finance, WestLB
London Sukuk Summit
Royal Horseguards Hotel, 21 June 2007
WestLB and Islamic Finance
Expansion & Innovation
Two Case Studies
Stimulants for Continued Growth
WestLB – Islamic Finance Highlights
USD 210,000,000
Sukuk
USD 1,000,000,000
Ijara Syndicate
USD 850,000,000
Islamic Finance
USD 500,000,000
Commodity Murabaha
USD 150,000,000
Musharaka Trust Sukuk
Joint Mandated Arranger
& Joint Bookrunner
Joint Mandated Arranger
Joint Mandated Arranger
Joint Mandated Arranger
Sole Underwriter
& Bookrunner
October 2005
January 2006
March 2006
April 2006
September 2006
USD 100,000,000
Musharaka Trust Sukuk
USD 31,000,000
True Murabaha
USD 300,000,000
Syndicated Standby Morabaha
USD 600,000,000
Dar Al-Arkan
USD 1.1bn
Commodity Murabaha
Facility
£225m
Commodity Murabaha
Facility
Joint Mandated Arranger
Sole Mandated Arranger
& Sole Bookrunner
Joint Mandated Arranger
& Joint Bookrunner
Joint Lead Manager
& Joint Bookrunner
Joint Mandated Arranger
& Joint Bookrunner
Sole Mandated Arranger
& Bookrunner
September 2006
December 2006
December 2006
March 2007
April 2007
May 2007
WestLB has arranged and underwritten:
over 15 Islamic financings since the beginning of 2005
principal aggregate amount of over US$6.0bn
*Source: Dealogic Loanware, no. of facilities
WestLB AG
London Branch
Cross-Border Sukuk
David Testa
Page 3
Sukuk Summit
London
21 June 2007
Expansion and Innovation
Important Market: New but fast growing niche in the global capital markets:
Growing at approximately 10-15% per annum
S&P estimate the market to be approximately US$400bn, with a potential of US$4 trillion (report Oct 2006)
Islamic finance markets: strong growth over the last 2-3 years:
total volumes just over US$8bn in 2004
over US$28bn in 2006
over half the volume in 2004 originated from Malaysia, but the balance has shifted, with financings in the GCC accounting for
some US$15bn of the 2006 total
BUT – still a “niche within a niche”:
Over US$2 trillion of conventional bonds and short-term note issuance in 2006
Total GCC syndicated loan volumes for 2006 reached over US$65bn
WestLB AG
London Branch
Cross-Border Sukuk
David Testa
Page 4
Sukuk Summit
London
21 June 2007
Expansion & Innovation
A new product - the first GCC sovereign Sukuk issued in 2001
Rapid growth
2005 volume of issuance: 55 issues in 2005 raising US$9.6bn*
2006 volume of issuance: 66 issues raising US$17.0bn*
2007: 40 issues totalling US$33.8bn announced*
Volumes in GCC increasing:
2005: 11 issues raising US$2.3bn*
2006: 17 issues raising US$6.4bn*
2007: US$50bn commonly forecast*
* Source: IFIS
WestLB AG
London Branch
Cross-Border Sukuk
David Testa
Page 5
Sukuk Summit
London
21 June 2007
Expansion & Innovation
Sukuk Statistics Q2 2007; by Country
Up to 10th June 2007
Country
Total issued in USD$ (Million)
No. of Issues
4,945.90
6
600.00
1
5,858.17
35
Kuwait
200.00
1
Pakistan
16.48
1
Bahrain
101.00
7
11,721.55
51
United Arab Emirates
Saudi Arabia
Malaysia
Sum Total of all Countries
Source: IFIS (Islamic Finance Information Service)
GCC Total: US$5,846.9m (15 issues representing 49.9% of total issuance)
WestLB AG
London Branch
Cross-Border Sukuk
David Testa
Page 6
Sukuk Summit
London
21 June 2007
Expansion & Innovation
Convertible issues
Dubai Ports Authority: US$3.5bn Musharaka Sukuk
Nakheel: US$3.52bn Pre-IPO Sukuk (including look-back rights)
Exchangeable issues
Aabar Petroleum US$460m Sukuk issue Mudarabah structure
Aldar Properties US$2.53bn Sukuk issue Mudarabah structure
Put and Call Options
SABIC US$8000m 20 year Sukuk issue with 5 year put
The Investment Dar US$150m Musharaka Sukuk due 2011
Put and call options at the end of year 3
Co-ownership structure
Sharjah Islamic Bank US$225m Sukuk Certificates due 2011
Co-ownership structure utilising assets in SIB’s Islamic portfolio
MTN Programmes
Sa’ad Group US$5bn programme
Others soon to follow…
Securitisation
First significant issues awaited…
WestLB AG
London Branch
Cross-Border Sukuk
David Testa
Page 7
Sukuk Summit
London
21 June 2007
Expansion & Innovation: Wide Appeal of Sukuk Issues
Sukuk issues consistently appeal to both Islamic and conventional investors:
Issue
Launch Spread
Bookrunners’ Comments
Dubai Civil Aviation
US$ 1bn, 5 yr Sukuk,
(Dec 2004)
45bp
“27% distribution outside of the Middle East”
“Islamic money represented slightly in excess of 30% of the book”
IDB Trust Services,
US$ 500mn
(June 2005)
14.3bp
“more than 90% of the accounts … were conventional buyers”
“Asia 35%, Europe 26%, the Middle East 32%”
“Banks took 43%, central banks 23%, corporates 12%, agencies
10%, insurance 2%”
Sharjah Islamic Bank
US$225m
(October 2006)
65bp
“the first rated Sukuk by a bank”
“25 accounts participated…with Middle Eastern investors taking 58% of the paper, Europeans 34% and Asian
investors 8%”
“Banks bought 84% of the deal and funds 16%”
WestLB AG
London Branch
Cross-Border Sukuk
David Testa
Page 8
Sukuk Summit
London
21 June 2007
Source: DEALOGIC Bondware
Expansion & Innovation: Secondary Market
Sukuk secondary market activity – still very limited:
Over 100 Sukuk issues listed on Bloomberg (SUKU) –only a small minority are priced
Very few secondary trades
Primary market still to gain critical mass
Islamic investors on a “learning curve” too
Source: SUKU pages Bloomberg
WestLB AG
London Branch
Cross-Border Sukuk
David Testa
Page 9
Sukuk Summit
London
21 June 2007
Expansion and Innovation
Global spread: Islamic finance is spreading beyond the GCC and South-East Asia:
Germany August 2004: Anhalt-Saxony €100m Sukuk
Kazakhstan March 2005: US$50m commodity murabaha for Bank TuranAlem
Turkey October and December 2005: US$50m commodity murabaha for TSKB and US$44m “true” murabaha for FFK Fon Leasing**
USA June 2006: US$165m Sukuk for East Cameron Partners (Texas)
Japan August 2006: JBIC US$300-500m Sukuk issue announced and still “under investigation”
China September 2006: US$250m Sukuk announced to finance a Chinese power project
UK April 2007: Government to review feasibility of Sukuk issue
UK May 2007: £225m Islamic LBO for Aston Martin acquisition from Ford Motor Company by The Investment Dar and consortium**
** Sole arranger: WestLB
WestLB AG
London Branch
Cross-Border Sukuk
David Testa
Page 10
Sukuk Summit
London
21 June 2007
Islamic Finance – Focus on the UK
UK initiatives:
Labour Government:
"long-term ambition to make Britain the gateway to Islamic finance and trade“
Aiming to make the City of London one of the world‘s leading centres for Islamic finance
Retail focus in the UK: "Islam is Britain's second-largest faith, and Muslims are involved in every walk of British life“
Islamic Bank of Britain
Wholesale Islamic banking in the UK: "Islam is Britain's second-largest faith, and Muslims are involved in every walk of British life“
European Islamic Investment Bank
Bank of London and the Middle East
Further licence applications with the FSA
Legislation to facilitate the offering of Islamic finance products in the UK:
“Alternative financing arrangements”
Initial retail focus
Finance Act 2005: ijara structures extended to commercial property
Finance Act 2006: wakala and diminishing musharaka
Finance Bill 2007 for Sukuk issues to be treated for tax purposes as conventional issues
UK Sovereign Sukuk Issue: feasibility study announced in April 2007
WestLB AG
London Branch
Cross-Border Sukuk
David Testa
Page 11
Sukuk Summit
London
21 June 2007
“The name’s Bond….Islamic Bond”
WestLB AG
London Branch
Cross-Border Sukuk
David Testa
Page 12
Sukuk Summit
London
21 June 2007
Aston Martin: first fully Sharia-compliant LBO in the UK
WestLB is Mandated Lead Arranger,
Underwriter and Bookrunner
Joint Mandated Lead Arrangers:
•
Bahrain Islamic Bank
•
EIIB
•
Standard Bank
£225m Islamic facilities:
£200m term
£25m revolver
WestLB AG
London Branch
Cross-Border Sukuk
David Testa
Page 13
Sukuk Summit
London
21 June 2007
Aston Martin - Day 1: Commodity Murabaha Structure
Aston Martin transaction:
Participants
MLA, Underwriter and Bookrunner: WestLB
Murabaha Agreement between Bidco and WestLB as
Investment Agent
1. Participations
3. Spot payment
Investment
Agent
(WestLB)
Metals
Supplier
2. Metals
Two tranche structure:
£200m term facility
£25m revolving facility
7. Deferred
payment
4. Metals
8 year final maturity, 5 year put option
5. Metals
Metals
Buyer
Bidco
6. Spot payment
WestLB AG
London Branch
Cross-Border Sukuk
David Testa
Page 14
Mudaraba Agreement between WestLB and the
syndicate banks
Sukuk Summit
London
21 June 2007
Profit rate 3 or 6 month LIBOR + 295bp
Aston Martin - long-term structure: Musharaka
WORK IN PROGRESS
Participants
Purchase
Undertaking
1. £
Aston Martin Lagonda
Lease
Agreement
Asset Pool
Investment Agent
2. £
1.
Facility commitments
2.
AML identifies Asset Pool to contribute to
Musharaka
3.
Purchase price for interest in Asset Pool
4.
IA and AML co-own assets
5.
Balance of cash to Musharaka to apply to the
co-owned assets
6.
Co-owned assets transferred to Musharaka
7.
IA leases its interest in its proportion of the
co-owned assets back to AML
8.
Purchase undertaking – exerciseable on event
of default
9.
AML appointed as manager of Musharaka
Co-ownership interests
Co- owned Assets
3. £
Musharaka JV
(managed by Aston Martin Lagonda)
Management Agreement
WestLB AG
London Branch
Cross-Border Sukuk
David Testa
Page 15
Sukuk Summit
London
21 June 2007
Saudi Arabia - First Off-Shore Sukuk
Issuer
DAAR International Sukuk Company (a limited liability company incorporated in the Cayman Islands)
Guarantor
Dar Al-Arkan Real Estate Development Company (DAAR)
Issue
US$600,000,000 Trust Certificates due 2010
Maturity
3 years, bullet
Floating Rate
3-month US$ LIBOR
Coupon
US$ LIBOR plus 200bp
Issue Type
Sukuk al-Ijara
Joint Lead Managers and Joint
Bookruners
ABC Islamic Bank (E.C.); Arab National Bank; Standard Bank Plc; Unicorn Investment Bank, B.S.C. (c);
and WestLB AG, London Branch
WestLB AG
London Branch
Cross-Border Sukuk
David Testa
Page 16
Sukuk Summit
London
21 June 2007
Dar Al Arkan US$600m Sukuk Al Ijara
Offshore
SUKUK HOLDERS
Issue
Proceeds
(US$)
On-shore
Certificates
Lease Payments
3 Year Lease
ISSUER
DAAR
(DAAR International Sukuk Co.)
Guarantee
Payment for
Real Estate
Rights (US$)
Transfer of
Real Estate
Rights
Sale
Proceeds
(US$)
SAUDI SPV
WestLB AG
London Branch
Cross-Border Sukuk
David Testa
Page 17
Sukuk Summit
London
21 June 2007
Sale of Real
Estate
Assets
Stimulants for Continued Growth
Expansion of Islamic banking system – eg, in the GCC and UK
GCC funding needs
Infrastructure requirements/real estate
Corporate “Islamicisation”: listed companies and family companies
Europe
Event-driven financing
Continued FDI
Asia: widening interest following Malaysia’s lead (Singapore, Japan, Indonesia, Thailand)
Developing harmonisation/standardisation
Central Bank of Bahrain
AAOIFI
Islamic Financial Services Board
Gaps in the market
Islamic Sukuk/Mudarabah funds
Securitisation
WestLB AG
London Branch
Cross-Border Sukuk
David Testa
Page 18
Sukuk Summit
London
21 June 2007
WestLB Contacts
Islamic Finance – Origination & Structuring
David McCaig
Telephone
Fax
e-mail
(+44) 20 7020 7532
(+44) 20 7020 7530
[email protected]
David Testa
Telephone
Fax
e-mail
Mobile
(+44) 20 7020 3622
(+44) 20 7020 7530
[email protected]
(+44) 7770 435 312
Walid Sarieddine
Telephone
Fax
e-mail
Mobile
(+ 44) 20 7020 7533
(+ 44) 20 7020 7530
[email protected]
(+44) 7769 670 660
Sami Neffati
Telephone
Fax
e-mail
Mobile
(+ 44) 20 7020 7523
(+ 44) 20 7020 7530
[email protected]
(+44) 7825 420 765
Head of Emerging Markets
Managing Director
Head of Islamic Finance
Executive Director
Director
Manager
WestLB AG
London Branch
Cross-Border Sukuk
David Testa
Page 19
Sukuk Summit
London
21 June 2007