Case Studies on Sukuk Issuance

Case Studies on Sukuk Issuance

Regional Workshop - Developing Government Securities

under Islamic Finance Amman, Jordan

By Ayman H. Abdel Khaleq 24 September, 2012

© 2012 Vinson & Elkins LLP

Contents

• Sovereign Sukuk Issuance

Dubai (Programme)

Pakistan (Standalone)

• Quasi-Sovereign Sukuk Issuance

Dubai World (Mudaraba)

Nakheel (Equity Linked)

• Other Sovereign and Quasi-Sovereign Sukuk Issuances Earmarked

• Private Sukuk Issuance

Durrat Khaleej Al-Bahrain (Istisna’a and Ijara)

Al Thani (Musharaka)

Sovereign Sukuk Issuance


Department of Finance, Dubai

• Issue Date: 3 November 2009 • Sukuk Size: US$2,500,000,000 • Sukuk Structure: Ijara (Programme) • Trust Assets: Dubai Airport Terminal Facilities • Listing: Dubai Financial Market, London Stock Exchange • Issuer/Trustee: Dubai DOF Sukuk Limited • Obligor: Government of Dubai • Managers: Dubai Islamic Bank, Mitsubishi UFJ Securities

International, Standard Chartered Bank and UBS Investment Bank

• Tenor: 5 years • Pricing: 6.39% per annum • Date of Distribution: 3 May and 3 November each year


Department of Finance, Dubai - Continued

• Maturity Date: 3 November 2014 • Governing Law: English Law and UAE Law • Shari’a Advisor: Shari’a advisory boards of Dubai Islamic Bank and Standard Chartered

Bank • Use of Sukuk proceeds: Fund the development of Dubai Airport Terminal Facilities

• Distinguishing Factor: Largest Islamic bond sale in the GCC for 2009

• Transaction Documents: Offering Circular Master Trust Deed Master Purchase Agreement Master Lease Agreement Master Servicing Agreement Master Purchase Undertaking Master Sale Undertaking Master Substitution Undertaking Master Agency Agreement Master Costs Undertaking


Department of Finance, Dubai - Continued

Dubai DOF Sukuk Limited

as Issuer and Trustee

Dubai Government as Seller

Dubai Government as Lessee

Dubai Government

as Obligor

Dubai Government as Servicing Agent

Dubai Government as Seller Dissolution

Amount Periodic Distribution Amounts

Cash Sukuk (Trust Certificates

Sale of Assets

Purchase Price (of Assets)

Ijara (Lease of Assets)

Rentals Sale of Assets

Exercise Price

Appointment as Servicing Agent

Substitution

Reimbursement of Servicing Costs (set-off against

Supplemental Rental)

Investors


Islamic Republic of Pakistan

• Issue Date: 27 January 2005

• Sukuk Size: US$600,000,000

• Sukuk Structure: Ijara (Standalone)

• Trust Assets: Lahore-Islamabad Motorway Highway Land

• Issue Rating: B+ (S&P) at Issue Date

• Listing: Luxembourg Stock Exchange

• Issuer/Trustee: Pakistan International Sukuk Company Limited

• Managers: Citigroup and HSBC Bank (as Lead Manager), ABC Islamic Bank, Arab Bank, Dubai Islamic Bank, Habib Bank AG Zurich and National Bank of Pakistan (as Co-Lead Managers) and Meezan Bank (as Arranger)

• Guarantor: The Islamic Republic of Pakistan

• Tenor: 5 years

• Pricing: 6 months LIBOR + 220 bps

• Date of Distribution: 27th day of January and July each year


Islamic Republic of Pakistan - Continued

• Maturity Date: 27 January 2010 • Use of Sukuk proceeds: Fund the purchase price for the Lahore-Islamabad Motorway

Highway Land • Distinguishing Factors: True sale of the Lahore-Islamabad Motorway Highway Land • Transactions Documents: Offering Circular

Trust Deed Purchase Agreement Lease Agreement Servicing Agreement Purchase Undertaking Sale Undertaking Agency Agreement Costs Undertaking


Islamic Republic of Pakistan - Continued

Investors

Suku

k C

ertif

icat

e

Cash

Contribution

Distributions (Periodic and Final)

Rental

Ijara (Lease)

Exercise Price Land

Purchase Price

Land Pakistan as

Seller and Obligor

Pakistan International Sukuk

Company Limited as Issuer and Trustee

National Highway

Authority

Quasi-Sovereign Sukuk Issuance


DP World

• Issue Date: 3 July 2007

• Sukuk Size: US$1,500,000,000

• Sukuk Structure: Mudaraba

• Trust Assets: Mudareb to be invest in Terminal 2 at Jebel Ali Free Zone

• Issue Rating: A+ (S&P) A1 (Moody’s) at Issue Date

• Listing: Nasdaq Dubai, London Stock Exchange

• Managers: Barclays Capital, Citibank, Deutsche Bank and Dubai Islamic Bank

• Issuer/Trustee: DP World Sukuk Limited

• Obligor: DP World Limited

• Tenor: 10 years

• Pricing: 6.25%

• Date of Distribution: 2 of July and January of each year


DP World - Continued

• Maturity Date: 2 July 2017 • Governing Law: English Law • Shari’a Advisor: Shari’a advisory board of Dubai Islamic Bank • Use of Sukuk proceeds: The initial investment by the Mudareb would be in Terminal 2,

a second terminal adjacent to the current Jebel Ali Terminal • Distinguishing Factors: First UAE corporate rated sukuk offered into the U.S. and only

the second Rule 144A sukuk offered • Transaction Documents: Offering Circular

Trust Deed Mudaraba Agreement Purchase Undertaking Sale Undertaking Agency Agreement Costs Undertaking


DP World – Continued

DP World Sukuk Limited

as Issuer and Trustee

DP World Limited as Mudareb

Investors

Declaration of Trust

Mudaraba Agreement

Purchase and Sale Undertaking

DP World Limited as Obligor

Periodic Distribution Amounts and Dissolution Distribution Amounts

Exercise Price


Nakheel

• Issue Date: 14 December 2006

• Sukuk Size: US$3,520,000,000

• Sukuk Structure: Ijara (Equity Linked)

• Trust Assets: Land, buildings and other property at Dubai Waterfront

• Listing: Nasdaq Dubai

• Managers: Barclays Capital and Dubai Islamic Bank

• Issuer/Trustee: Nakheel Development Limited

• Obligor/Guarantor: Nakheel (as Obligor) Dubai World (as Guarantor)

• Tenor: 3 years

• Pricing: 6.345%

• Date of Distribution: 14 day of June and December each year

• Maturity Date: 14 December 2009


Nakheel - Continued

• Governing Law: English Law and UAE Law • Shari’a Advisor: Shari’a advisory board of Dubai Islamic Bank • Use of Sukuk proceeds: Fund the development of a number of projects including

Jebel Ali Village, Jumeriah Islands, Dubai Promenade, the Lost City, Jumeirah Park and Jumeirah Village, Dubai Waterfront and International City

• Distinguishing Factors: Second convertible note offering (first being Ports Customs & Free Zone Corporation)

• Transaction Documents: Offering Circular Trust Deed Purchase Agreement Lease Agreement Purchase Undertaking Sale Undertaking Guarantees Security – Share Pledge and Real Property Mortgage Subscription Rights Sale Undertaking Agency Agreement Costs Undertaking


Nakheel - Continued

Nakheel Development Limited as Issuer

Nakheel Holdings 2 as Lessee

Nakheel Holdings 2 as PQO Obligor

Nakheel Holdings 1 as Seller

Nakheel Holdings 2 as Obligor

Dubai World

Nakheel Holdings 1, Nakheel Holdings 2, Nakheel Holding 3

Nakheel Holdings 1

Sale of long Leasehold Process

QPO Subscription Moneys

Dubai Word Guarantee

Lease

Periodic Distribution Amounts, Final Distribution Amounts Additional Distribution Amounts Sukuk issue Amount

Share Pledges and Mortgages

Co-Obligor Guarantee

Rental

Relevant Exercise Price

Sale of long Leasehold

QPO Shares

Investors

QPO Shares

Sukuk Proceeds

QPO Subscription Moneys

Declaration of Trust

Subscription Rights Sale Undertaking Purchase Undertaking

Other Sovereign and Quasi-Sovereign Sukuk Issuances

Earmarked


Other Sovereign and Quasi-Sovereign Sukuk Issuances Earmarked

• Western economies –

• United Kingdom – The UK has introduced legislation to prevent the double taxation of assets taking place under an Ijara and has proposed new regulations to support Islamic finance and the issuance of a corporate sukuk within the UK

• France – The French government is rumored to be considering a sovereign sukuk issuance, which will be the first of its kind in France

• Japan - The Japan Bank for International Cooperation is planning a 7 year tenor sukuk targeting GCC investors with a value of between US$150,000,000 to US$200,000,000

• South Korea – The finance ministry had proposed a revision to the tax code with the aim of treating sukuk as bonds so that South Korean issuers could receive the same tax advantage as those applied to conventional bond issuers


Other Sovereign and Quasi-Sovereign Sukuk Issuances Earmarked - Continued

• Emerging economies –

• Indonesia – Indonesia has announced a US$1,000,000,000 sovereign sukuk which is expected to pay a yield of 5.125%

• Malaysia - Malaysia’s Tenaga Nasional Bhd may issue a sukuk of up to US$1,500,000,000 in 2011 in order to raise funds to build 2 new power plants

• Saudi Arabia – The Saudi General Authority of Civil Aviation is rumored to be considering SAR 4,500,000,000 sukuk to finance part of a new terminal at Jeddah airport

• Philippines – The Philippines government has announced plans to issue a US$1,000,000,000 sovereign sukuk which will be the first issuance of its kind in the Philippines. The Philippines does not currently have a regulatory framework in place for Islamic banking

Private Sukuk Issuance


Durrat Khaleej Al-Bahrain

• Issuer: Durrat Sukuk Company B.S.C.(c)

• Issue Date: 25 January 2005

• Sukuk Size: US$120,000,000

• Sukuk Structure: Istisna’a and Ijara

• Trust Assets: The Durrat Project

• Managers: Kuwait Finance House and Liquidity Management Centre

• Listing: Bahrain Stock Exchange

• Issuer/Trustee: Durrat Sukuk Company B.S.C.(c)

• Obligor: Durrat Al Bahrain

• Tenor: 5 years

• Pricing: 3 months LIBOR + 125 bps

• Distribution: 25 day of January, April, July and October each year


Durrat Khaleej Al-Bahrain - Continued

• Maturity Date: 2009

• Governing Law: English Law

• Shari’a Advisor: The Shari’a Supervisory Board of Kuwait Finance House

• Use of Sukuk proceeds: Fund the construction of the first phase of the US$1 billion Durrat Al-Bahrain Project

• Transaction Documents: Offering Circular Master Istisna’a Agreement Master Ijara Agreement

Master Service Agency Agreement Project Manager Appointment Agency Agreement Investment Agency Agreement Subscription Agreement Deed of Security Agency Agreement Costs Undertaking


Durrat Khaleej Al-Bahrain - Continued

Contractors

Customers Durrat Khaleej Al Bahrain Company B.S.C. (c)

as Project Company

Durrat Sukuk Company B.S.C. (c) as Issuer Investors

E D C B A

Master Istisna’a Agreement

Reclaimed Land and Infrastructure

Sukuk

Sukuk Proceeds

Retail Sales

Sale Proceeds

A – Licence, B – Security over Property, C – Lease of Base Infrastructure D – Ijarah Payments, E – Delivery of Reclaimed Land and Base Infrastructure


Al Thani

• Issue Date: 3 October 2007

• Sukuk Size: US$100,000,000

• Sukuk Structure: Musharaka

• Trust Assets: Al Bustan Centre and Dubai Wholesale Plaza

• Managers: Dubai Islamic Bank (as Lead Manager), Bahrain Islamic Bank and Khaleeji Commercial Bank (as Co-Lead Managers) and Emirates Islamic Bank and Liquidity Management Centre (as Arrangers)

• Issuer/Trustee: Thani Investments Sukuk Company Limited

• Obligor: Thani Investments LLC

• Tenor: 5 years

• Pricing: 6 months LIBOR + 250bps

• Distribution: 3 April and 3 October each year

• Maturity Date: October 2012


Al Thani - Continued

• Governing Law: English Law and UAE Law • Shari’a Advisor: Shari’a Supervisory Board of Liquidity Management Centre • Use of Sukuk proceeds: Refinance existing debt and to enhance its real estate

and property development division • Transaction Documents: Offering Circular Trust Deed Musharaka Agreement Management Agreement Purchase Undertaking Sale Undertaking Security – Real Property Mortgages Agency Agreement Costs Undertaking


Al Thani - Continued

Real Estate and

Property Development

Musharaka Operating Account

Investors

Thani Investments Sukuk Company Limited as Issuer and Trustee

Periodic Distribution Amounts

Dissolution Distribution Amounts

Management Agreement

Musharaka Revenues

In-Kind contribution to the Musharaka Capital

Sukuk Subscription

Proceed

Trust Certificates

Musharaka

Sukuk Proceeds contribution to the Musharaka Capital

Thani Investments LLC

as Obligor


As legal advice must be tailored to the specific circumstances of each case, nothing provided herein should be used as a substitute for advice of

competent counsel. The materials in this presentation do not constitute legal advice, do not necessarily reflect the opinions of Vinson & Elkins L.L.P. or

any of its attorneys or clients, and are not guaranteed to be correct, complete, or up-to-date.

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