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Sukuk
(Islamic Bond)

Hamad Rasool
Director : First WAPDA Sukuk Co.
Director: First Credit Investment Bank.
Director: WAPDA Finance

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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.

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Introduction

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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
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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

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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

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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

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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 9
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

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Parties Involved
Merchant Banker :
Credit Rating Agency:
Legal & Tax Counsel:
Auditor

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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
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Ideal models for structuring of
Sukuk Especially focused on
Construction Industry.

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 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)

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Sukuk Al-Ijara based Model

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Sukuk al Istismar (51% Ijarah structuring)

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Global Sukuk Issues

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Global Sukuk Cumulative
Issuance

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Global Sukuk Issuance

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 Sukuk Issuing in Construction Industry

Name Country Volum Date Tenor

Emaar UAE $65 m July 2004 5 years
Amlak UAE $200 m July 2005 5 years
UEM Builders Malasiya $82 m Jan-2006 7 years
Aldar Behrain $100 m Oct 2005 5 years
Com. RE Kuwait $100 m May 2005 5 years
Motorway Pak $600 m Jan-2005 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)

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CASE STUDIES

Case study of Sukuk Relatively with

Construction industry.

WAPDA Sukuk for upraising Mangla Dam

Motorway Sukuk

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 WAPDA Sukuk
WAPDAs 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 WAPDAs investor base
Undertake a landmark transaction which will catalyze the
promotion of Islamic Financial instruments and lead the way
for other public sector entities
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Transaction Structure

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Transaction Structure

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Offering Summery

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Motorway Sukuk

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Glossary

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