Islamic Finance & Capital Market Activities

1. Oman First Islamic Finance & Banking Conference Islamic Finance & Capital Market Activities 24 January 2012 Emad Al Monayea Vice Chairman, MD & CEO Liquidity Management House A KFH Subsidiary

2. Agenda • Resilience of Islamic Finance to Crises • Developments of Sukuk Market and the Potential for growth • Credentials

3. Resilience of Islamic Finance to Crises

4. Impact of Crises Before the Crises Pre-Crises Levels of ROA and ROE The Islamic Banks were relatively more profitable than their conventional peers. Source: IMF Working Paper 2010. Based on a study of the banking sector in the GCC (excluding Oman), Jordan, Malaysia and Turkey Change in Profits, Credit and Assets from 2007 to 2008 Initial Crises Effect Initial crises effect on Islamic Finance was largely subdued as they were not exposed to complex instruments that were affecting conventional finance industry Source: IMF Working Paper 2010

5. Impact of Crises Deepening Crises • The effect of financial crises was no longer limited to the west • Its effects were being felt across economies which had led to global economic slow down • Islamic banks average profitability decline for the period 2007-09 was only marginally higher than their conventional counterparts • However, despite this decline, Islamic Banks expanded credit and saw an increase in its assets relative to conventional banks Change in Profits, Credit and Assets (average 2007- 2009) Source: IMF Working Paper 2010

6. What makes Islamic Finance Resilient? • Prohibition of Shariah on excessive leverage: In many cases there is a clear leverage threshold of 33% of equity defined. Islamic investors or companies who broke this rule had to suffer major losses and in some case are on verge of bankruptcies • Prohibition on Certain Sectors: By having strict definitions on the sectors that it should not invest and by having guiding moral principles that needs to be considered while investing, Islamic finance forms a good blend of socially responsible investing • Prohibition on excessive risk taking: By avoiding credit derivative instruments like CDOs, CDS, Islamic Finance has largely stayed away from the destructive effects of complex conventional financial instruments Conventional Finance NGOs (Non Governmental Organizations) Islamic Finance

7. Developments of Sukuk Market and the Potential for growth

8. Leasing Trade finance RE Position of the Sukuk Market Islamic wealth management Equity Private equity Sukuk The global Islamic landscape by asset value depicts potential growth for Islamic structured products, in particular Sukuk, to cater for huge demand from the Middle East and Asian investors The total size of the Islamic Finance Industry is in excess of $ 1 trillion Size of market as % of total assets Commodity Murabaha trades Islamic structured products Industry demand

9. Development of Sukuk Market Global Sukuk Issuance (USD Billion) • The year 2011 was a record year with Global Sukuk issuance jumping to USD84bn, a 61% year on year increase • The Sukuk Issuance has grown at the rate of 56% annually since 2001 • The trend has now shifted to sovereigns tapping the market. Total share of sovereign in 2011 was 78% of the Sukuk issuance • A total of more than USD180bn Sukuks are outstanding CAGR: 56% Effect of Financial Crises Source: Zawya Issuer Type (2011) Market Type (2011) Source: Zawya Source: Zawya

10. Sukuk Issuance by Domicile, Currency and Structure Issuance by Domicile (2011) • A number of new countries opened to the Sukuk Market, among them Saudi Arabia, Kuwait, Jordan, Iran, Gambia and Yemen • Malaysia is still dominating the Sukuk landscape with its Sovereign issues in its local currency Ringgit • Although Murabah seems to be the dominant structure, a careful analysis reveal that excluding Malaysia, Ijarah remains the preferred choice among issuers comprising 70% of the issuance • The Wakalah structure received strong attention this year, being the choice for many international issuances due to its acceptability and ability to securitize untradeable assets Source: Zawya Issuance by Currency (2011) Issuance by Structure (2011) Source: Zawya Source: Zawya

11. Notable Sukuk Issuance – 2011 Source: Zawya • Sovereign and Quasi Sovereign has dominated the top 10 issuers as well the overall global issuances. Only 2 corporate issuers in the top 10 • Qatar Central Bank’s Sukuk issuance of QAR 33bn (USD 9bn) was the single largest Sukuk issuance till date • This year started off with a the issuance of USD 4bn by the Civil Aviation Authority of Saudi Arabia

12. Dow Jones Citigroup Sukuk Index Performance in 2011 DJ Citigroup Sukuk Index • A joint product of Dow Jones Indexes and Citigroup, provides a benchmark for investors seeking exposure to Sharia-compliant fixed-income investments. • To be eligible for inclusion, bonds must comply with Sharia law, the Bahrain-based AAOIFI, and meet minimum requirements for maturity, issue size and rating. Index Value: 132.53 2011 Change: 5.5% Source: Bloomberg The DJ Sukuk Index has performed consistently well post 2009

13. Potential for Growth • The Sukuk market is still dominated by Sovereigns and Quasi Sovereigns. A large number of corporate are yet to explore the primary Sukuk market for their funding requirements • Implementation of the financial master plans and government initiatives which will act as the backbone of growth throughout the coming years • The cumulative infrastructure projects and funding needs in both the GCC and Asian regions are expected to support the Sukuk market in 2012. Infrastructure spending has been one of the key drivers of economic growth in the GCC over the past decade • New emerging market players as well as new non-Islamic issuers are expected to tap the Sukuk market to tap in huge liquidity chasing the market • A significant potential exist in the western financial institutions and corporate in the US, UK, the EU and Central Europe who are likely to becoming more actively involved in this industry, and are interested to issue Sukuk to refinance existing corporate debt or to finance working capital and expansion activities, including acquisitions • Deeper secondary market activities are emerging with new players and appetites

14. Credentials

15. Overview • Liquidity House is a wholly owned by Kuwait Finance House K.S.C. (“KFH”) and is a result of the spin-off of its International corporate finance activities. The company’s paid up capital is KD 100 Mn (approx US$ 380 Mn) • Liquidity House’s objective is to be a principal player in the international Sukuk market and the Sharia compliant structured finance arena. It seeks to deliver exceptional values to its clients, stakeholders and the industry through focused and shared values driven by its parent entity, KFH. Liquidity House is licensed and regulated by both the Central Bank of Kuwait and the Capital Markets Authority. Sukuk – Origination, Structuring & Trading Structured Finance – Corporate Finance and Project Finance Asset Management – Investment Funds & Portfolio Management Investment Treasury Services Liquidity Houses leverages on the strategic strength derived from KFH’s brand name, distribution capability, and geographic coverage while offering its products and services to its clients

16. Liquidity House Sukuk Achievements HBME Sukuk US$ 500 Mn Co-Manager 2011 FIC Sukuk KD 92 Mn Restructuring advisor 2011 ADIB Sukuk US$ 750 Mn Co-Manager 2010 SIB Sukuk US$ 400 Mn JLM 2011 KTPB US$ 100 Mn JLM and Bookrunner 2010 KTPB US$ 350 Mn JLM and Bookrunner 2011 Ras Al Khaimah US$ 400 Mn Bookrunner 2009 IFC US$ 100 Mn JLM and Bookrunner 2009 GE Capital US$ 500 Mn JLM and Bookrunner 2009 Indonesia Sukuk II US$ 1 Bn Co-Manager 2011

17. Other Achievements MALC Aviation Fund Lead Sponsor US$800 Mn 2003 KFH Oceanic Portfolio US$ 250 Mn Sole Arranger & Lead Sponsor 2008 OzonGiyimSanayiVeTicaret A.Ş. Syndicated Murabaha US$ 65Mn Mandated Lead arranger 2011 Burgan Company US$ 125Mn Syndicated Ijara 2009 GIH restructuring KWD 49.5 Mn Restructuring advisor 2011 CRC US$ 155 Mn Syndicated Murabaha 2008 ALAFCO Murabaha on behalf of KFH US$ 10 Mn 2011 Aref Investment Group KWD 290 Mn Restructuring advisor 2011

18. Awards & Recognitions Best Sukuk DealWorld Finance – Islamic Finance Awards 2011 • Best sukuk arranger • 2011 The best Sukuk Structuring House in Kuwait IREF ME Award 2010 The best Sukuk Structuring House in Kuwait IREF ME Award 2009 Most Innovative Deal KTPB Sukuk 2009 Sukuk Deal of the Year GE Capital Sukuk 2009 Wakalah Deal of the year IFC Hilal Sukuk 2009 Deal of the year – Kuwait Burgan Company 2009 Best Sukuk Deal GE Capital Sukuk Deal of the Year KTPB Sukuk 2010 Sukuk Deal of the Year KTPB Sukuk 2010 Deal of the Year- Turkey KTPB Sukuk 2010 Deal of the Year- Kuwait Aref Investment Group 2010 Restructuring Deal of the Year Aref Investment Group 2010

19. Contact Information

20. Questions ? Thank you.