1. Sukuk(Islamic Bond) Hamad Rasool Director : First WAPDA Sukuk Co. Director: First Credit Investment Bank. Director: WAPDA Finance

2. 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.

3. Introduction

4. 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

5. 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

6. 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

7. 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

8. 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

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

11. 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

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

13. 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)

14. Sukuk Al-Ijara based Model

15. Sukuk al Istismar(51% Ijarah structuring)

16. Global Sukuk Issues

17. Global Sukuk Cumulative Issuance

18. Global Sukuk Issuance

19. 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)

20. CASE STUDIES Case study of Sukuk Relatively with Construction industry. • WAPDA Sukuk for upraising Mangla Dam • Motorway Sukuk

21. WAPDA Sukuk • WAPDA’s 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 WAPDA’s investor base • Undertake a landmark transaction which will catalyze the promotion of Islamic Financial instruments and lead the way for other public sector entities

22. Transaction Structure

23. Transaction Structure

24. Offering Summery

25. Motorway Sukuk

26. Glossary