VOL. XVIII, NO. 4 FEBRUARY 2001

ABANAREVIEWVOL. XXIV, NO. 1 Spring/Summer 2007

A r a b B a n k e r s A s s o c i a t i o n o f N o r t h A m e r i c a

It is possible for capitalmarket regulations basedon internationalstandards, which mayhave originally been

prescribed for conventionalmarkets, to apply to Islamiccapital markets. They would besubject, however, to appropriatemodification to reflect thespecific features of Islamic capitalmarkets that can only beachieved with a clearunderstanding of Islamicproducts.

When considering theapplication of best practices andcodes of governance that arepromulgated by internationalstandards, there is anassumption that these may notbe applicable in the Islamic

Hari Bhambra is Senior Managerof Supervision at DIFC’s DubaiFinancial Services Authority in theUAE. For more information, visitwww.dfsa.ae.

finance context. However, whenexamining the standards andcodes propagated by suchinternational bodies, one willfind that they are notinconsistent with Islamicprinciples. In fact, many aretotally compatible. Take goodand ethical conduct as anexample. Such conduct isexpected in all capital markets,conventional or otherwise. Aperception shift is also requiredin order to encouragepractitioners to be morereceptive to integrated regulatorystandards. Indeed, there is aconsensus that internationalstandards relating to theregulation of capital markets canapply to Islamic capital markets,including Sukuk. The DubaiFinancial Services Authority(DFSA) is an example of aregulatory model that hasachieved this balance.

The comments in this articleare summed up well by the

Regulatory Issues Facing Sukuk And Islamic Capital MarketsBy Hari Bhambra

I N T H I S I S S U E

Focus on Sukuks: A 360o

PerspectiveContinued on Page 3

words of Governor Zeti Aziz ofMalaysia (as endorsed by the 10year Masterplan for the IslamicFinancial Services Industry):

“… [To] enable [the] Islamiccapital market to develop furtherand to tap the tremendousopportunities worldwide, wemust move beyond trying tomerely cater to the investmentneeds of Muslim investors tointroducing products that areacceptable to all in the globalfinancial arena. Hence ourefforts must not be focusedmerely on Shari’a compliancebut also in ensuringinternational compatibility and acceptability. Negativedifferentials … must be removedto ensure that Islamic capitalmarket products and services are competitive with the best inthe conventional market …”

The need to integrate bothregulation and practice willbecome more pronounced themore Islamic finance continuesto transcend geographicalboundaries. Islamic financeemerged in the Middle East, buthas stretched across to the Westand Far East as can be seenwith the phenomenal flow ofSukuk. Such globalisation willfurther raise the debate tostandardise and integrate Sukukand other Islamic products intothe international financialsystem, and to avoid, orminimize to the extent possible,unwarranted differentiation in

A. RushdiSiddiquiGlobal DirectorDow JonesIslamicIndexes

LLOOOOKKIINNGG AATT SSUUKKUUKKSS AASS AAMMEEAANNIINNGGFFUULL AASSSSEETT CCLLAASSSS

For the world’s 1.5 billionMuslims, the prohibition againstinterest (riba) set out in theKoran is a part of everyday life.From the perspective of conven-tional finance, this prohibitionhas historically created theimpression that faith has itscost. Forty years ago, a thenniche industry, Islamic banking,rose up to serve this market – to merge faith and finance.

In 2001, with the issuanceof the first Islamic bond, orsukuk, the nascent Islamic capital market began to inte-grate with the global capitalmarket. Sukuk are at once anasset-backed/asset-based capitalinstrument used by sovereigns,lending agencies, corporates and others to raise capital, aninstrument for trading in thesecondary market (a phenome-non in its early days) and aninvestment vehicle for the “manon the street” (an even newerdevelopment).

This issue of the ABANAReview offers a 360 degreeoverview of sukuk, its currentconcepts and applications. Weare extremely grateful to all thecontributing authors and to theABANA CommunicationsCommittee for their time in edit-ing this Review. We at ABANAlook forward to continuing ourcoverage of developments relat-ing to this exciting and quicklyevolving instrument.

ABANAREVIEW

2 S P R I N G / S U M M E R 2 0 0 7

It is with great pleasure that I present the Spring-Summer 2007 ABANA Review. This issue provides a very thoroughoverview of Islamic bonds, Sukuks, and delves into the complexities of the Islamic capital markets.

Islamic Finance is one of the fastest growing segments of today’s banking industry. Formerly deemed a marginalindustry by some, Islamic Finance is now recognised as a vital and thriving market. In this issue of the Review, we hopeto provide information on Islamic bonds that is equally useful to active participants in Islamic financial markets as well asthose who are less familiar with Shariah-compliant investing. With commentary and case studies on regulatory, regionaland legal issues, as well as on growth and emerging trends specific to Sukuks and Islamic capital markets, ourdistinguished authors provide valuable insights into the principles and applications of this instrument. For yourconvenience, we have included a comprehensive glossary of Islamic Finance terms.

Over the past few years, we have sought to bring you information on this important topic through various programmes,including several conferences and speaker luncheons. Our highly successful 2005 Annual Conference entitled “IslamicFinance: Players, Products and Innovations” was one such event. The well-received “Islamic Approach to Private Equity”panel embedded in the programme of our 2007 Annual Conference on Middle East Private Equity held earlier this year isanother more recent example. This Review issue focusing on Sukuks introduces our first effort to deal extensively withthis intricate theme in print.

At ABANA, we strive to keep you up to date on relevant issues concerning the Arab and American financial sectors.We believe that this issue’s focus is very timely, and we look forward to continuing to play an active role in the coverageand expansion of the Islamic capital markets in the future.

We thank all the authors who very generously contributed to this Review as well as the ABANA CommunicationsCommittee, headed by Omar Wohabe, and Adepeju Adeyemo for taking the time to edit and produce it.

I wish you all a wonderful summer and hope to see you soon.Enjoy the reading,

Laura Osman

LAURA OSMAN

Concord International InvestmentsGroup, L.P.

PRESIDENT

MONA ABOELNAGA KANAAN

Proctor Investment ManagersVICE PRESIDENT

HANI N. BEYHUM

Olayan America Corporation VICE PRESIDENT

PROF. SAFWAN M. MASRI

Columbia UniversityVICE PRESIDENT

ROBERT P. HANEY, ESQ.

Covington & BurlingSECRETARY

JOHN O. HATAB

Gotham Capital AssociatesTREASURER

HARRY L. ALVERSON

The Carlyle GroupGHASSAN M. ATIYAH, ESQ.

Fried, Frank, Harris, Shriver & Jacobson LLP

MONIR BARAKAT

Wafra Investment Advisory GroupWAEL O. BAYAZID

The Carlyle Group

GEORGE A. BITAR

Merrill Lynch & Co, Inc. WA’EL N. CHEHAB

Cedar Capital Management, Inc.KATHARINE B. CUSHING

Neuberger BermanHABIB KAIROUZ

Rho Capital PartnersNAGY KOLTA

Abu Dhabi International BankGEOFFREY MILTON

Capital Investment Solutions, Inc.MAHMOUD SALEM

The Bank of New YorkTAREK SHERLALA

The Bank of New YorkA. RUSHDI SIDDIQUI

Dow Jones IndexesOMAR WOHABE, ESQ.

Wohabe Law OfficesABBAS F. (“EDDY”) ZUAITER

Soros Fund Management

OMAR WOHABE, ESQ.CHAIR

MOHANNAD AAMA

HARRY L. ALVERSON

GHASSAN M. ATIYAH, ESQ.

BENJAMIN OSTROM

TAREK SHERLALA

A. RUSHDI SIDDIQUI

HANI N. BEYHUMEX OFFICIO

ADEPEJU ADEYEMOSENIOR PROGRAMSCOORDINATOR

ARAB BANKERS ASSOCIATIONOF NORTH AMERICA, INC.

P.O. BOX 2249GRAND CENTRAL STATIONNEW YORK, NY 10163T.212.599.3030F.212.599.3131WWW.ARABBANKERS.ORG

The ABANA Review is a publication of the Arab BankersAssociation of North America. It is distributed to membersand other individuals and institutions with banking andfinancial interests in the Middle East. Material from thispublication may not be reproduced without permissionfrom ABANA. Views expressed by individual authors/speakers herein do not necessarily represent those ofABANA.

A. ROBERT ABBOUD

A. Robert Abboud & Co.

MAHMOUD ABDEL-AZIZ

National Bank of Egypt

GHAZI M. ABDUL JAWAD

Arab Banking Corporation

DR. MOHAMED ABUSHADI

Al-Ubaf GroupFAISAL HAMAD AL AYYAR

Kuwait Projects Company (Holding)DR. KHALED M. AL-FAYEZ

Gulf Investment Corporation

ABDLATIF YOUSEF AL-HAMAD

Arab Fund for Economic & SocialDevelopment

MOHAMED ABDUL MOHSIN AL-KHARAFI

National Bank of Kuwait

HRH PRINCE ALWALEED BINTALAL BIN ABDULAZIZ ALSAUD

Kingdom Holding CompanyIBRAHIM S. DABDOUB

National Bank of KuwaitDR. RICHARD A. DEBS

Morgan Stanley International

DR. MOHAMED A. EL-ERIAN

Harvard Management CompanyDR. ABDULLAH EL-KUWAIZ

Embassy of Saudi Arabia to BahrainNEMIR A. KIRDAR

InvestcorpSALIM AHMED BIN MAHFOUZ

The National Commercial BankLUBNA S. OLAYAN

Olayan Financing CompanySULIMAN OLAYAN

The Olayan GroupWILLIAM R. RHODES

Citigroup/CitibankABDULLA A. SAUDI

Arab Banking CorporationABDUL MAJEED SHOMAN

Arab Bank

2003-05SAMER S. KHANACHET

United Gulf Management2000-02HANI K. FINDAKLY

Clinton Group1997-99ANTRANIG R. SARKISSIAN

Citibank1995-96ISAM SALAH, ESQ.

King & Spalding1995ZIAD K. ABDELNOUR

Interbank/Birchall Partners1993-94MONIR BARAKAT

Wafra Investments Advisory Group1992CAMILLE A. CHEBEIR

Sedco Services1990-91ISSA N. BACONI

Gulf International Bank1988-89TAHER D. MAKKIYAH

1985-86TALAT M. OTHMAN

Grove Financial1983-84, 1987FAKHRUDDIN KHALIL

F. Khalil and CompanyFounding President

L E T T E R F R O M T H E P R E S I D E N T

Dear Members and Friends:

BOARDOFDIRECTORS COMMUNICATIONS ACHIEVEMENTAWARDEES PASTPRESIDENTS

ABANAREVIEW

S P R I N G / S U M M E R 2 0 0 7 3

the Shari’a scholars’ approvalprocess and confirmation of theShari’a validation relating to theunderlying structure. This isfurther supported by therequirement to make anyrelevant structure-specificdisclosures promulgated byAAOIFI’s Shari’a Standards.

The DFSA also demonstrates

its overall commitment todisclosure and informationsharing through its relationshipswith other regulatory agencies.The DFSA recently concluded aMutual Recognition agreementwith the Securities CommissionMalaysia whereby Shari’a-compliant DIFC domestic fundswill be capable of distributionand sale into Malaysia. This isthe first agreement of its kind for both agencies and a modelthat is capable of application toother product areas includingSukuk. Such collaboration andco-operation is encouraged byIOSCO, and in the field ofIslamic Finance indicates theregulators’ willingness to seek to create an enabling regulatoryenvironment for Islamic Finance. �

provided. In addition to theobligation on firms to haveShari’a systems and controls, the DFSA requires enhanceddisclosure for Islamictransactions. Transparency anddisclosure is an obligation ofauthorised firms and isparticularly relevant in respect of Sukuks.

The DFSA regime prescribesregulations for the offering andholding of Sukuks as investments.In the latter case, the prudentialrequirements, which are basedon international standards butduly modified for Islamicfinance, will apply, including thespecific risk weights prescribedfor Sukuks. With respect to theoffering of securities, the DFSArequires the following initial andongoing disclosures to be made:

• details of the SSB that hasundertaken the Shari’areview for the offer;

• the opinion of the SSB as towhether the offer is Shari’acompliant;

• description of the underly-ing structure of the transac-tion;

• any applicable disclosuresprescribed by AAOIFIShari’a Standards;

• any subsequent changes tothe SSB.

With respect to Shari’a law,the issuer is under the obligationto ensure that the necessaryapprovals have been sought.

The DFSA’s approach clearlyfocuses on providing clear andrelevant disclosure in respect of

regulatory standards that couldadversely affect the Islamicfinancial services industry.

II SS TT HH EE DD FF SS AA AARR EE GG UU LL AA TT OO RR YY MM OO DD EE LL FF OO RRII SS LL AA MM II CC FF II NN AA NN CC EE ??

The Dubai Financial ServicesAuthority (DFSA) is anintegrated regulator for theDubai International FinancialCentre (DIFC), which is afinancial free zone in the Emirateof Dubai, and is home to theworld’s largest Sukuk market.

The DFSA was in theprivileged position of developinga regulatory regime on a blankslate and, from the outset,devised its integrated risk-basedregime with both conventionalfirms and Islamic ones in mind.The DFSA clearly had theadvantage of not having tomodify legislation, or “bolt on”Islamic Finance to an establishedconventional financial system.The DIFC began with thecreation of a legal system basedon common law, inclusive of aspecific trust regime. In respectof the regulation of Islamicfinance, the DFSA has takensteps to create an “enablingregulatory framework” for,among other things, the Islamicfinancial services industry bycreating clearly defined,international regulatoryparameters but within anenvironment that is conducivenot only to the cross-sectoralfeatures of Islamic Finance butalso the pace of innovation inthis industry.

Mindful of the differences inopinion in Shari’a interpretation,the DFSA has implemented aShari’a systems approach toregulation. Islamic firmsoperating in the DIFC mustimplement systems and controlsto ensure that the firm operatesin compliance with Shari’a. Thisincludes the appointment of aShari’a Supervisory Board (“SSB”)in accordance with guidance

Continued from Page 1

The Dubai Financial Services Authority clearly had the advantage of not having to modify legislation or “bolt on” Islamic Finance to an established conventional financial system.

INTHISISSUE

4The Dow Jones Citigroup Sukuk Index:A Template Is EstablishedBy Lisa Meyer and A. RushdiSiddiqui

12Development and Regulation of theSukuk Market in MalaysiaBy Nik Ruslin Nik Jaafar

21Evolution and Rise of ConvertibleSukukBy Neeta Thakur

Letter from the President 2Recent Events 23Corporate and People News 26New Members 26Glossary 34

R E G U L A T O R Y I S S U E S

F A C I N G S U K U K A N D

I S L A M I C C A P I T A L

M A R K E T S

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4 S P R I N G / S U M M E R 2 0 0 7

growth. As of mid-February thisyear, the index’s return was7.66% since inception.

As charts I and II indicate, theearly growth pattern of thesukuk market far outpaces thatof the Eurobond market.

The Dow Jones Citigroup

Yet another sign that thesukuk industry isgrowing is the Dow

Jones® Citigroup® Sukuk Index.Launched on April 2nd in 2006,it is the first index to measurethe performance of global bondsthat are screened for compliancewith Islamic investmentguidelines. Indeed, Islamicfinancial institutions, includingnon-bank operations such asinsurance firms, manage morethan $800 billion, according todata cited by the IslamicDevelopment Bank in its 2005-2006 annual report. And theadvent of the Dow JonesCitigroup Sukuk Index is justanother sign of the industry’s

Sukuk Index was createdprimarily as a benchmark forinvestors seeking exposure toSharia-compliant fixed-incomeinvestments. In addition, theindex may serve to increasesecondary market trading in thisgrowing asset class and facilitatecross-market relative value tradingamong different asset classes.

Comprised of investment-grade, U.S. dollar-denominatedIslamic bonds - also known assukuk, the index shares designcriteria and calculationassumptions with the broaderCitigroup fixed-income indexfamily, and its screens for Shariacompliance are consistent withthose of the Dow Jones IslamicMarketSM (DJIMSM) Indexes,the most widely adopted familyof Islamic-focused equity indexes.

To be sure, the launch of theDJIM in 1999 was another firstfor the Islamic finance market,and a sign of its growth. A brieflook at the increase in the types ofSharia-compliant funds illustratessuch development in Chart III.

P E R F O R M A N C E A N D C O M P L I A N C E

The Dow Jones Citigroup Sukuk Index: A Template Is EstablishedBy Lisa Meyer and A. Rushdi Siddiqui

I. HISTORICAL CONTEXTEarly years of the Eurobond market offer perspectiveEurobond Issuance, 1964-1969

SSoouurrccee:: FFrraannkk JJ.. FFaabboozzzzii,, Handbook of Fixed Income Securities ((11999911))..

II. ISLAMIC PARALLELS?Early years of the sukuk market suggest growth prospectsSukuk Issuance, 2001-2006

Data as of December 2006. Source: International Islamic Financial Markets.

Lisa Meyer and A. Rushdi Siddiquiof Dow Jones Indexes contributedthis article. For more information,email Citigroup Index atfi.index@citigroup.com.

ABANAREVIEW

S P R I N G / S U M M E R 2 0 0 7 5

CC OO MM PP OO SS II TT II OO NN OO FF TT HH EE DD OO WW JJ OO NN EE SS CC II TT II GG RR OO UU PPSS UU KK UU KK II NN DD EE XX

To be included in the index, abond must comply with bothSharia Law and the standards ofthe Bahrain-based Accountingand Auditing Organization forIslamic Financial Institutions(AAOIFI) for tradable sukuk. Italso must have a minimummaturity of one year, a minimumissue size of US$250 million andan explicit or implicit rating of atleast BBB-/Baa3 by leading ratingagencies.

The chart below details thedesign criteria and calculation ofthe Dow Jones Citigroup SukukIndex.

SS HH AA RR II AA CC OO MM PP LL II AA NN CC EESukuk are essentially asset-backed bonds, neither equity nordebt from the perspective of con-ventional capital markets. Assuch, the content and structureof sukuk must be examined care-fully to assure that they areSharia-compliant. While it ispossible for an index to stipulatecriteria relating to the nature ofthe underlying assets of sukuk todetermine whether or not sukukare Sharia-compliant, the struc-ture of sukuk presents a far morecomplicated picture. First, giventhe complexities involved whenstructuring such instruments forassets held in one jurisdiction byspecial purpose vehicles (SPVs)

or trusts domiciled in other juris-dictions, or held by investors instill others, certification of com-pliance by an internationally-rec-ognized Sharia SupervisoryBoard (SSB) must be established.Second, the basic structure ofsukuk must fall under one of thecategories specified by theAAOIFI. After these two criteriaare established, the final Shariascreening criteria will deal exclu-sively with the nature of theunderlying assets.

TT HH EE FF II RR SS TT SS CC RR EE EE NNThe first criterion for consideringsukuk is to ensure that theissuance is certified by a rep-utable SSB. In many cases, sukukwill be certified not only by theissuer’s SSB, or the arranger, butalso by the investor’s SSB as well.To address the potential problemof differing SSB interpretations,the screen will be passed only ifsukuk have been certified by aSharia Supervisory Board withinternational membership or ifmore than one SSB from differ-ent geographic regions have cer-tified the sukuk.

TT HH EE SS EE CC OO NN DD SS CC RR EE EE NNThe second criterion, regardingthe basic structure of the sukuk,is the most complex of all.Because the standards for sukukwere issued by the AAOIFI in2004, a diverse range of instru-

T H E D O W J O N E S

C I T I G R O U P S U K U K

I N D E X : A T E M P L A T E I S

E S T A B L I S H E D

Data as of 31 December 2006. Source: Failaka, Calyx Financial.

Source: Citigroup Index LLC

IV. DESIGN CRITERIA AND CALCULATION ASSUMPTIONS

Composition Global U.S. dollar-denominated investment-grade bonds that are Sharia compliant

Stated Coupon Fixed rate, floating rate

Minimum Maturity One year

Weighting Market capitalization updated monthly

Minimum Size Outstanding USD 250 million

Minimum Quality An explicit or implicit rating of at least BBB-/Baa3 by S&P, Moody’s or a leading

rating agency

Yield Curve Citigroup Treasury Model (Off-the-Run) Curve

Reinvestment of Cash Flow One-month USD Eurodeposit for the calculation period

Calculation Frequency Daily

Pricing All pricing generally taken as of the local market close

Volatility 10% single volatility

Base Date October 2005

III. EVOLUTION OF SHARIA-COMPLIANT PRODUCTS

1990 1995 2000 2006

Equity Equity Equity Equity

Murabaha Murabaha Murabaha Murabaha

Leasing Leasing Leasing

Balanced and Balanced and

Secured Secured

Sukuk Sukuk

Child Trust Funds Child Trust Funds

Private Equity

Real Estate

Funds of Funds

Hedge funds

ABANAREVIEW

6 S P R I N G / S U M M E R 2 0 0 7

T H E D O W J O N E S

C I T I G R O U P S U K U K

I N D E X : A T E M P L A T E I S

E S T A B L I S H E D

ments has been identified, andtheir acceptance by Islamicbanks and financial institutionshas been universal.

TT HH EE TT HH II RR DD SS CC RR EE EE NNIn the same way that stocks arescreened for compliance of theprimary business, so as not topermit companies that areengaged in any of the so-calledprohibited industries, the under-lying assets to be securitized insukuk must comply with Shariaprinciples. The industry-basedscreen criteria are similar to thoseestablished for DJIM Indexes.

Excluded from the indexes areproducers of alcohol and pork-related products, providers ofconventional financial services(banking, insurance, etc.) andproviders of entertainmentservices (hotels, casinos/gambling,cinema, pornography, music, etc.).Tobacco manufacturers anddefense and weapons companies,although not strictly forbidden forinvestment under Islamic Law, areexcluded from the indexes as well.

CC OO NN CC LL UU SS II OO NNThe development of the Dow

Jones Citigroup Sukuk Indexand DJIM provide a foundationfor an Islamic capital market,comprising of compliant equitiesand sukuk. The most importantaspect of this development: atemplate is established - hence,interested stakeholders have abeginning point. �

All information as of April 9, 2007. The information inthis material is subject to change. The Dow Jones®Citigroup® Sukuk Index is proprietary to Citigroupand distributed by Dow Jones & Company, Inc. underlicense. CITIGROUP is a registered trademark andservice mark of Citigroup Inc., is used and registeredthroughout the world and used under license by DowJones & Company, Inc. “Dow Jones” is a registeredservice mark and “Dow Jones Islamic Market” and“DJIM” are service marks of Dow Jones & Company,Inc. The marks are used throughout the world andused under license by Citigroup Index LLC.Investment products based on the Dow JonesCitigroup Sukuk Index and the Dow Jones IslamicMarket Indexes are not sponsored, endorsed, sold orpromoted by Dow Jones or Citigroup, and neitherDow Jones nor Citigroup makes any representationregarding the advisability of investing in such prod-uct(s) or any component thereof. Inclusion of a secu-rity in the Dow Jones Citigroup Sukuk Index or DowJones Islamic Market Indexes does not in any wayreflect an opinion of Dow Jones or Citigroup on theinvestment merits of the security. Neither Dow Jonesnor Citigroup is providing investment advice in con-nection herewith.

The foundation for theissuance of fixed incomeIslamic instruments was

laid down nearly two decadesago by the Fiqh Academy in the Organization of IslamicConference. The ruling of theFiqh Academy carriesconsiderable weight for theIslamic financial servicesindustry and its rulings aregenerally widely accepted. Still,it took the industry another 12 years before the instrument“Sukuk” was finally launched in 2000. The reasons for thisdelay were the non-existence ofan Islamic capital market andthe absence of innovations notassociated with conventionalfixed return debt instruments.Depending upon how it isstructured, Sukuk can betermed as equity, debt, hybridor securitized.

As per the Accounting andAuditing Organization forIslamic Financial Institutions(AAOIFI), Sukuk is defined asfollows:

“Certificates of equal valuerepresenting after closingsubscription, receipt of the valueof the certificate and putting it to use as planned, common titleto shares and rights in tangibleassets, usufructs and services or equity of a given project orequity of a special investmentactivity.”

Since its launch, there hasbeen continuing growth andinnovation in structuring. Sukuk mainly began withadoptions on Ijarah (leasing),Murabaha or Istis’na contracts.However, within a few years themarket was able to introduceSukuk based on a combinationof contracts includingMusharaka, Mudarabah, etc.Shariah scholars together withmarket participants have

I N D U S T R Y D E V E L O P M E N T

Sukuk Development, EmergingTrends & IIFM RoleBy Ijlal A. Alvi

I. TOTAL SUKUK ISSUANCE

Source: IFIS; IIFM Analys

Ijlal A. Alvi is with theInternational Islamic FinancialMarket in Bahrain. For moreinformation, visit www.iifm.net. Continued on Page 8

ABANAREVIEW

S P R I N G / S U M M E R 2 0 0 7 7

ABANAREVIEW

8 S P R I N G / S U M M E R 2 0 0 7

managed to innovate throughresearch and deliberation to such a degree that hybrid Sukukcould be floated in convertibleand exchangeable instrumentsstarting in 2006.

The stage is now set for amajor explosion of issues, similar

to the late 1980s surge in thehigh yield debt market. As of Q12007, the total Sukuk issuedglobally is USD around 65billion. The market size by 2010is estimated to be in excess ofUSD 200 billion, indicatingphenomenal trend line growth.

The corporate sector has takenthe lead role in Sukuk issuance,while issuance by sovereigns isstill very limited but expanding.Up to now, we have witnessedsovereign issuance by Bahrain,Malaysia, Pakistan, Brunei andQatar. This year may also seesovereign issuance by Indonesiaand perhaps several otherjurisdictions.

The size of the Sukuk marketis very small, and there is a huge

gap in supply and demand,which is keeping the secondarymarket activities at low levels.However, we expect thissituation to soon change as anumber of institutions besideLiquidity Management Centre(LMC), such as the EuropeanInternational Islamic Bank(London), Sukuk House(Bahrain) and Kuwait FinanceHouse (Kuwait), to startsecondary market trading. Thereported secondary market tradeof USD 65 million by LMCduring 2006 is expected toalmost triple during 1Q 2007 tomore than USD 150 million.

Within this current trend, theInternational Islamic FinancialMarket (IIFM) serves as theindustry’s market oversight, thatis, the body responsible fordevelopment, uniformity andpromotion of Islamic capital andmoney markets. IIFM haslaunched or is in the process ofimplementing several majorSukuk market initiatives,including:

1. Primary Market Sukukissuance recommendationsand best practices for offering circulars, namingconventions, etc.

2. Development of Sukuk-based Islamic repurchaseagreements. This project, ifdeveloped, would make a

By 2010, the Sukuk market is expected to be inexcess of USD 200 million, indicating phenomenaltrend line growth.

major impact in the Sukuksecondary market trade.However, given the challenge in developingsuch a framework for repo contracts, the projectcould well be for the medium term.

3. Development of Sukuktrade matching, repomatching and ISO messageformats for more flexibleand efficient settlement.

4. Development of an Islamicmanagement system wheretrading platforms, clearingand settlement can beaddressed.

The above are some of theintended projects. However,there is a likelihood that IIFM’sDocumentary ConvergenceWorking Group or LiquidityManagement Working Groupmay find it feasible to work onunified product development,which is one of the coremandates of IIFM.

In order to have a transparentand robust Islamic financestructured instruments market,uniformity is the key elementand core work of IIFM.However, IIFM’s approach is tomove with industry consensusand involvement so that theinnovation and flexibilityavailable to Shariah continuesand the industry is developed inan orderly manner. �

II. SOVEREIGN/CORPORATE SUKUK ISSUANCE May 2007

Source: IFIS; IIFM Analysis

S U K U K D E V E L O P M E N T ,

E M E R G I N G T R E N D S & I I F M

R O L E

Continued from Page 6

ABANAREVIEW

S P R I N G / S U M M E R 2 0 0 7 9

I N M A L A Y S I A

Growth Outlook in Islamic Debt and Project FinancingBy Baljeet Kaur Grewal

Baljeet Kaur Grewal is Directorand Chief Economist at KuwaitFinance House, Malaysia. KFH isone of the largest Islamic banks inthe world and the first IslamicBank with an Economic andInvestment Research team. Formore information, visitwww.kfh.com.my.

I slamic finance in Malaysiahas become an essentialelement of the local capital

market, effectively functioning as a real alternative market forcapital seekers and providers and playing an importantcomplementary role to theIslamic banking and Takafulindustry. The broadening anddeepening of the Islamic financialmarket in this country hasimpacted each of the bankingand takaful sectors and, moredistinctively, the capital market.The Islamic capital marketcomplements the conventionalmarket by providing value-addedservices that meet the needs ofthe market for a broad range ofinstruments, and has played anincreasingly successful role inmobilizing and channeling fundsto fuel economic growth.

One very crucial challengeand pre-requisite to furthergrowth of the Islamic market is the lack of widespreadawareness and understanding in the broader market of thevaried investment opportunitiesthat are afforded by Islamicfinance. Meanwhile, given thetremendous rate at which thisindustry continues to grow, noglobal financial intermediary can afford to ignore it, even inregions outside Islamic countries

(e.g. EU, Russia and US). The Islamic capital market

accounts for a large proportionof the Private Debt Securities(PDS) market in Malaysia. In the last eight years, thecomposition of Islamic fixedrate securities grew unabatedand increased in significance(Chart I). Demand for domesticIslamic debt instruments, whichaccounted for only 7% of totalbonds raised in 1999, grew to25% in 2000 and subsequentlyto 58% in 2006. This wasprimarily due to investorawareness of alternative fundingsources, i.e. Islamic instrumentsand the increased number ofIslamic funds launched over the years. No fewer than 45%of outstanding domestic bonds are now Shari’ah-compliant,especially the larger issues, and this proportion continuesto grow. The result is thatMalaysia’s Islamic financiallandscape has advanced interms of diversity of instru-ments and its modernity, andnow boasts a dual bankingmodel, whereby a developingIslamic financial system exists

in parallel to the conventionalbanking system. To chart thegrowth of Islamic fixed incomesecurities, total Islamic PDS(IPDS) issued since 1991(matured and outstanding)amounts to RM165.2bln at 380issues as at end-06. In terms oftotal number of IPDS issued,Infrastructure / Utilities andProperty / Real Estate sectorsdominate at 51% and 19%respectively given the largescale nature of these projects(Chart II).

In 2007, the Malaysian bondmarket is expected to continueits aggressive growth with anestimated RM35 - RM40blnworth of new debt to be issued,of which 70% are expected to beShari’ah-compliant. A largeproportion of these new bondswill be channeled to financeinfrastructure projects, thanks tothe 9th Malaysian Plan, whichwas launched in 2006. Projectfinancing via the Islamic routehas gained impetus since the late‘90s, with notable projectsincluding Putra – Star LRT(RM1bln Istisna financing),Putrajaya Holdings (RM2.2blnSukuk), SAJ Holdings waterproject (RM680mln Sukuk), tollroad operators as well as otherinfrastructure and utilitiesplayers (Chart III). The thrust ofthe 9th MP will continue to drivedemand for Islamic projectfinance structures, specifically inthe areas of infrastructurefinancing for water projects,

I. MALAYSIAN PRIVATE DEBT SECURITIES MARKET1990-2007F

Source: BNM/FAST, RAM, MARC, KFH

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

F

RM

mln

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education, healthcare, roads, etc.Meanwhile, on the global

Sukuk front, new Sukukissuances were approximatelyUSD26.8bln in 2006, bringingthe total amount of global Sukukoutstanding to USD47bln(including local currency-denominated Islamic bonds).Some of the most successfulrecent Sukuk issues include theinaugural Sovereign PakistanSukuk of PKR8bln(~USD130mln), NakheelDevelopment USD3.52bln(property/real estate and world’slargest issue to-date), PCFCDevelopment FZCO USD3.5bln(ports/shipping) and SabicSAR8bln (~USD800mln, basicindustries). For 2007, we expectnew Sukuk issuance to trendhigher to USD35bln-USD40bln,dominated largely by hugeinfrastructure/utilities,property/real estate and oil and gas financing in Malaysiaand GCC countries.

So why are Islamic bondsincreasingly popular? Theadvantages fundamentally lie inthe structure of Islamic financeitself. Islamic bonds provide anavenue for Islamic investors toinvest in Shari’ah-compliantinvestments, thus guaranteeingaccess to a larger investor base,as well as providing potentiallymore competitive pricing toissuers via the wider investor

pool from the participation oflarge Islamic investors. Structuresemployed have also evolved fromthe traditional Bai Bithaman Ajil(BBA) to include more projectspecific transactional structureslike Istisna, Ijarah Sukuk,Musharaka or a combination of the above.

Nevertheless, like all financialmechanisms that are in theemerging stages of development,the Islamic industry faces somekey challenges. The main hurdleidentified is in accessing long-term investors and ensuringsustainability of the Islamicindustry. These concerns can be mitigated by a greaterunderstanding/familiarity ofIslamic structures and a widerskill base. Further, creating a

deep and liquid secondarymarket for Islamic instrumentsthrough the enhancing of riskmanagement tools andinnovation of new products willensure that standards remainadaptive and effective in ridingthe evolutionary waves offinancial innovation. The natureof project finance itself, whichrequires large funding, willenable issuers to tap a widerpool of investors here andabroad, simultaneouslyestablishing sizeable Islamicmarkets and participants andleading to cheaper funding costs.However, the success of a well-structured deal is only as good as the distribution network.

Further prospects also exist forIslamic products in the areas ofAsset Origination and AssetManagement. Following on fromthe theme of innovation,structures that can be exploredinclude the gradual shift toIstisna, Ijarah and Salam basedproducts, short-term oil andcommodity linked products,equity/debt hybrids as well as the globalization of distributionlines. Continuous R&D in theareas of product developmentcan also enhance growth inIslamic equity funds, cultivateliquidity management of assetsand create Shari’ah-based equitybenchmarks.

2007 will see Malaysia’s GDP

G R O W T H O U T L O O K

I N I S L A M I C D E B T A N D

P R O J E C T F I N A N C I N G

III. MALAYSIA’S ISLAMIC INFRASTRUCTURE DEALS 1990-2006

Source: BNM/FAST, RAM, MARC, KFH

Source: BNM/FAST, RAM, MARC, KFH*Statistics include total of IPDS rated and issued to-date (matured and outstanding)

II. TOTAL VALUE OF ISLAMIC CORPORATE BONDS ISSUED AND RATED BY SECTOR*As of December 2006

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grow by 6.0%, with the maineconomic sector drivers beingthe infrastructure / constructionindustry, services sub-sectors, oiland gas and plantations. As such,the fund raising activities willalso boast Sharia’ah-compliantstructures that support activitiesin these key areas.

The Malaysian bond markethas displayed exemplary growthwith the onset of Islamic debt,thus contributing towards theresilience of the overallinternational financialarchitecture. �

Disclaimer: The information herein has been obtainedfrom sources believed to be reliable but cannot beguaranteed. The views or opinions expressed aresubject to change at any time. Neither the informa-tion nor any opinion expressed is to be construed asa solicitation for the purchase or sale of any securi-ties. Kuwait Finance House disclaims liability in thisrespect.

G R O W T H O U T L O O K

I N I S L A M I C D E B T A N D

P R O J E C T F I N A N C I N G

IV. TOTAL VALUE OF ISLAMIC CORPORATE BONDS ISSUED AND RATED BYINSTRUMENT TYPEAs of December 2006

Source: BNM/FAST, RAM, MARC, KFH

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T The Malaysian capitalmarket has registeredstrong growth over the

years and today, it is 2.4 times thesize of nominal GDP. Togetherwith equity and bond markets, itssize as of year-end 2006 wasRM1.3 trillion (USD 1=3.4 RM).

It had expanded by 17% or byRM190.1 billion, year-on-year.The one-year increase in 2005 to2006 was almost equal to thetotal size of the capital market in1990 of about RM200 billion.This reflects the increasinglyimportant role of the capital

market in the national economy.Similarly, the growth and

development of sukuk has beenimpressive. As of 31 March2007, the total outstandingMalaysian corporate sukuk stoodat RM104 billion, or 47% of totaloutstanding corporate bonds. In2006, over 55% of all approvedbonds in Malaysia were sukuk,valued at RM42 billion. In fact, ithas been independentlyrecognised that Malaysiaoriginates over 60% of theworld’s sukuk issues. TheMalaysian Global Sukuk andGuthrie Sukuk issued in 2002are regarded as catalysts to thephenomenal growth of globalsukuk (See Table1). TheKhazanah Exchangeable Sukukissued in 2006 created yetanother milestone, being the firstexchangeable Islamic bond inthe world. Two Malaysian sukuk,namely the Malaysian GlobalSukuk and Sarawak Sukuk, havebeen included in the Citigroup-Dow Jones Sukuk Index since itsinception in 2006.

The year 2006 also saw theissuance in Malaysia of moreglobally accepted sukuk,employing the concepts ofmudharabah, musharakah andijarah. Twenty-seven out of sixty-four sukuk issued in Malaysiawere based on these principles.In terms of value, sukuk,structured using musyarakahcontributed RM 29.4 billion or70% of the total number ofsukuk approved (See Chart 1).Some notable sukuk issues since2002 are listed in Table 1.

All these achievements havebeen realised through clearpolicies and government-driveninitiatives. The MalaysianSecurities Commission (SC),established with a mandate thatincludes regulating anddeveloping the capital market,took the lead in promoting theIslamic capital market (ICM) inaccordance with thegovernment’s aspirations.

The statutory developmentalmandate allowed the SC to move

I N M A L A Y S I A

Development and Regulation of the Sukuk Market in MalaysiaBy Nik Ruslin Nik Jaafar

TABLE 1: NOTABLE SUKUK ISSUES SINCE 2002Date of Shariah Amount

No Issuer Issuance/Approved Principle (million)

1 Kumpulan Guthrie Berhad Jan-02 Ijarah US$150

2 Malaysian Global Sukuk Jun-02 Ijarah US$600

3 Musyarakah One Capital Apr-04 Musyarakah RM2,500

4 Sarawak Corporate Sukuk Inc Nov-04 Ijarah US$350

5 International Finance Corporation Dec-04 BBA RM500

6 International Bank for Reconstruction and

Development (the World Bank) May-05 BBA RM760

7 Cagamas MBS Bhd Aug-05 Musyarakah RM2,500

8 Rantau Abang Capital Sdn Bhd (2 issues) Mar-06 Musyarakah RM10,000

9 Khazanah Nasional Bhd Oct-06 Musyarakah US$750

It has been independently recognised that Malaysiaoriginates over 60% of the world’s sukuk issues.

Nik Ruslin Nik Jaafar is with the Securities Commission ofMalaysia’s Islamic Capital MarketDepartment. For more informa-tion, email ruslin@seccom.com.my. Continued on Page 14

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very quickly and to put in placethe necessary institutional andregulatory framework for thedevelopment of the ICM. It is aproduct of government directioncombined with privately initiatedand commercially driven efforts.In a nutshell, significant top-down initiatives were pursued.

GG UU II DD EE LL II NN EE SS OO NN TT HH EEOO FF FF EE RR II NN GG OO FF II SS LL AA MM II CCSS EE CC UU RR II TT II EE SS

The release of the SC’sGuidelines on the Offering ofIslamic Securities in July 2004(IS Guidelines) has facilitated thecreation of more innovative andsophisticated Islamicinstruments. Islamic securities,like other securities, mustcomply with all SC guidelines ordirectives, where applicable. Forexample, Islamic andconventional issues alike mustcomply with the Policies andGuidelines on the Issue/Offer ofSecurities, Minimum ContentsRequirements for Trust Deeds and

the Guidelines on the Offering ofAsset-Backed Securities.

The IS Guidelines list thetypes of contracts approved forthe purpose of structuring,documenting and trading Islamicsecurities. It also stipulates therequirements and qualificationsexpected of Shariah advisers.Prior to the issuance of theseguidelines, the issuance of sukukwas subjected to the guidelinesfor the issuance of conventionalbonds, and also to appropriatemodifications, particularly interms of the requirements ofShariah advisers.

Conventional bonds are basedon the legal concept ofdebentures, which involves anelement of indebtedness. Thishad a limiting and constrainingeffect on the growth of sukuk,which is based on structuresinvolving elements of equityparticipation, such asmusharakah (profit and losssharing) and mudharabah (profitsharing) bonds. The issuance ofsukuk was then confined tothose based on BBA (deferredsale) and murabahah (sale andpurchase transaction involvingcost-plus profit margin)principles. The introduction ofthe IS Guidelines and somechanges to the definition ofsecurities in the law effectivelydecoupled sukuk from thedefinition of debentures andallowed issuers to structure

products based on the very richfiqh muamalat principles.

As the core principle of Islamicfinance is Shariah compliance,application to the SC under theIS Guidelines requires theappointment of Shariah advisers.The role of the Shariah adviser asprescribed by the guidelines iscomprehensive and describes aduty to advise on all aspects ofIslamic securities. The adviser isresponsible for compliance withapplicable Shariah principles andrelevant resolutions and rulingsmade by the SC’s ShariahAdvisory Council.

Islamic securities must also berated by rating agenciesrecognised by the SC. However,Islamic securities that are non-transferable or non-tradableinstruments do not require arating. An indicative rating mustbe obtained by the issuer at thetime of submission of theapplication. There is nominimum rating required; even ifit is below the investment grade,the issuer need only disclose theextent of credit risk to investors,and their advisers can evaluatethe risks relating to the Islamicsecurities.

Likewise, for any issue, offeror invitation of Islamic securitiesissued under the contracts ofprofit sharing (mudharabah) orprofit-and-loss sharing(musyarakah), an information

The recent development of Malaysia’s Islamic capitalmarket is also due to greater acceptance amongissuers and advisers who regard it as a viable alternative for fund-raising.

D E V E L O P M E N T A N D

R E G U L A T I O N O F T H E

S U K U K M A R K E T I N

M A L A Y S I A

CHART 1: SUKUK APPROVED IN 2006 BY SHARIAH PRINCIPLES

The Prime Minister’s Department is located about40km from Kuala Lumpur in Putrajaya, the centralgovernment’s administrative centre and the thirdFederal Territory of Malaysia.

Continued from Page 12

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memorandum must be providedas these involve different riskconsiderations.

GG OO VV EE RR NN MM EE NN TT -- DD RR II VV EE NNPP OO LL II CC II EE SS AA NN DD II NN II TT II AA TT II VV EE SS –– TT HH EE KK EE YY TT OO SS UU CC CC EE SS SS

The development of theIslamic capital market inMalaysia in recent years can beattributed to the growing interestamong market participants, inparticular, investmentinstitutions and unit trust fundsthat manage and invest theirfunds in accordance with Shariahprinciples. It is also due togreater acceptance amongcorporations – issuers andadvisers – that regard the Islamiccapital market as a viablealternative for fund-raisingactivities in the capital market.

With this in mind, severalrecommendations wereformulated to facilitate thedevelopment of the Islamiccapital market. These includedthe establishment of a facilitativetax framework to addresspotential impediments, and toexpedite and accelerate thedevelopment and innovation ofother products. Since 2003, thegovernment has allowed sukukissuers to deduct all expensesfrom the issuance of sukukagainst corporate income.Similarly, other tax disparities,with conventional bonds, wereremoved to ensure a levelplaying field.

In 2006, the Malaysiangovernment launched theMalaysian International IslamicFinancial Centre (MIFC)initiative. It is an importantinitiative that serves as a keyintermediation link in the globalmarket place, facilitating thegrowth of investments byconnecting international Islamicfinancial markets. One of the keyareas promoted is theorigination, distribution andtrading of Islamic financialproducts. Products and services

under the MIFC can be in anycurrency and can be offered toboth residents and non-residents.These flexibilities, coupled withMalaysia’s acknowledgedleadership in the global sukukmarket, should provide theindustry with the ability toextend its reach to other financialcentres through cross-borderlinkages and alliances to reachout to foreign issuers.

Through MIFC initiatives, thegovernment liberalised theissuance of foreign currency-denominated sukuk bymultilateral development banks,multilateral financial institutions,sovereigns and quasi-sovereigns,as well as local or foreignmultinational corporations. Anon-ringgit sukuk issued by any ofthese entities which is rated atleast a single A will be deemedapproved under a new andforthcoming practice note. Sukukapproved under this frameworkmay be offered offshore and tosophisticated investors onshore.To ensure attractiveness to globalinvestors, withholding tax on theprofit or income received fromsuch sukuk has been abolishedfor non-resident investors.

Additionally, the new

liberalised framework will allow the use of internationaldocumentation, based onEnglish or US laws. Creditratings by international creditrating agencies will also beacceptable. These flexibilities

will introduce internationalstandards and practices asbenchmarks in the sukukissuance process, while savingcosts for international issuers.

CC OO NN CC LL UU SS II OO NNThe development of Islamic

securities has benefited fromMalaysia’s existing laws. It wouldhave been time consuming tocreate new and specific laws forIslamic securities, particularly ifthe provisions need notnecessarily be different fromexisting ones. The approachallowed Islamic securities toblend in with the increasinglycomplex conventional capitalmarkets of recent years.

In addition, Malaysia’s well-established building blocks haveraised the development of theIslamic capital markets to ahigher level. Going forward, thestrong demand for Islamicfinancial products and serviceswill continue. Coupled with thehard work and commitment ofall parties, Malaysia will not onlybe able to maintain its leadingposition in Islamic capitalmarkets, but also achieve thegovernment’s aspiration to be aglobal hub for Islamic finance. �

Going forward, Malaysia will not only be able to maintain its leading position in Islamic capital markets, but also achieve the government’s aspirationto be a global hub for Islamic finance.

D E V E L O P M E N T A N D

R E G U L A T I O N O F T H E

S U K U K M A R K E T I N

M A L A Y S I A

An aerial view of Kuala Lumpur featuring its twofamous landmarks, the KL Tower and the PetronasTwin Towers.

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allow investors to hold a realproperty interest yet remainlargely passive investors. Thisallows Muslim investors tobenefit from partial ownershipof productive assets withouthaving to participate in theoperation of the oil and gasproperties. As real property withwell-defined rights under thelaws, ownership in oil and gascan be cleanly transferred, inwhole or in part, in a variety ofways. This creates a veryfunctional model for Islamicfinancings backed by U.S. oiland gas assets.

Perhaps the most usefulconcept under American oil andgas law is the ability to transfer(or reserve) a cost-free economicinterest in an oil and gas leaseseparate from the right tooperate the property. Such aneconomic interest is commonlycalled a “royalty.” While aroyalty entitles its holder a shareof production, it does not grantthe royalty holder any right tocontrol the exploration andproduction activities on theproperty. The royalty holder ispaid only out of production, butreserve accounts and otherstructural components can beput in place to help limit thefinancial risks associated withpotentially uneven oilproduction or force majeureevents. The royalty owner is notrequired to pay any of the costsassociated with operating theproperty, but at the same timehas no right to control theoperations – he is a passiveinvestor in a real asset. Thus, the characterization underAmerican law of a royalty as areal property interest providesan ideal opportunity to useroyalties as a centerpiece forShari’a compliant investments.

We know of only oneexample of Islamic financetechniques being used forenergy related projects in theUnited States. The $167 millionsukuk (or Islamic asset-backed

federal and state laws provide, inmany instances, an idealfoundation for Shari’a-complianttransactions.

Though a few legal andregulatory impediments tostructuring Islamic financetransactions tailored to fit theneeds of both the oil and gasindustry and Muslim investorsdo exist, oil and gas laws inmost U.S. states are a nearperfect fit for the principles ofIslamic finance. As a thresholdmatter, oil and gas assetsconstitute permissible assets forpurposes of Islamic investmentbecause oil and gas operationsdo not violate Shari’aprohibitions on involvement ininherently “sinful” activities. Bythe same token, Shari’a preceptsencourage the sharing ofcalculated risk and returnthrough joint ownership ofproductive assets andcooperative business enterprises,a principal which fits neatlyunder the structure of the U.S.oil and gas business’ shared riskand return, based on theexploitation of the productiveunderlying assets.

Perhaps most importantly,U.S. law often characterizes evenpurely economic interests in oiland gas operations to be realproperty. This would allow forthe use of financing techniquessuch as “ring-fencing” andenables such assets to becontributed to Shari’a-compliantinvestment vehicles such asmusharaka (or partnerships). Inkey U.S. states, such as Texasand Louisiana, the lawsgoverning oil and gas interests

I slamic finance has become asignificant source ofinvestment and finance

activity both in the Islamic worldand globally. But despite thegrowing prominence of this formof investment worldwide, it hasbeen used only marginally inrelation to energy industry assetsand projects in the United States.Given that the oil and gasbusiness is perhaps the mostcapital-intensive industrial sector

in the world economy, and thatinvestment in U.S. energyprojects continues to grow, thisdisconnect between Islamicinvestors and the oil & gasindustry represents yet anotherbarrier that the Islamic financeand investment community willneed to overcome in its quest toprovide attractive alternativesources of finance and equity tothis and other industriesworldwide. For the oil & gasindustry in the U.S., thepotential for Islamic finance iscertainly there given that U.S.

L E G A L V I E W

US Oil and Gas Law: A Shari’a PerspectiveBy Christopher Richardson

Despite the growing prominence of Shari’a-compliantinstruments worldwide, they have only been usedmarginally in US energy industry investments.

Christopher Richardson is anAssociate with Vinson&Elkins,Hong Kong. He wishes to thankAyman A. Khaleq, Partner atVinson&Elkins in Dubai, for hisassistance in preparing this article.For more information, visitwww.velaw.com.

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securities) issued by EastCameron Gas Company, whichclosed in July 2006, utilized aroyalty as the underlying assetand became the first Islamicfinancing to be supported by oiland gas interests in America.The transaction, involvingproducing assets in the Gulf ofMexico, allowed the sukukholders (essentially, investors) toreceive a share of the productionfrom such properties. The sukukholders are not guaranteed anyfixed return and they bearcertain risks – a fundamentalrequirement of Shari’a –associated with the performanceof the underlying asset.However, a variety of mitigatingstructural tools were employedin the transaction to effectivelyminimize this risk without

jeopardizing the Islamic natureof the deal. Aside from it beingthe first such transaction to bebacked by U.S. energy rights,the sukuk were purchased byboth Islamic and conventionalinvestors, providing additionalevidence that properlystructured Islamic products canbe competitive and appealing toa broad cross-section of themarketplace. �

Diclaimer: This article is intended for educationaland informational purposes only and does not constitute legal advice or services. If legal advice isrequired, the services of a competent professionalshould be sought. These materials represent theviews of and summaries by the author. They do notnecessarily reflect the opinions or views of Vinson &Elkins L.L.P. or of any of its other attorneys orclients. They are not guaranteed to be correct, com-plete, or current, and they are not intended to implyor establish standards of care applicable to anyattorney in any particular circumstance.

U S O I L A N D G A S L A W :

A S H A R I ’ A P E R S P E C T I V E

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the genus of money) alone.This generation of money frommoney (simplistically interest)is “Riba”, and is forbidden. Theimplication for Islamic financialinstitutions and securitisationsis that the trading/selling ofdebts or receivables foranything other than par is notpermissible.

PPRROOHHIIBBIITT IIOONN OOFF

UUNNCCEERRTTAAIINNTTYY OORR ““GGHHAARRAARR””

This principle and itsconsequences for sukuk iscurrently among the moststudied in the context of Islamicfinance. It is widely understoodto mean uncertainty in thecontractual terms and/or theuncertainty in the existence ofan underlying asset in acontract. The prohibition of theformer is positive from atransaction perspective, but thelatter creates issues for Islamicscholars when considering theapplication of derivatives whichmay also be considered Maysir(gambling).

CC RR EE DD II TT RR II SS KK AA NN AA LL YY SS II SSOO FF SS UU KK UU KK SS TT RR UU CC TT UU RR EE SS

Sukuk are notes or certificatesthat represent ownership of apool of underlying assets, hencesukuk holders should beentitled to the ongoing cashflows and proceeds of sales fromthose assets. A key issue to noteis that sukuk are not acompletely new asset classrequiring a new science toanalyse, but rather that suchsecurities employ existingfinancial engineering techniquesto create asset-‘based’ orsecuritisation structures that arealso Shari’ah-compliant.However, while it may initiallyappear that many sukuk haveassets at their core, a detailedanalysis of the commercial termsand legal structure shows that,for some, sukuk performance isnot governed by these assets –indeed, the credit risk is that ofthe borrower.

• Sunnah, the way of theProphet Mohammed(PBOH)

• Hadith, the narrativerecords of the Prophet’s(PBOH) life, actions, andsayings

Some key principles that aremost relevant to ourunderstanding of Sukuk followbelow:

TTHHEE IIMMPPOORRTTAANNCCEE OOFF AASSSSEETTSS

Shari’ah requires thatfinancing should only be raisedfor trading in, or constructionof, specific and identifiableassets. Trading in ‘indebtedness’is prohibited and so the issuanceof conventional bonds, whichusually represent interest-basedfunding for non-specific generalcorporate purposes (whichcould subsequently be traded),would not be compliant. A non-interest bearing loan however,could be traded if priced at parvalue.

Thus, all sukuk returns andcash flows should be linked toassets purchased or (in the caseof project finance) thosegenerated from an asset onceconstructed and not simply beincome that is interest-based.This requirement for ‘tangibility’has consequential effects inother areas, such as derivatives.

PPRROOHHIIBB IITT IIOONN OOFF IINNTTEERREESSTT

OORR ““RRIIBBAA””

As Shari’ah considers moneyto be a measuring tool for valueand not an “asset” in itself, itrequires that one should not beable to receive income frommoney (or anything that has

Shari’ah encouragesinvestment in specific andtangible investments.

Sukuk, sometimes known asIslamic bonds, satisfy this needand, are better described as ‘trustcertificates’ or ‘participationsecurities’ that grant the investor ashare of an asset along with thecash flows and risk commensuratewith such ownership.

While such a description

may be consistent withconventional asset-backedsecurities (ABS), this articleshows that currently, theunderlying credit risk of suchinvestments can have more incommon with conventionalunsecured lending.

SS HH AA RR II ’’ AA HH PP RR II NN CC II PP LL EE SSAA NN DD FF II NN AA NN CC II NN GG

Within Shari’ah, there aremany principles that relate tofinance and trade. The majorityof them originate from the:

• Qur’an, the first source ofIslamic jurisprudence

R A T I N G

Shari’ah, Sukuk and Credit Risk:A Moody’s PrimerBy Khalid Howladar

Khalid Howladar is the Chairman of theMiddle East Coordination Committee andVice President of Middle Eastern andIslamic Structured Finance at Moody’sInvestors Service, London. For moreinformation, visit www.moodys.com.

Sukuk are better described as ‘trust certificates’ or ‘participation securities’ that grant the investor ashare of an asset along with the cash flows and risk commensurate with such ownership.

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It should be emphasised that,while most sukuk in the marketwill have assets in the structure,one should only consider themto be asset-backed or asset-secured if the key securitisationelements are in place to ensurethat sukuk holders havebeneficial title and realisablesecurity over the assets. If this isnot the case, then (as is furtherexplained below) Moody’s ratingis governed more by theborrower risk and Moody’sconventional corporate financeanalysis applies.

From Moody’s perspective,our risk analysis of all thevarying Sukuk structures fallsinto two categories:

• Asset-backed sukuk, forwhich the ratings are pri-marily dependent on a riskanalysis of the assets.

• Unsecured (repurchase)Sukuk, for which ratingsare primarily dependent on the riskiness of the borrower.

AASSSSEETT--BBAACCKKEEDD//

SSEECCUURRIITT IISSAATTIIOONN SSUUKKUUKK

Market participants involvedin securitisation will be familiarwith the issues that exist increating non-recourse bond orsukuk whose credit riskperformance is determinedsolely by the underlying assets.The assets securitised back the

where the rating assigned is notlinked to the borrower.

SS AA MM PP LL EE SS UU KK UU KKSS TT RR UU CC TT UU RR EE SSII JJAARRAA ((SSAALLEE AANNDD LLEEAASSEEBBAACCKK))

SSUUKKUUKK

Currently, the majority ofsukuk seen to date has been of asimple ‘leasing’ or Ijara nature.In such structures, the borrower(or ‘originator’ in a securitisationsukuk) seeking financing ‘sells’the asset to the sukuk SpecialPurpose Vehicle (‘SPV’) for avalue equal to the financingprovided, and then leases itback. The lease paymentsprovide the fixed income streamand may be benchmarked to an

index, this sometimes causesdebate as to whether it is beingused to merely quantify a return(seemingly acceptable), versusimplicitly driving the return(Riba).

Sukuk principal repaymentscan be bullet or amortising, butthe critical difference is in howsuch repayments are effected.

financing raised so, even if theoriginal borrower becomesinsolvent, the sukuk does notdefault. While there are manyreasons for borrowers topursue a strategy of assetbacked financing, one keydriver is that the rating of suchinstruments can besignificantly higher than theunsecured rating of theborrower, thus allowing themto raise [secured] financing at alower cost. Despite thebenefits, such structures arelegally complex to execute butMoody’s expects to see the firstinternational ‘asset-backed’sukuk issues launch this yearfrom the Middle East.

UUNNSSEECCUURREEDD//RREEPPUURRCCHHAASSEE SSUUKKUUKK

The majority of sukukcurrently are not asset-backed.The asset performance does notaffect the sukuk performance asthe borrower undertakes torepurchase the assets(irrespective of value) atmaturity. The presence of suchan undertaking critically altersthe credit risk dynamics of thesukuk structure. Where present,investors have credit exposure tothe corporate or sovereignborrower who has the futureobligation to buy back theassets, and hence an analysis ofthese assets becomes irrelevant.This differs significantly withasset-backed sukuk above,

CHART I: THE ‘PURCHASE UNDERTAKING’ (STEP 4) LINKS THE SUKUK PERFORMANCE TO THE BORROWER AND WOULD NOT LIKELY BE PRESENT IN A ‘TRUE SALE’ OR ‘SECURITISATION’ SUKUK.

Sukuk are not completely new assets requiring a newscience for analysis. Rather, they employ existingfinancial engineering techniques to create asset-basedstructures that are also Shari’ah-compliant.

S H A R I ’ A H , S U K U K A N D

C R E D I T R I S K : A M O O D Y ’ S

P R I M E R

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of interest, sukuk holders mayreceive income based on a shareof profit generated. An expected‘profit rate’ is usually specifiedthat allows the level of return tobe compared to conventionalbond yield obtained onconventional instruments.

Again, where there is apurchase undertaking, the abilityof the issuer to repay sukukholders is fully reliant upon theexistence of this agreement. As aresult, Moody’s analyticalapproach for Musharakatransactions is likely to be a two-step approach, focusing on (i)the characteristics of thepurchase undertaking agreementand (ii) the credit quality of theborrower.

CC OO NN CC LL UU SS II OO NNWith its Arabic terminology

and unusual prohibitions,Shari’ah and its application tofinancing can be quite mystifyingfor the outsider. This articlehopes to illustrate the key creditrisk and rating drivers, and thatthe performance of suchsecurities is still driven by cashflows regardless of whether theyare sourced from assets or acorporate obligor.

• specific assets and ‘manage-ment skills’ from the bor-rower.

The Musharaka is run under amanagement agreement by theborrower, which operates theassets and invests the funds heldin the JV in accordance with apredefined business plan. Underthis structure, sukuk holders areentitled to the issuer’s rights inthe JV – in other words, theyhave rights to receive paymentsfrom the issuer’s equityownership in the Musharaka, asopposed to having rights toindebtedness on borrowedmonies, as is the case forconventional corporate bonds.

The nominal amount initiallyraised may be redeemed eitherthrough a number ofinstallments over time under apre-determined schedule, or atmaturity, in each case byapplication of the purchaseundertaking agreement, whichstipulates that the borrower isrequired to buy out a portion orthe totality (at maturity) of theissuer’s shares in the Musharakaat a price equal to the value ofthe sukuks to be redeemed. AsShari’ah prohibits the payment

As highlighted in Chart I, mostcommon thus far is a ‘purchaseundertaking’ from the borroweror an affiliate to repurchase theasset at maturity (or upon earlytermination) for an amountequal to the principalrepayment(s) due.

MMUUSSHHAARRAAKKAA ((JJOOIINNTT--VVEENNTTUURREE))

SSUUKKUUKK

The Musharaka structure aimsat replicating asset ownership bysetting up a joint-venture(“Musharaka”) jointly-owned bythe issuer (usually incorporatedas a SPV) and the borrower/sponsor. The issuer’s andborrower’s shareholdings in the Musharaka represent theirrespective capital contributionsbased on a parity agreed at theoutset, usually comprising of:

• capital from the issuer (i.e.investor’s Sukuk proceeds); and

Musharaka sukuk holders have rights to paymentsfrom the issuer’s equity in the joint-venture not rightsto indebtedness on borrowed monies, as is the casewith conventional bonds.

CHART II: THE 'PURCHASE UNDERTAKING' (STEP 3) LINKS THE SUKUK PERFORMANCE TO THE BORROWER/ORIGINATOR.

Step 4: The ‘Purchase Undertaking’ links the Sukuk performance to the Borrower and would not likely be present in a ‘True Sale’ or ‘Securitisation’ Sukuk

S H A R I ’ A H , S U K U K A N D

C R E D I T R I S K : A M O O D Y ’ S

P R I M E R

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S ukuk are at the crest of anew wave of innovation inIslamic finance. The

Islamic market is increasinglyable to develop products whichmeet the needs of issuers andinvestors with the same level ofsophistication as that found inthe conventional debt markets.Exemplifying this trend, last yearsaw the development of theconvertible sukuk. Three of thelargest sukuk issuances to date,Ports Customs & Free ZoneCorporation (“PCFC”), NakheelDevelopment (“Nakheel”) andAldar Properties (“Aldar”), haveall been “convertibles”.

Convertible sukuk replicateconventional convertible bonds.A convertible bond is a bondthat can be converted at theoption of the holder into sharesof the issuer at a pre-agreedprice. From the issuer’sperspective, convertible bondsoffer the prospect of obtainingdebt finance at a lower interestrate than would be possiblewithout the equity option andalso offer the prospect of thedebt not having to be repaid butinstead being converted into theissuer’s shares at a premium tothe market value of the shares atthe time of issuance of the

bonds. From an investor’sperspective, a convertible bondtypically has a low yield butoffers the investor the prospectof participating in anysignificant increase in the issuer’sshare price with the protectionthat, if the share price doesn’t

perform as anticipated, theinvestor’s principal is protectedby the ability to redeem thebonds instead of converting.

PCFC’s US$3.5 billion sukuk,issued in January 2006 heraldedthe advent of convertible sukuk.This first-ever convertible sukukused a musharakah structure.The sukuk are convertible intoup to 30% of the equity sharesof various PCFC entities if andwhen these entities have future“qualifying public offerings”(“QPOs”) in the two-year periodfollowing the issue of the sukuk.If there is no QPO in this two-year period, the sukuk holdershave an option to becompensated by a higher returnin cash at maturity and theycould also exercise a “look-backoption” whereby they will havethe opportunity to participate ina QPO offering up to 12 monthsafter the sukuk’s maturity.

A significant number ofconvertible sukuk have beenbrought to market since PCFC’ssukuk. However, none has beenas large as the recently-issued

As we can see despite theassets in the structure, the sukukmay yet have credit dependencyor linkage to the entity raisingfinance. In a non-‘true sale’Musharaka or Ijara, Moody’sneeds to conduct a credit riskassessment on the entityrequired to redeem (via thepurchase undertaking) thesukuk. This will in turn drivethe credit quality of the sukukand its rating. However,securitisation or asset-backedsukuk ratings are dependent onthe asset quality and, while notyet common, they are closer tothe Shari’ah ideals and hencelikely to become a more popularIslamic financing method in thefuture. �

C O N V E R T I B L E S

Evolution and Rise of Convertible SukukBy Neeta Thakur

Neeta Thakur is an Associate in the NewYork office of Clifford Chance and special-izes in Islamic Finance. She would like tothank her colleagues Debashis Dey, LewisCohen and Tim Morris for their valuableinput in the preparation of this article.Clifford Chance, a leading global lawfirm, represented the issuer in each of thePCFC, Nakheel, Aldar and Khazanahsukuk transactions. For more informa-tion, visit www.cliffordchance.com.

Three of the largest sukuk issuances to date, namely PCFC, Nakheel and Aldar have all been “convertibles”.

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of foreign ownership for certainUAE companies. Notwith-standing these complications, inMarch 2007, Aldar succeeded inissuing US$2.53 billion ofconvertible sukuk in whatamounts to a Shari’a-compliantreplica of a convertible bond.

Another trend worthy ofmention is the increasingparticipation of Europeaninvestors in the convertiblesukuk market. Estimates suggestthat about 30% of the investorsin PCFC’s sukuk were European.This percentage increased toabout 40% for Nakheel’s sukukand it was over 70% in case ofAldar’s sukuk. Among thereasons for the high Europeaninterest in Aldar’s sukuk wasthat it almost fully replicated aconventional convertible bondand, therefore, Europeaninvestors were more comfortableparticipating in the offering.

Convertible sukuk are notunique to the Middle East – theMalaysian market saw its first

convertible sukuk issue inSeptember 2006. KhazanahNasional Berhard, theinvestment holding arm of theGovernment of Malaysia(“Khazanah”), issued US$750million of “exchangeable”sukuk, which could beconverted into ordinary sharesof Telekom Malaysia Berhad,currently held by Khazanah.

The market for convertiblesukuk is still in its infancy but israpidly expanding. Highdemand for these issuesdemonstrates that investorscontinue to have a strongappetite for sukuk and, possibly,even a stronger appetite forconvertibles. With growinginvestor appetite and increasingfinancial sophistication, thefuture of convertible sukuklooks promising indeed. �

US$3.52 billion sukuk byNakheel, which is the largestsukuk issuance to date, and isone of the ten largest convertiblecapital-market issues globally.

It is interesting to note thatthe PCFC and Nakheel sukukwere structured as “pre-IPO”convertibles, i.e., they wereconvertible into stock upon

future QPO’s of the issuer orcertain of its affiliates. Bothsukuk particularly targetedIslamic investors interested inthe booming IPO market in theGCC, where demand for newshare issues far exceeds supply.

Unlike in case of the pre-IPOconvertible sukuk issuances byPCFC and Nakheel, Aldar,incorporated in the UAE withissued shares trading on the AbuDhabi Securities Market, facedan additional set of issues inbringing its convertible sukuk tomarket. First, existingshareholders had a statutoryright of pre-emption on anyshare issue, a right which had tobe waived in an ExtraordinaryGeneral Meeting (“EGM”);second, any EGM waiver is onlyvalid under UAE law for amaximum of four years,presenting issues if it is desiredthat the sukuk have a maturitylonger than four years; third, theconcept of “treasury shares”does not exist for UAEcompanies, necessitatingcomplicated mechanics duringconversion; fourth, each issue ofshares upon any conversionmust be authorized by aresolution from the FederalMinistry of the Economy in theUAE; and fifth, there arerestrictions on the percentage

High demand for convertible sukuk demonstrates that investors continue to have a strong appetite forsukuk and, possibly, even a stronger appetite for convertibles.

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ABANAREVIEW

S P R I N G / S U M M E R 2 0 0 7 2 3

RECENTEVENTS

More information on recent ABANA events, distributed materials and additional photos, can be found at WWW.ARABBANKERS.ORG.

JANUARY 17, 2007ABANA ANNUAL GENERALMEETING AND RECEPTION

The University ClubNew York City

FEBRUARY 15, 2007REFLECTIONS ON USFOREIGN POLICY IN THE MEMember Luncheon withAmbassador Frank G. Wisner,Vice Chair of External Affairs, AIG

Sponsor: Concord International Investments Group

The Harvard ClubNew York City

(l to r) John Abi-Habib, Hazar Sbinati and TonyTooma

(l to r) Omar Wohabe and Amb. Frank Wisner (l to r) Marinette Dorkhom and Ayaz Shaikh

MARCH 28, 2007ECONOMIC AND MARKETOUTLOOKSpecial Evening Reception withCitigroup’s Chief U.S. EquityStrategist Tobias M. Levkovich

Sponsor and Host: Citigroup388 Greenwich StreetNew York City (l to r) Eugene Szewczyk, Emmanuel Caravanos

and Ahmed Dweiri(l to r) Geoffrey Milton, Najib Lamhaouar, TobiasLevkovich, Samir Seraphim and George Jalinos

(l to r) Raza Dean, Louis Gidding and DianeChehab

MARCH 30, 2007AMERICAN UNIVERSITIES INTHE MIDDLE EAST AND THEFUTURE OF THE REGIONWelcome Luncheon for AUMEPresidents: David Arnold (AUC),Joseph Jabbra (LAU), WinfredThompson (AUS) and JohnWaterbury (AUB)

Sponsor: Cedar Capital Management

The Harvard ClubNew York City

(l to r) Andreas Junius, David Irons and SusanneSchriewer

(l to r) John Waterbury, David Arnold, RichardDebs, Winfred Thompson and Joseph Jabbra

(l to r) Geoffrey Milton, Richard Debs, AdepejuAdeyemo and Wa’el Chehab

(l to r) Salman Al-Sudairi, Ramsey Khattab, M.K.Alisdairi and Ramy El-Menshawy

(l to r) Mona Eraiba and Nadine Baconi (l to r) Mona Aboelnaga Kanaan and SamerKhanachet

ABANAREVIEW

2 4 S P R I N G / S U M M E R 2 0 0 7

O nce a predominantsource for capital, theMiddle East is now

being seen as a market forprivate equity deals. Withmaturing stock markets easingthe way for financiers to sell offacquisitions and localgovernments increasinglyturning to privatization, theregion is becoming a majorprivate equity center. And withthe rapid and constant infusionof funds into the area, the casefor private equity investing inthe Middle East continues to bemade.

On April 17th, the ArabBankers Association of NorthAmerica proudly presented its2007 Annual Conference onMiddle East Private Equity toshowcase this trend. Duringthis half-day summit at theUniversity Club in New YorkCity, investors, issuers, analystsand advisors explored theprospects and obstacles createdby the international interest inthe region’s private equityindustry.

Wa’el Chehab, chair of thisyear’s ABANA ConferenceOrganizing Committee, kickedoff the event with welcomingremarks to the members andguests in attendance. Mr.Chehab, also an ABANA BoardMember and President ofCedar Capital Management,then passed the spotlight ontoMohamed S. Younes, morningkeynote speaker and Chairmanof Concord InternationalInvestments Group. With hiscomprehensive and macroe-

conomic overview of MiddleEast Private Equity, Mr. Younesclearly set the stage for the restof the conference.

Three topical andinformative panels, moderatedby ABANA Board membersMona Aboelnaga Kanaan,Mahmoud Salem and A.Rushdi Siddiqui, followed tocomplete the morning session.These panels featured leadingspecialists and senior financialexecutives from AB Capital,Abraaj Capital, AmphionInnovations, HSBC, King &Spalding, Merrill Lynch, MXVCapital, The Carlyle Group,UIB Capital and Vinson &Elkins.

The highlights of theconference’s luncheon sessionincluded ABANA PresidentLaura Osman’s introduction ofkeynote speaker David M.Rubenstein, Co-Founder andManaging Director of TheCarlyle Group, and Mr.Rubenstein’s insightfulexamination of the present andfuture growth of private equityin the Arab World. Mr.Rubenstein, an accomplishedinvestment specialist, isrenowned for recognizing anddeveloping prospects in privateequity markets.

ABANA’s Middle East PrivateEquity conference was aresounding success thanks inlarge part to the efforts of theconference organizingcommittee and support fromAB Capital, Cedar CapitalManagement, ConcordInternational InvestmentsGroup, Islamic FinanceInformation Service, King &Spalding, The Bank of NewYork, The Carlyle Group, UIBCapital and Vinson & Elkins.

In the end, the eventbrought together over 110decision-makers andprofessionals from the Araband American financialcommunity offering a uniquechance for education. With thishighly specialized audience, theseminar also offered a powerfulpromotional opportunity in theUnited States and within thefinancial industry.

(l to r) Mohamed Younes and David Rubenstein

(l to r) Mahmoud Salem, Joseph Flicek, AbeSaad, Hassan El-Khatib and Isam Salah

(l to r) Mona Aboelnaga Kanaan, George Bitar,Ted Bream, Colin Hannaway and WalidMusallam

(l to r) A. Rushdi Siddiqui, Saqib Rashid, RobertSeber and Tariq Al-Rifai

RECENTEVENTS

2 0 0 7 A B A N A A N N U A L C O N F E R E N C E

Showcasing Middle East Private EquityBy Adepeju Adeyemo

Adepeju Adeyemo is the SeniorPrograms Coordinator at ABANA.For more information, visitwww.arabbankers.org.

ABANAREVIEW

S P R I N G / S U M M E R 2 0 0 7 2 5

RECENTEVENTS

MAY 9, 2007UNCONVENTIONAL THINKING:TOOLS FOR A SUCCESSFULINVESTOR IN TODAY’SGLOBAL MARKETPLACEGlobal Equity Markets Seminarwith Rudolph-Riad Younes,Senior Vice President & Head ofInternational Equities, Julius BaerInvestment Management

Sponsor: Sedco ServicesThe Harvard ClubNew York City

MAY 23, 2007FOCUS ON THE CARLYLEGROUP’S MENA FUNDDC Luncheon with WalidMusallam, Managing Director andHead of the MENA Group, TheCarlyle Group

Sponsor: The Carlyle GroupThe Willard HotelWashington, DC

Walid Musallam, Head of Carlyle’s MENA FundWalid Musallam of The Carlyle Group The Willard InterContinental Hotel

JUNE 13, 2007ABANA ANNUAL SUMMERRECEPTION

Bryant Park Grill RooftopNew York City

ABANA President Laura Osman(l to r) Ragai Nasser, Guillaume de Parscau, NimoKanina and Gboyega Ade Festus

(l to r) Dima Sidani, Hanan Aabid and Asal Abbas

(l to r) Sezin Sozen, Samir Nizam, Amal El Saidand Christopher Shakal

Hazar Sbinati Members and Friends on the beautiful Bryant ParkGrill Rooftop

Julius Baer’s Rudolph-Riad Younes(l to r) Rasha Al-Aswad and M. Rafiq Bengali (l to r) Eiman Aziz and Gizzel Liguas

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ABANA is pleased to welcome ournew individual members.

AALLEEXX AAAAMMAAAssistant Vice PresidentDeutsche Bank

AAHHMMEEDD AABBDDEELL AAZZIIZZMBA StudentLubin School of BusinessPace University

ZZIIAADD KK.. AABBDDEELLNNOOUURRPresident and Chief ExecutiveOfficerBlackhawk Partners, Inc.

AAMMRROO ZZ.. AABBDDUUMiddle East Regional ManagerInstitutional SalesForex Capital Markets

AAMMAALLEE AABBII SSAAAABB

ZZAAHHIIDD AAHHMMEEDDDirectorPerella Weinberg Partners

BBUUNNMMII AAKKIINNRREEMMIIUnited Bank for Africa

MMOOHHAAMMMMAADD AALL SSHHAAWWWWAAFF

MMAARRIIAA AALL ZZAAHHRRAANNIISSTTUURRGGIISSGlobal Natural ResourcesLehman Brothers

RRAASSHHAA AA.. AALL--AASSWWAADDSenior Investment AnalystCalyx Financial LLC

DDRR.. FFAAIISSAALL AALL--RREEFFAAEEIIRegional DirectorMiddle EastAmphion Innovations Plc

NNAABBIILL HHAABB AALL--RRUUMMMMAANN

RREEEEMMAA II.. AALLII,, EESSQQ..Managing PartnerInternational PracticeAli & Partners

MMAALLIIKKAA AALLLLAALLIIFinancial AdvisorNew York Life

MMOONNAA AABBOOEELLNNAAGGAAKKAANNAAAANN, ABANA Board VicePresident, was elected as a life-time member of the Council onForeign Relations.

GGHHAASSSSAANN MM.. AATTIIYYAAHH,, EESSQQ..,,ABANA Board Member, joinedthe law firm Fried, Frank, Harris,Shriver & Jacobson LLP as aPartner.

HHAANNII FFIINNDDAAKKLLYY,, FormerABANA President, was awardeda prestigious Ellis Island Medal ofHonor on Saturday, May 12th,2007. The Ellis Island Medals ofHonor, presented by NECO are“designed to pay homage to theimmigrant experience, as well asfor individual achievement.Medals are awarded to U.S. citi-zens from various ethnic back-grounds. The honorees areremarkable Americans whoexemplify outstanding qualities inboth their personal and profes-sional lives, while continuing topreserve the richness of their par-ticular heritage. [NECO honors]them because they create a bet-ter world for all of us in the futureby the work they do today.” Formore information on NECO andthe Ellis Island Medal of Honor,please visit www.neco.org.

PEOPLENEWSCORPORATENEWS NEWMEMBERS

BBEENNEEFFIICCIIAALL CCAAPPIITTAALLCCOORRPPOORRAATTIIOONNBeneficial Capital Corp., underthe auspices of its President andCEO John J. Hoey, has beenactive in mezzanine financing andinvestment in several sectors overthe past year. The most notablementions are the launchings of:(1) a Swedish public oil and gasexploration company, Tethys OilAB (www.tethysoil.com), that isconcentrating on the expandedEU and recently drilled in Turkey,Demark and Spain as well asannounced a successful discov-ery in Oman; (b) a $112,500,000Vietnam Private Equity fund,Vietnam Holding Limited(www.vietnamholding.com), quoted on AIM in London in2006; (c) a new public SPACJaguar Acquisition Corp. focused on an acquisition in the electronic payment platformarea and quoted on NASDAQand (d) the first new USA scientif-ic magazine in 50 years, SEED(www.seedmediagroup.com).

Mr. Hoey has been a member since the inception ofABANA in his capacity as an outside director of UBAF ArabAmerican Bank and CEO of ArabAfrican International Bank in New York City.

INMEMORIAM

ABANA mourns the passing ofmember TTHHOOMMAASS BBOODDDDIIEESSTTOOEECCKKEERR. Tom passed awayon June 16, 2007. A long-timeresident of Manhattan, he was amember of the University Cluband an elder of the BrickPresbyterian Church. Tom wasborn in Morristown, New Jersey.He graduated from the Universityof North Carolina and moved toNew York City in the early 1980swhere he pursued his real passionas an investment trader on WallStreet. He was employed byCantor, Fitzgerald and Investec.An Eagle Scout, Tom was co-chair of the Eagle Scout Hall ofFame and a volunteer in Bellevue’sEmergency Room. He is survivedby his father Robert Stoecker andhis sister Sally of Washington, DCand brother James of Menlo Park,CA. Donations may be made inmemory of Tom to Mental HealthAmerica at www.nmha.org.

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SSTTEEVVEE AALLLLEENNTreasurerNational Bank of Kuwait

SSAALLIIMM CC.. AALLLLEEYYAccount ManagerAllianceBernstein

SSLLIIMMAAIINNEE AAMMEEZZIIAANNIIAdvisorInvestment CommitteeFletcher Asset Management, Inc.

JJEESSSSIICCAA FF.. AANNDDEERRSSOONNGlobal Capital Markets - EEMEAADR DivisionThe Bank of New York

MMOOHHAAMMMMAADD ZZAAHHOOOORRUULLAANNSSAARRIISenior AnalystOTC DerivativeDKR Capital, Inc.

TTOOUUFFIICC AAOOUUAADDAssistant General ManagerAudi Saradar Private Bank s.a.l.

CCHHRRIISSTTOOPPHHEERR JJ.. AARRRRUUDDAAVice PresidentOverland Realty Capital LLC

EEMMAADD AATTIIYYEEHHPresident & Managing DirectorLumiaro

RROOBBEERRTT AAYYAANN,, JJRR..General PartnerMinah Ventures, LLC

BBAASSEELL BBAARRZZAANNJJIIMBA StudentJesse H. Jones Graduate Schoolof ManagementRice University

SSHHAARREEEEFF MMOOSSTTAAFFAA BBAATTAATTAAMBA StudentFinanceColumbia Business School

RROOBBEERRTT JJ.. BBEERRTTOOLLDDIIPresident & Chief Financial OfficerAmphion Innovations Plc

GGEEOORRGGEE AA.. BBIITTAARRManaging DirectorMerrill Lynch & Co., Inc.

NEWMEMBERS

AAHHMMEEDD SS.. DDWWEEIIRRIIVice PresidentTreasuryArab Bank plc

RRAANNDDAA SSAAFFAADDII EEDDLLEEBBIIDivision ManagerHuman ResourcesNational Bank of Kuwait

DDRR.. MMOOHHAAMMEEDD AA.. EELL--EERRIIAANNPresident and Chief ExecutiveOfficerHarvard Management Company,Inc.

RRAAMMYY EELL--MMEENNSSHHAAWWYYAnalystJPMorgan Chase

AAMMIINNAA MM.. EELL--SSAAYYAADDAttorneyLitigationDebevoise & Plimpton LLP

TTAARREEKK EELLAALLAAIILLYYCDO AnalystEllington Capital

NNIICCHHOOLLAA EELLIIOOVVIITTSSCPM Group

MMAARROOUUNN WW.. FFAAKKHHOOUURRYYStudentLebanese American University

KKAARRIIMM MMOOUUFFIIDD FFAARRRRAAManaging DirectorManara Capital

NNAADDEEEEMM MM.. FFAAYYYYAAZZManaging DirectorPound Capital Ltd.

GGBBOOYYEEGGAA AADDEE FFEESSTTUUSSHead of Corporate BankingUnited Bank for Africa Plc

RROOBBEERRTT FFIIRRTTHHManaging DirectorNeuberger Berman

JJOOSSEEPPHH RR.. FFLLIICCEEKKManaging DirectorAmphion Innovations Plc

FFAARRIISS SS.. GGAAMMMMOOHHMBA StudentColumbia Business School/YoungArab Leaders Association (YALA)

RROOBBEERRTT JJ.. GGAAVVIIGGAANN,, EESSQQ..CorporatePatterson, Belknap, Webb & TylerLLP

HH..EE.. HHAABBIIBB GGHHEERRAABBManaging DirectorEurope, Middle East, Africa &International Financial InstitutionsSchwartz Global Consulting LLC

NNAADDEERR GGHHOONNEEIIMMOperations OfficerAbu Dhabi International Bank

BBAARRBBAARRAA BB.. GGUUIIBBOORRDDSenior Managing Director & ChiefOperating OfficerIntegration Capital & Trade, Inc.

JJAAMMEESS RR.. HHAAGGEERRTTYYPartnerCorporate, Transactional &International TaxKalbian Hagerty LLP

SSUUSSAANN JJ.. HHAAGGEERRTTYY LLEE MMAAYYChairmanInternational Alliance Associates,LLC

HHAAMMAADD SS.. HHAAIIDDEERRAssistant Vice PresidentCredit Risk ManagmentNational Bank of Pakistan, NewYork

KKHHAALLEEDD MM.. HHAAMMIIEEHHPresident & CEOLibanman Futures Inc.

MMOOHHAAMMEEDD HHAAOOUUAACCHHEERaymond James

BBEELLHHAASSSSEENN HHAAOOUUAALLAAFinancial AdvisorWealth ManagementUBS Financial Services

LL.. BBRRAANNCCHH HHAARRDDIINNGG,, IIVVGerrity Company Inc.

AAMMIINNEE BBOOUUCCHHEENNTTOOUUFFApex Capital

HHAAZZIIMM BBUU AALLIIVice President & Deputy Head ofAsset ManagementUnited Gulf Bank

LLUUIIZZAA MMAARRIIAA CCAARRTTEERRStudentSchool of International and Public AffairsColumbia University

DDRR.. SSTTEEPPHHEENN JJ.. RR.. CCAASSSSManaging DirectorAmphion Innovations Plc

DDAAVVIIDD CCHHAAMMBBEERRSSAssistant Editorial DirectorMedia & Entertainment SMEAccenture

RROOBBEERRTT LL.. CCLLAARRKKManaging DirectorBusiness DevelopmentDetwiler Mitchell & Co.

LLEEWWIISS CCOOHHEENN,, EESSQQ..PartnerFinancial Products GroupClifford Chance US LLP

JJEEFFFFRREEYY RRAAYY CCUULLPPEEPPPPEERRManaging DirectorInternational ManagementMerrill Lynch & Co.

RRIIMMAA DD’’SSAAQatar Financial Centre Authority

MMAARRKK EE.. DDEEAANNGGEELLIISSManaging DirectorRNK Capital LLC

RRIICCHHAARRDD DDEEMMAARRTTIINNOOVice PresidentJPMorgan Chase

AANNEEEESS TT.. DDIINNPartnerWeiser LLP

MMAARRIINNEETTTTEE DDOORRKKHHOOMMDirector of SalesJumeirah Essex House

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NEWMEMBERS

CCHHAARRLLEESS MMAATTAARRDirectorIBK - Middle East / AfricaMerrill Lynch & Co.

SSCCOOTTTT CC.. MMAATTCCHHEETTTTVice PresidentIntegration Capital & Trade, Inc.

CCAARRLL BB.. MMCCCCAARRTTHHYY,, EESSQQ..Associate LawyerCapital MarketsShearman & Sterling LLP

AALLIICCEE GGLLOOVVEERR MMCCKKEEOONNBusiness DevelopmentSFG Securities, Inc.

SSHHEERRIIEEFF MMEELLEEIISSManaging DirectorNovantas

AATTHHAARR MMIIAANNFounder and Chief ExecutiveOfficerMobile Platforms, Inc.

KKRRIISSTTIINN MMIILLEEYYVice PresidentStructured CreditACA Capital

WWIILLLLIIAAMM AA.. MMOORRAANNManaging PartnerKennedy Moran Associates LLC:The Financial Training Consortium

PPEETTEERR SS.. MMOORRGGAANN,, EESSQQ..PartnerStructured FinanceThacher Profitt & Wood LLP

RRIICCHHAARRDD CC.. EE.. MMOORRGGAANNChief Executive OfficerAmphion Innovations Plc

AASSSSEERR MMOOUUSSTTAAFFAASenior Software EngineerCredit Derivatives TechnologyGoldman Sachs

WWAALLIIDD MMUUSSAALLLLAAMMManaging Director & Head of theMiddle East and North Africa GroupThe Carlyle Group

AAFFSSAANNEEHH NNAAIIMMOOLLLLAAHHManaging PartnerChela Capital Partners

KKAARREEEEMM GG.. NNAAKKSSHHBBEENNDDIIAssistant ManagerDirect Investment & IndustrialProjectsAlfarabi Investment Company(KSCC)

FFAARREESS NNIIZZAAMMStudentBentley College

SSAAMMIIRR NNIIZZAAMMManaging DirectorInvesco Affiliates Ltd.

TTHHOOMMAASS WW.. NNUUGGEENNTTPresidentNugent & Company

AANNTTOONN OOBBEEIIDDConsultant

DDAAVVIIDD WW.. PPAATTEENNGGEEPartner & Director Sales and MarketingTriumvirate Capital ManagementLLC

LLUUBBNNAA QQUUNNAASSHHAssociateThe Carlyle Group

TTAAMMEERR RRAASSHHAADDDirectorGlobal Client Coverage GroupMerrill Lynch & Co.

JJAACCKK RRIIVVKKIINNManaging DirectorNeuberger Berman

MMAANNUUEELL DD.. RROONNPresident & Chief Executive OfficerIntegration Capital & Trade, Inc.

PPAAUULL EE.. RROOWWAANNManaging DirectorNew Paradigm CapitalManagement

AANNNNAA MM.. SSAABBAASSTTEEAANNSSKKIIPresidentAsset Management Network

NNIIMMOO KKAANNIINNAAHead of Missions BankingUnited Bank for Africa

JJOOSSEEPPHH KKHHAALLIILLTraderFutures and Foreign ExchangeThe Millburn Ridgefield Corporation

KKAARRIIMM KKHHAALLIILLAnalystGlobal EquityM. Safra & Co.

NNEEDDDDYY KKHHOOUURRIIStudentStern School of BusinessNew York University

BBEELLKKIISS KKNNUUDDSSVVIIGGSenior Vice PresidentPrivate Investment ManagementLehman Brothers

SSAAMM FF.. KKOONNAAIIBBEERR,, MMBBAAStudentArgosy University

SSTTEEPPHHEENN KKOOWWAALLCCHHUUKKSenior Vice PresidentCorporate Management Advisors

JJAACCKK KKOOWWAALLCCZZYYKKRelationship ManagerCorrespondent BankingMashreqBank psc

LLIISSAA LLEEVVIINNBusiness Development ManagerU.S. Business Development Simmons & Simmons

RROOYYAA MMAALLEEKKIIAANN,, EESSQQ..AssociateIslamic FinanceKing & Spalding

JJOORRGGEE MMAARRIISSCCAALLPartner & Head of ResearchThe Rohatyn Group

NNAAJJII MMAASSSSOOUUHHStroock & Stroock & Lavan LLP

JJOOHHNN RR.. HHAARRDDYYConsultantBanking, Capital Markets &FinanceDevelopment Consulting

AAMMIINN HHAASSHHEEMMIIInvestment AdvisorPrivate Investment ManagementLehman Brothers

KKAAMMAALL HHAASSSSAANNSenior Vice President of BusinessDevelopment and ConsultingServicesBreakthrough ManagementGroup, Inc.

AALLEEXX AA.. HHAAWWAATTAssociateInvestment BankingLehman Brothers

JJEERREEMMYY LL.. HHIIRRSSHHAssociateCorporate, Securities andFinancial InstitutionsMcCarter & English, LLP

JJOOSSEEPPHH GG.. HHOOMMSSYYSenior Managing DirectorIntegration Capital & Trade, Inc.

AAMMIINNEE IIMMGGHHIIVice PresidentProject OfficeBNP Paribas

RRAAHHEEEELL IIQQBBAALLVice PresidentAnchor Finance Group, LLC

WWAAEELL JJAADDAALLLLAAHHDirectorCredit Risk ManagementMoody’s KMV

WWAASSSSEEEEMM SS.. KKAABBBBAARRAAManaging PartnerMOR CONSULT SARL

HHAAIIGG VV.. KKAALLBBIIAANNPartnerCivil LitigationKalbian Hagerty LLP

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S P R I N G / S U M M E R 2 0 0 7 2 9

DDEEEEPPAAKK SSAACCHHDDEEVVAAVice PresidentBusiness Development, GlobalConsumer Group, CommercialBusiness Group, Europe, MiddleEast and AfricaCitibank, N.A.

NNAADDEERR PP.. SSAALLMMAANNDirector Alternative InvestmentsSociete Generale AssetManagement

NNIICCHHOOLLAASS SSAAMMAARRAAFinancial AnalystGlobal Fixed IncomeCitigroup Global Markets Inc.

BBAARRBBAARRAA CC.. SSAANNDDEERRSSOONNAssistant General ManagerCredit DepartmentArab Banking Corporation (B.S.C.)

HHAASSSSAANN MM.. SSAAYYEEDDUnderwriterMid-Corporate BankingJPMorgan Chase

MMAARRVVIINN SSCCHHWWAARRTTZZVice CharimanNeuberger Berman

RROOBBIINN PP.. SSEEWWEELLLLHead of New York BranchUnited Bank for Africa

MMUUHHAAMMMMAADD AAKKRRAAMMSSHHEEIIKKHHSenior Vice PresidentAnchor Finance Group, LLC

WWIILLLLIIAAMM BB.. SSHHEEPPAARRDDGeneral ManagerRiyad Bank, Houston Agency

NNAASSIIMM SSIIDDDDIIQQIIPresident & Chief Executive OfficerAnchor Finance Group, LLC

SSAAAADD SSIIDDDDIIQQUUIIStudentRutgers Business School

CCHHRRIISS SSLLEECCHHTTAAAssociatePerella Weinberg Partners

AAMMGGAADD SS.. YYOOUUNNEESS,, MMBBAASenior Vice PresidentFinancial Control & StrategicPlanningAbu Dhabi Islamic Bank

HHAATTIIMM YYOOUUSSSSEEFFManaging PartnerU.S. Equity DerivativesLouis Capital Markets

AADDHHAAMM NNAABBIILL ZZAAKKIIAnalystDerivative Prime BrokerageGoldman Sachs

HHAALLAA ZZEEIIBBAAKKPrivate Equity AnalystOlayan America Corporation

AALLAANN ZZ.. JJ.. ZZIINNSSEERRManaging DirectorCorporate and InvestmentBankingSociete Generale

LLIILLIIAANNEE ZZRREEIIKKVice PresidentStrategy and DevelopmentTime Warner Cable

NEWMEMBERS

YYOOUUSSSSEEFF SSOOLLIIMMAANNSales & Trading AnalystEquitiesGoldman Sachs & Co.

SSEERRRRAA SSOONNMMEEZZ,, CCFFAAVice PresidentCramer Rosenthal McGlynn

VVAARRBBIINN SSTTAAYYKKOOFFFFAssociateJPMorgan Chase

AADDNNAANN SSYYEEDDDirectorAnchor Finance Group, LLC

HHAADDII TTAABBBBAAAAStudentLaw SchoolStanford University

AAMMBB.. PPAATTRRIICCKK NN.. TTHHEERROOSSPresident & Executive DirectorUS-Qatar Business Council

DDRR.. BBAARRTT VVAANN AARRKKExecutive DirectorEconomic Research, EconomicsDepartmentThe Conference Board

RRAAZZAA WWAAQQAARRVice PresidentInvestmentWaqar Investments

IIBBRRAAHHIIMM WWAARRDDEE,, PPHH..DD..Adjunct ProfessorFletcher School of Law andDiplomacyTufts University

DDAAVVIIDD WWEEIINNEERRManaging DirectorNeuberger Berman

MMAARRCCIIAA AA.. WWIISSSSPartnerHogan & Hartson LLP

PPEETTEERR GG.. WWOODDTTKKEE

AANNNN WWYYMMAANNSenior EconomistEconomic and Political StrategiesCitigroup

NEWMEMBERS

Amphion’s (LSE: AMP) business is the formation, financing, management and development of life scienceand technology companies, working in partnership with corporations, governments, universities and

entrepreneurs seeking to commercialize their intellectual property.The Amphion model is able to adopt one new Partner Company per annum, typically based in the US, UK

or Arabian Gulf region. Our model is designed to produce at least one significant realization each year witheach one of our companies being selected and built in such a way that it can achieve a market valuation wellin excess of US $100 million.

Our most recently developed company is MSA Holdings. In January 2007, Amphion partnered with twoprominent Kuwaiti families, the Al-Sayer and Al-Mutawa families to create this new Gulf-based joint venture.

Our Current Partner Companies:AXCESS International (OTCBB: AXSI) provides active RFID solutions to a wide range of markets, includ-

ing hospitality, government, transport, education and banking.Durham Scientific Crystals develops patented semi-conductor based detectors for digital x-ray systems for

the medical imaging and security markets.FireStar Software sells patented software for the integration of inter-enterprise applications, automating

business transactions between companies.m2m Imaging develops and sells specialized high performance MRI coils and accessories to the medical

imaging market.Motif BioSciences works with a variety of founder populations in the Persian Gulf region and elsewhere to

discover genes involved in illness and wellness.WellGen applies proprietary nutrigenomics technology to the discovery of food and dietary supplement

ingredients from plants and foods.Myconostica is developing molecular probe based diagnostic tests for rapid diagnosis of infectious disease,

including fungal infections.MSA Holdings will focus on identifying new investment opportunities in the Gulf region, provide strong

access to capital and opportunities from both existing and new investors, and create new markets andstrategic partnerships for Amphion’s Partner Companies.

AMPHION INNOVATIONS PLC330 Madison AvenueNew York, NY 10017Tel: 212.210.6282

Representatives:Dr. Faisal Al-Refaei

Regional DirectorRobert J. Bertoldi

President & Chief FinancialOfficer

Dr. Stephen J. R. CassManaging Director

Joseph R. FlicekManaging Director

Richard C. E. MorganChief Executive Officer

ANCHOR FINANCE GROUP,LLC

300 Rabro DriveHauppage, NY 11788Tel: 631.234.5400

Representatives:Raheel Iqbal

Vice PresidentMuhammad Akram Sheikh

Senior Vice PresidentNasim Siddiqi

President & Chief ExecutiveOfficer

Adnan SyedDirector

Anchor Finance Group is a New York based premier institution focusing on ethical and sharia’h-compliantfinancial products and services. AFG was established in April 2005 based on the urgent need in the

community to have a dependable and trusted source of sharia’h-compliant financial services focusing on ProjectFinance, Real Estate Finance, Structured Finance, Syndication, Trade Finance and Venture Capital.

The company is strongly based on the extensive experience of its founders and members of the advisoryboard have a respected 100 years of business experience combined in International Banking, ProjectFinancing, Telecommunications, Leasing and Retail.

ABANA is pleased to welcome our new institutional members.

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3 0 S P R I N G / S U M M E R 2 0 0 7

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S P R I N G / S U M M E R 2 0 0 7 3 1

INTEGRATION CAPITAL &TRADE, INC.

1350 Avenue of the AmericasNew York, NY 10019Tel: 212.479.5612

Representatives:Barbara B. Guibord

Senior Managing Director &Chief Operating Officer

Joseph G. HomsySenior Managing Director

Paul C. Homsy, Esq.Senior Managing Director

Scott C. MatchettVice President

Manuel D. RonPresident & Chief Executive

Officer

Integration Capital & Trade (ICT) is a first-in-class international investment bank focused on providing:

(i) conventional and Shari’ah compliant investment banking solutions to merchant family businesses operat-ing in the rapidly growing economies of the Middle East/North Africa (“MENA”) and Gulf CorporationCouncil (“GCC”) countries and

(ii) investment banking solutions that bridge the gap between the need for Western technology and know-how in the GCC/MENA region (the “Region”) and the small and mid-sized US and other Western com-panies that can meet these needs.

In bridging the gap between need and capabilities, ICT provides the innovative combination of corporatefinance, project finance and other advisory services to a diverse set of constituents including US and Westerncompanies, MENA & South Asia project developers, investors, merchant family businesses and offset fundsmanagers.

A history of long term relationships with regional institutions and business leaders, expertise with respect tolegal and finance issues unique to the region and a cultural knowledge of business and political customs allmust be mastered for any Western company to gain a foothold in the region.

Members of the ICT team have arranged, negotiated, structured and managed conventional and Shari’ahcompliant transactions of varying size and complexity for corporations, governments and investment firmsaround the world.

Members have worked in the Middle East since the late 1970’s and have almost a century of collectivefinancial experience, being involved in over five billion dollars worth of conventional and Shari’ah investment,placement and advisory efforts spanning a wide variety of industries and transactions.

With long term industry relationships and a presence in both the US (New York and Chicago) and theregion (Abu Dhabi, Muscat and Karachi), ICT is well-positioned to provide clients on both sides of the globewith exceptional access to sources of capital, local partners, investment opportunities, and market intelligence.

WRITE FOR THE REVIEWConsider submitting a guest article for our next issue

WHY?Readership

Over 2,800 Arab and American business leaders and specialists

ArticlesIn-depth pieces on topical and emerging issues relating to:

The Development of Financial Centers in the Middle East

WHY NOT?

To learn more, contact us at 212.599.3030 or info@arabbankers.org.

ABANAREVIEW

3 2 S P R I N G / S U M M E R 2 0 0 7

Merrill Lynch is one of the world’s leading wealth management, capital markets and advisory companies,with offices in 36 countries and territories and total client assets of approximately $1.8 trillion. As an

investment bank, it is a leading global trader and underwriter of securities and derivatives across a broad rangeof asset classes and serves as a strategic advisor to corporations, governments, institutions and individualsworldwide. Through Merrill Lynch Investment Managers, the company is one of the world’s largest managers offinancial assets. Firmwide, assets under management total $589 billion.

MERRILL LYNCH & CO.4 World Financial CenterNew York, NY 10080Tel: 212.449.8599

Representatives:Jeffrey Ray Culpepper

Managing DirectorCharles Matar

DirectorTamer Rashad

Director

P erella Weinberg Partners is a new financial services firm that will provide corporate advisory and investmentmanagement services to clients around the world.

Perella Weinberg Partners has raised over US$1 billion from eleven investors to both seed investmentinitiatives and to fund the establishment and operations of the firm. The backers include three institutions andeight family investor groups, including investors from the Americas, Europe, Japan and the Middle East.

To date, the firm has 14 partners. In New York, its partners are: Tarek Abdel-Meguid, Andrew Bednar, JulioGarcia, William Kourakos, Titus Leung, Amr Nosseir, Ralph Pellecchio, Joseph Perella, Lynn Perkins and PeterWeinberg. The London-based partners are Bernard Gault, Paulo Pereira, Philip Yates and Dietrich Becker.

Perella Weinberg is building its corporate advisory business person by person with a superior team ofprofessionals and anticipates an equally high quality team in investment management as it rounds out itsgroup of professionals in that area. Today, Perella Weinberg Partners has slightly over 40 employees at thefirm in NY and London or who have agreed to join, from a variety of leading institutions.

PERELLA WEINBERGPARTNERS

767 Fifth AvenueNew York, NY 10153Tel: 212.287.3200

Representatives:Tarek F. Abdel-Meguid

PartnerZahid Ahmed

DirectorM.K. Alisdairi

AssociateAmr M. Nosseir

PartnerChris Slechta

Associate

In March 2005, the State of Qatar enacted new legislation to establish the Qatar Financial Centre. The QFC,formally opened on 1 May 2005, is designed to attract international financial institutions and multi-national

corporations to establish business operations in a “best-in-class” international environment, and to participate ina long-term and mutually beneficial partnership with Qatar.

The Centre consists of the QFC Authority and the QFC Regulatory Authority respectively, which areindependent of each other. The QFC Authority is responsible for commercial strategy and for developingrelationships with the global financial community and other key institutions both within and outside Qatar.The Regulatory Authority supervises financial services firms who operate in or from the QFC. It has a broadrange of powers to authorize, supervise and, where necessary, discipline regulated firms and individuals.

Both the QFC Authority and the Regulatory Authority can recommend appropriate legislation to achievetheir objectives, and have certain rule-making powers. The QFC provides mechanisms for resolving disputesbetween QFC firms and their counter-parties and for arbitration or the formal resolution of civil disputesbefore a Tribunal, in effect a commercial court, operating to high judicial standards. It has also created anAppeals Body to allow firms affected by particular decisions of the Regulatory Authority to have thosedecisions reviewed.

QATAR FINANCIAL CENTREAUTHORITY

Majlis Taawn Street, No. 1DohaQatarTel: 974 4945 508

Representative:Rima D’Sa

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United Bank for Africa Plc (UBA) is the largest financial services franchise in sub-Saharan Africa (ex SA),with assets in excess of $8 billion. The bank has the most extensive branch network in Nigeria - with close

to 600 branches, 6 branches in Ghana and planned expansions into Cote d’Ivoire, Cameroon, Liberia andAngola in 2007 (with further expansions into East and Central Africa to follow). UBA also has extensivebanking relationships with local banks in other African geographies.

UBA first established a representative office in New York in 1982. The Bank obtained a license to operate asa Federal Branch in 1984 and UBA remains the only bank from Sub-Saharan Africa with a full-fledged branchin the United States. The New York Branch is licensed by the Office of the United States Comptroller of theCurrency (OCC) and is a member of the Federal Reserve System. It is regulated and examined by bothagencies.

The New York Branch (NYB) provides wholesale banking services to Nigerian individuals, corporate entitiesand governments as well as to businesses and individuals in the US doing business in and/or with Nigeria andother African countries. The mainstay of the business has historically been the provision of trade finance linesand a correspondent banking service to counterparts from the African continent. The business is currentlybeing repositioned to ensure it takes greater advantage of its unique market positioning and will focus on thefollowing areas:

1. Correspondent Banking/Trade Finance2. Remittance flows - a/c to a/c transfers3. Oil and Gas and Corporate Business 4. Intermediation of Donor Flows i.e. overseas development assistance5. Treasury and Trading activities

Additionally, UBA has a non-resident Nigerian business initiative which is supported by New York but runsout of Nigeria. This initiative is targeted at individuals who wish to maintain links with Nigeria through theprovision of remittance products, home purchase loans and a variety of savings products.

UBA New York contacts:Robin Sewell, Head, New York BranchRagai Nasser, Credit Officer, Correspondent BankingTel (212) 308-7222

UNITED BANK FOR AFRICAPLC

One Rockefeller PlazaNew York, NY 10020Tel: 212.308.7222

Representatives:Bunmi AkinremiGboyega Ade Festus

Head of Corporate BankingNimo Kanina

Head of Missions BankingRagai Nasser

Credit OfficerRobin P. Sewell

Head of New York Branch

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ABANA is pleased to present thislexicon to enrich your reading:

AAOIFI = Accounting &Auditing Organization forIslamic Financial Institutions

Bai Bithaman Ajil = deferredpayment sale. Also known as Bai MuajjalThe sale of goods on a deferredpayment basis.

Bai Dayn = debt financing.Alternative spelling: Bai Al-DaynThe provision of financialresources required forproduction, commerce andservices through the sale andpurchase of trade documentsand papers.

Bai Inah = sale and buy-backThe sale and buy-back of anasset for a higher price thanthat for which the selleroriginally sold it.

Fiqh = Islamic jurisprudenceThe science of Shariah. Animportant source of Islamiceconomics.

Gharar = uncertaintyOne of three fundamentalprohibitions in Islamic finance(the other two being riba andmaysir).

ICM = Islamic Capital Market

Ijarah = leasing. Alternative spelling: IjaraA lease agreement whereby a

bank or financier buys an itemfor a customer and then leasesit to him over a specific period,thus earning profits for thebank by charging rental.

IOSCO = InternationalOrganization of SecuritiesCommission

Istisnah = advance purchase ofgoods or buildings. Alternativespellings: Istisna, Istisna’a,Istisna’ah A contract of acquisition of goodsby specification or order, wherethe price is paid in advance, orprogressively in accordance withthe progress of a job.

Mudarabah = trust financing,profit sharing. Alternative

spellings: Mudaraba, Modaraba,Modarabah An investment partnership,whereby the investor (the rab almaal) provides capital to theentrepreneur (the mudarib) inorder to undertake a businessor investment activity.

Murabahah = cost-plusfinancing. Alternative spellings:Morabaha, Morabahah,Murabaha A form of credit that enablescustomers to make a purchasewithout having to take out aninterest-bearing loan.

Musharakah = joint venture,profit and loss sharing.Alternative spelling: MusharakaAn investment partnership in

GLOSSARY

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provides mutual protection ofassets and property and offersjoint risk sharing in the event ofa loss by one of theparticipants.

Source: Islamic Finance News (www.islamicfinance-news.com/glossary.php)

which all partners are entitledto a share in the profits of aproject in a mutually agreedratio.

Qard Hasan = benevolent loan.Alternative spelling: QardHassanA loan contract between twoparties for social welfare or forshort-term bridging finance.

Riba = interestAn increase, addition, unjustreturn, or advantage obtainedby the lender as a condition ofa loan. Riba in all its forms isprohibited in Islam.

Salam = advance purchase.Alternative spellings: Al Salam,Bai al Salam, Bai Salam

Advance payment for goodsthat are to be delivered at aspecified future date.

Shariah = Islamicjurisprudence. Alternativespellings: Sharia, Shari’a,Shari’ah, Syariah, Syaria,Syari’ah, Syari’aShariah is Islamic cannon lawderived from three sources: theQuran, the Hadith and theSunnah.

A “Shariah compliant” productmeets the requirements ofIslamic law.

A “Shariah board” is thecommittee of Islamic scholarsavailable to an Islamic financialinstitution for guidance and

supervision in the developmentof Shariah compliant products.

A “Shariah advisor is anindependent Islamic trainedscholar that advises Islamicinstitutions on the compliance of the products and serviceswith the Islamic law.

SSB = Shariah Supervisory Board

Sukuk = Islamic bondAn asset-backed bond that isstructured in accordance withShariah and may be traded inthe market.

Takaful = Islamic insuranceBased on the principle ofmutual assistance, Takaful

GLOSSARY

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Arab Bankers Association of North AmericaPO Box 2249, Grand Central Station, New York, NY 10163

ABANAREVIEW

S A V E T H E D A T E

2007 ABANA Achievement

Award DinnerTuesday, October 23rd

6 to 9 pm

T H E N E W Y O R K P A L A C ENew York Ci ty