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Prepared for: Conference on the Role of Sukuk in Development
Global Sukuk Market: Current Status & Growth Potential
Date: May 18, 2012
HSBC Amanah
2
Contents
Overview of Islamic Finance Market Section 1
Overview of Sukuk Market Section 2
Sukuk Structures Section 3
A. Ijara Sukuk (Sale & Leaseback)
B. Wakala Sukuk
C. Istithmar Sukuk
D. Manafae Sukuk
Project Sukuk Section 4
4
262 354
445 489
235
293
369 406
67
87
109 120
18
19
24 27
3
3
4 5
54
66
85 92
1,424
-
500
1,000
1,500
2007 2008 2009 2010 2011(E)
Other countries
Indonesia
UK
Malaysia
Iran
GCC
(USD in mn)
639
822
1,0361,139
1,424
Current potential size of the Islamic Finance industry USD 4.4 trillion growing at 10% p.a.
Actual global size of the Islamic Finance industry USD 1.13 trillion
Size gap USD 3.27 trillion
Global growth rate 10% (2010); 25% (2011E)
Catch up parameter
(with the estimated annual growth rate in the actual size) 9 years
Source: Global Islamic Finance Report 2011 (BMB Islamic)
Source: Global Islamic Finance Report 2011 (BMB Islamic)
29%
26%
10%
25%
Islamic Finance Industry Growth Resilient growth in the midst of recent financial instability
The size of the industry has
reached USD 1 trillion in 2010.
However, it is far below the
potential size estimated based
on the population and
economies of Muslim
populations among others,
leaving substantial room for
continuous growth and
development
Though the current financial
crises and turmoil have
slowed the industry’s pace
and progress, the
development of Islamic
Finance has not been directly
affected
The industry has experienced
average 21% growth per
annual from 2007 to 2010 and
is expected to increase growth
momentum in the years to
come at the CAGR of 25%
Size of the Islamic Financial Services Industry
Overview
5
Islamic Finance Industry Growth (cont‟d) Resilient growth in the midst of recent financial instability
The growing demand and
strengthening of legal and
regulatory frameworks
contribute to the growing
number of Islamic banks and
funds globally
The Islamic banking market
share has steadily increased
across major Islamic Finance
markets in Southeast Asia and
the Middle East
Source: Islamic Funds and Investment Report 2011 (published by Ernst & Young)
Source: The Banker 2011
(USD in bn)
Source: Central Banks, McKinsey
Islamic Asset Market Share in Select Markets Size of Global Islamic Assets
Size and Number of Islamic Funds
(USD in bn)
6
1) Islamic Development Bank
2) Organization of the Islamic Conference
3) Accounting and Auditing Organisation for Islamic Financial Institutions
4) Islamic Financial Services Board
5) International Islamic Liquidity Management
1960s 1970s 1980s 1990s 2000s 2010s
• Banking • Banking
• Project finance
• Syndications
• Takaful
• Banking
• Project finance
• Syndications
• Takaful
• Equity (index)
• Leasing
• Banking
• Project finance
• Syndications
• Takaful
• Equity (index)
• Leasing
• Sukuk market
• Structured alternative assets
• Risk management
• Private equity
Products &
Capabilities
Sukuk
Institutions
Regulations
1st Islamic
bank in Egypt
(1963)
IDB1) established
(1975)
Dubai Islamic Bank
established (1975)
Malaysia passes
legislation on IF (1983)
Banking becomes 100%
interest-free in Iran (1983)
and Sudan (1989)
AAOIFI3) established
(1990)
World‟s first global Sukuk by
Govt. of Malaysia
(USD600mn) (2002)
IFSB4) established (2002)
IFSB4) introduces „Standards‟ on
Basel ll compliance (2005)
First global Sukuk by Govt. of
Indonesia (USD650mn) (2009)
Islamic assets expected to
exceed USD 2 trillion by
2017
Largest global Sukuk by Govt.
of Malaysia
(USD2bn) (2011)
First corporate Sukuk by
Shell MDS (USD33mn)
(1990)
Oman passes legislation on
IF (2011)
IILM5) Corporation established
(2010)
Dubai Financial Market
structured into world‟s first
Islamic bourse (2006)
2nd global Sukuk by Govt. of
Indonesia (USD1bn) (2011)
IF Industry Development & Evolution
8
Total Sukuk volume issued globally has
reached USD 177 bn.
HSBC Amanah forecasts USD 44bn for 2012.
0.9 3.5
6.1 7.4
12.8
31.2
19.0
26.1 23.3
33.6
12.7
Islamic Capital Market Growth Growing issuances and sophistication
The strong end to the largest year
for Sukuk issuances ever has
continued robustly into 2012, with
USD 6.6bn of issuances globally
to date, with large issues out of
both Saudi Arabia and Malaysia
The Government of Malaysia
closed out 2011 with a jumbo
multi tranche local currency issue
of MYR 30.6bn (USD 9.6bn). This
trend continued into 2012 with the
General Authority of Civil Aviation
of Saudi Arabia issuing a SAR
15bn (USD 4bn) MoF guaranteed
Sukuk in January 2012. This
represents the largest single
tranche Sukuk ever, and largest
government guaranteed issue in
the Emerging Markets for the last
decade
The FI market began the year with
USD 500mn issuances by both
Emirates Islamic Bank and First
Gulf Bank. Both institutions were
able to take advantage of the tight
spreads at that time, pricing at
4.718% and 4.046% respectively
Majid Al Futtaim Holding became
the first corporate to issue in the
Sukuk space this year, with a USD
400mn Sukuk priced at the tight
range of guidance of 5.850%,
representing a spread over
midswaps of +482bps
Historical Sukuk Issuance Volume (since 2002)
Volume by Region (2009–20112YTD) Volume by Currency (2009–2012 YTD) Volume by Tenor (2009–2012 YTD)
Source: HSBC, Deallogic 29 April 2012
44.0
9
MENA
• Given the nature of the investor base, Sukuk distribution by geography is skewed towards the Middle East
• However, Malaysia and Indonesia achieved broad investor diversification, with US investors comprising a sizeable
component of the allocation
• The Islamic investor base is dominated by commercial banks
• Fund managers are playing an increasingly important role, and CBs and Government Agencies are big players in SSA
issuances
Sukuk Issuances Have Witnessed Diverse International Participation
USA
Bre
ak
do
wn
by i
nve
sto
rs
Bre
ak
do
wn
by G
eo
gra
ph
y
Asia Europe Other
Banks Funds Insurance / Private Banks Others CB / Govt Agencies
*Other - Malaysia *Other - Malaysia
$1250mn $750mn $1200mn $800mn $650mn $750mn
Malaysia ’21
(RegS/144a) 10yr
Malaysia ’16
(RegS/144a) 5yr
IDB ’16
(RegS) 5yr
Malaysia ’15
(RegS/144a) 5yr
Bahrain ’14
(RegS) 5yr
Indonesia ’14
(RegS) 5yr
10
Sukuk Treading Tighter than Conventional MENA Bonds Sukuk supply lagging demand by investors
During the financial crisis, and
particularly after the asset bubble
burst in the GCC, Sukuk spreads
widened considerably, especially
relative to conventional
counterparts
In the last year, however, Sukuk
spreads have continually
tightened with spreads now
tighter than conventional bond
indices
This is as a result of the high
demand for Sukuk and the lack of
supply to satisfy the liquidity
available with Islamic banks in the
region
With supply being limited, a
substantial gap has opened
resulting in Sukuk yields
tightening vis-à-vis their
conventional counterparts as
banks chase a finite amount of
quality Sukuk instruments
Source: Bloomberg, 29 April 2011
Indices: SKBIAS, MEBIAS
HSBC Nasdaq Dubai USD Sukuk Index Volatility vs. Conventional Bond Index Volatility
Sukuk tighter than conventional
13
Ijara Sukuk (Sale & Leaseback): Structure Overview Republic of Indonesia‟s USD 650 million Sukuk Al Ijara 2009
SPV
(Issuer / Trustee / Lessor)
Sukuk Proceeds Sukuk Issue
GOVT
(Seller of Assets)
Sukuk Holders
Purchase
Price
GOVT
(Lessee)
Asset
Lease
SPV
(Issuer / Trustee / Lessor)
Sukuk Holders
Asset Sale
1
2 3 Rental
Payments
GOVT
(Lessee)
Periodic
Distribution
4
5
Asset
Repurchase
Exercise
Price
Redemption
Amount
Sukuk
Redemption
GOVT (Purchaser of Assets)
6
7
The structure is based on a
lease (Ijara) of a certain
leasable underlying asset
Sukuk al-Ijara is the most
widely accepted Sukuk
structure in the global capital
markets and quickest to bring
to the markets
Most sovereign Sukuk
transactions were under the
Ijara structure, i.e., Malaysia,
Indonesia Qatar, Pakistan, etc
Main Documentation:
Purchase Agreement
Lease Agreement
Service Agency Agreement
Purchase Undertaking
Sale Undertaking
Declaration of Trust
etc.
Inception Ongoing & Maturity
Transaction
Fund flow
14
On 16 April 2009, the Republic
of Indonesia (“Indonesia”)
priced its debut international
Sukuk, a highly successful
USD650m 5-year issue
At the time this landmark
transaction reopened the
Sukuk market as the first
benchmark USD Sukuk since
March 2008, and was the
largest USD Sukuk globally
since July 2007
HSBC acted as Joint Lead
Manager and Joint
Bookrunner on this
groundbreaking transaction
After several years of preparations, Indonesia passed a new law on Sovereign Shariah
Securities in May 2008. Once the law was passed, Indonesian Ministry of Finance officials
visited the Middle East several times, including Saudi Arabia and Dubai, to meet with Sukuk
investors and prepare the debut sovereign Sukuk.
With market conditions globally improving rapidly in April 2009, Indonesia decided to move
forward with the execution of the USD Sukuk. The execution process was very efficient, with just
36 hours from announcement to pricing of the debut Sukuk.
The transaction was announced on Wed 15 April Asia a.m., and met with very strong investor
demand, especially from Asia and the Middle East. Official price guidance of „9.25% area‟ was
released late that evening, and this was revised the next morning to final guidance of 8.80-
9.00%.
An overwhelming response from investors globally saw the orderbook reach USD4.6 billion, or
7x oversubscribed, via 230 investors. This enabled the transaction to price at the tight end of
revised guidance, at 8.80%, implying a new issue premium of just 30bps vs. pre-announcement
secondaries.
This landmark transaction marks a major step forward for Indonesia‟s offshore funding program,
diversifying its investor base successfully into non-interest accounts and the Middle East, and
setting the foundation for further successful issuances in this format in the future.
Sukuk Issuer Perusahaan Penerbit SBSN Indonesia I (PPSI-I)
Sukuk Obligor Republic of Indonesia
Currency / Format US Dollar 144A/Reg.S
Structure Sukuk Al-Ijara
Obligor / Sukuk Ratings Ba3 (Moody‟s) / BB- (S&P) / BB (Fitch) (all stable)
Sukuk Assets Beneficial rights over 70 properties used as government offices
Amount USD 650 million
Pricing / Settlement Date 16 April 2009 / 23 April 2009
Maturity Date 23 April 2014
Periodic Distributions 8.80% per annum, payable semi-annually
Price / Re-offer Spread 100% / UST5 + 705.3 bps
Listing Singapore Stock Exchange
Governing Law English Law (asset-related documents under Indonesian Law)
HSBC‟s Role Joint Bookrunner and Joint Lead Manager
Transaction Overview
Transaction Highlights
Breakdown by Geography
Breakdown by Type
Ijara Sukuk (Sale & Leaseback): Case Study Republic of Indonesia‟s USD 650 million Sukuk Al Ijara 2009
16
Sukuk Proceeds Sukuk Issue
Sale of Asset
Pool
Sale Price
(52%)
SPV
(Issuer / Trustee / Lessor)
Sukuk Holders
GOVT
(Seller)
GOVT
(Lessee)
GOVT
(Wakeel)
GOVT
(Purchaser)
Trader A
Trader B
Appointment
of Wakeel
Commodities Purchase (via
Wakeel)
Spot Payment
(48%)
Commodities Sale for
Deferred Payment (49%)
Commodities Sale
Spot Payment
(48%)
Murabaha Receivable Component (48% Proceeds) Tangible Assets (Asset Pool) Component (52% Proceeds)
Asset
Lease
1
2 3 4
5
6
7
Wakala Sukuk: Structure Overview (1/2) Government of Malaysia‟s USD 2 Billion Dual-tranche Wakala Sukuk 2011
This structure allows
issuances above the value of
available assets
The Sukuk Proceeds are
invested and managed by
Obligor (as Wakeel) in the
following manner:
52% Tangible Assets
Min26% are lease assets
Max 26% are corporate shares,
which meet Shariah screening
criteria
49% Commodity Murabaha
Main Documentation:
Sale and Purchase Agreement
Lease Agreement
Wakala Agreement
Murabaha Agreement
Purchase Undertaking
Substitution Undertaking
Declaration of Trust
etc.
Inception
Transaction
Fund flow
17
Redemption
Amount
Sukuk
Redemption
Purchase
of Asset
Pool
Exercise
Price
(51%)
Lease
Rental
GOVT
(Obligor)
Management of Asset
Pool
Deferred Payment (49%)
Murabaha Receivable Component (49% Proceeds) Tangible Assets (Asset Pool) Component (51% Proceeds)
Periodic
Distribution
Amount
8 9 11 12
10 13
Wakala Sukuk: Structure Overview (2/2) Government of Malaysia‟s USD 2 Billion Dual-tranche Wakala Sukuk 2011
Rental Payments from the
Tangible Assets are used to
provide Periodic Distributions
to the Sukuk Holders
At Maturity, the deferred
payment from the Commodity
Murabaha Agreement (49%)
combined with the Exercise
Price of Asset Pool (51%) are
paid to the Sukuk Holders to
redeem the Sukuk
Ongoing & Maturity
SPV
(Issuer / Trustee / Lessor)
Sukuk Holders
GOVT
(Lessee)
GOVT
(Wakeel)
GOVT
(Purchaser)
Transaction
Fund flow
18
Banks (56%)
Fund M anagers (17%)
Govt Insitutions (24%)
Insurance (2%)
Private Banks (1%)
Banks (26%)
Fund M anagers (45%)
Govt Insitutions (19%)
Insurance (8%)
Private Banks (2%)
M alaysia (26%)
M iddle East (43%)
Other Asia (18%)
Europe (9%)
US (4%)
M alaysia (28%)
M iddle East (7%)
Other Asia (29%)
Europe (21%)
US (15%)
Sukuk Issuer Wakala Global Sukuk Berhad
Sukuk Obligor Government of Malaysia
Currency / Format US Dollar 144A/Reg.S
Structure Sukuk Wakala
Obligor / Sukuk Ratings A3 (Moody‟s) / A- (S&P) (all stable)
Sukuk Assets (i) Tangible Asset Component (52%) of Lease Assets and Shariah
compliant shares; (ii) Murabaha Receivable Component (48%) of Shariah compliant
commodities
Tenor 5-year 10-year
Maturity 6 July 2016 6 July 2021
Amount USD 1.2 billion USD 800 million
Pricing / Settlement Date 28 June 2011 / 6 July 2011
Periodic Distributions 2.991% p.a. 4.646% p.a.
Price 100% 100%
Re-offer Spread UST5 + 145 bps UST10 + 165 bps
Listing HKSE, Bursa Malaysia and Labuan
HSBC‟s Role Joint Bookrunner and Joint Lead Manager
Malaysia undertook a global investor roadshow, taking in Kuala Lumpur, Hong Kong, Singapore,
Abu Dhabi, Dubai, Riyadh, London and New York, covering both Islamic and conventional
investors
The transaction was announced on Tuesday 28 June Asia noon, with a price guidance of
„T+160bps area‟ for the 5-year tranche and „5-year T-spread plus 20 bps‟ for the 10-year
tranche. This was strongly received by investors, with the books at approx USD4.5bn within a
few hours of announcement. Final price guidance of „T+150bps area‟ for the 5-year tranche and
„T+170bps area‟ for the 10-year tranche was released at Asia close, with the books continuing to
grow strongly into Europe and the US.
The transaction saw an overwhelming response from international and domestic investors, with
significant participation from the Middle East. The final orderbooks were at USD9 billion, or
4.55x oversubscribed, via over 320 orders, and pricing at the tight end of revised guidance, at
T+145 bps and T+165 bps respectively.
The transaction represents Malaysia's third USD sovereign Sukuk, following previous issuances
in 2002 and 2010, further reinforcing Malaysia's position as a leading international Islamic
financial center.
10-yr 5-yr
10-yr 5-yr
Wakala Sukuk: Case Study Government of Malaysia‟s USD 2 Billion Dual-tranche Wakala Sukuk 2011
On 28 June 2011, the
Government of Malaysia
(“Malaysia”) priced a highly
successful USD2bn Global
Sovereign Sukuk, comprising a
USD1.2bn 5-year tranche and a
USD800m 10-year tranche
This USD2 billion transaction by
Malaysia represents: the first
global sovereign US Dollar
Sukuk for 2011; the largest ever
US Dollar Sovereign Sukuk; the
largest issuance to-date by
Malaysia in the international USD
markets; and the first ever 10-
year US Dollar Sovereign Sukuk
Malaysia achieved, on the 5-year
tranche, the lowest ever yield on
an Asian sovereign USD issue
This transaction also represents
the first US Dollar Sovereign
Sukuk to be structured under the
Islamic principle of Wakala,
establishing Malaysia at the
forefront of Islamic finance
Transaction Overview
Transaction Highlights
Breakdown by Geography
Breakdown by Type
20
SPV (Custodian)
Excess
Income
(if any)
* SEC (as Administrator) uses the Reserve to pay to the Sukuk Holders in case the
Net Income does not meet the required Periodic Distribution Amount
Upon dissolution of the Sukuk, SEC (as Administrator) receives the balance of the
Reserve (if any) as an incentive fee
SEC
(Issuer)
Sukuk Holders
SEC
(Issuer / Trustee / Lessor)
Sukuk Holders
Sukuk Proceeds Sukuk Issue
Net Income
Periodic
Distribution
Purchase Price
(i.e. 90%)
Sukuk Assets (Connection Service Rights)
SPV (Custodian)
Sukuk Assets (Connection Service Rights)
SEC (Administrator)
Reserve*
Transfer of Sukuk Assets
to Custodian
Top-up
(if shortfall)
Purchase of
Sukuk Assets
Sukuk
Redemption
Admini-
stration
SEC
(Issuer)
1
2 7
8
3
4
5
6 8 Extra Redemption
Amount (i.e. 10%)
Istithmar Sukuk: Structure Overview Saudi Electricity Company‟s SAR 7 Billion Sukuk Al Istithmar 2009
Inception Ongoing & Dissolution (Maturity)
Transaction
Fund flow
SEC 2009 Istithmar Sukuk is
based on the Sukuk Assets
comprising the right to
undertake the Connection
Services and levy the
Connection Charges for 20
years
SEC (as Issuer) transfers the
Sukuk Assets to the SPV (as
Custodian), and SEC (as
Administrator) administers the
Sukuk Assets and receives the
Net Income from the Sukuk
Assets to pay the Periodic
Distribution Amount
The Sukuk can be redeemed
every 5 years as the Sukuk
Holders retains (via Sukuk
Holders’ Agent) the right to
sell the Sukuk Assets at 5 year
intervals
Main Documentation:
Sukuk Assets Transfer
Agreement
Sukuk Assets Administration
Agreement
Purchase Undertaking
Payment Administration
Agreement
Declaration of Agency
etc.
21
Put Option Exercise Timing Up to
Year 5
End of
Year 5
End of
Year 10
End of
Year 15
End of
Year 20
Purchase Price 100% 90% 60% 30% 0%
Extra Amount 0% 10% 20% 30% 40%
Total Face Value Received
(Redemption Amount) 100% 100% 80% 60% 40%
Istithmar Sukuk: Dissolution/Maturity Payment Options Saudi Electricity Company‟s SAR 7 Billion Sukuk Al Istithmar 2009
The maturity of the Sukuk is 20
years, but the Sukuk Holders
may request the purchase of
the Sukuk by the Issuer every
5 years, pursuant to the
Purchase Undertaking
The Sukuk Holders have an
incentive to exercise their right
to put the Sukuk at the end of
Year 5 to receive 100% of the
Suck's face value (i.e. 90%
Purchase Price and 10% Extra
Amount); after the end of Year
5, the Redemption Amount
gradually decreases after the
end of Year 5
In case the Net Income is not
sufficient to pay a Periodic
Distribution during the first 5
years, the Sukuk Holders have
the right to require the Issuer
to purchase their Sukuk for
100% of the total face value
22
For the second time in succession, HSBC lead managed for SEC (the largest utility company by
market value in the Middle East) a successful public Sukuk issuance in the Saudi Arabian
market, the first such public Sukuk in 2009
HSBC also acted as the sole rating advisor, assisting SEC in securing rating for both Sukuk.
The HSBC Amanah Shariah Supervisory Committee approved the structure, and SABB
Securities Ltd acted as Sukukholders‟ Agent
Notwithstanding the volatile credit environment, HSBC successfully positioned SEC‟s credit as
very closely aligned to the sovereign, and helped devise and execute a successful book-building
strategy to generate demand
As a result, the issuance was very well received by the market with total orders exceeding SAR
20.5 billion (USD 5.6 billion), incorporating existing and new investors
This helped SEC issue at a size of SAR 7 billion (the largest issuance by a GCC utility), at a
price tighter than similar-rated issuances by sovereigns or corporates in the region
This transaction firmly cements HSBC leadership in the Saudi market, having led all public
issuances in the Kingdom. HSBC has now raised SAR 28 billion in the public format since sole
leading the market‟s debut issuance in 2006
Issuer: Saudi Electricity Company (“SEC”)
Rating: A1/AA-/AA-
Structure: Sukuk Al Istithmar
Sukuk rating: AA- (Fitch)
Issue Date: 06 July 2009
Maturity Date: 06 July 2029 (first Put: 06 July 2014)
Issue Amount: SAR 7 billion (USD 1.9 billion)
Coupon/Profit: 3m SAR Sibor + 160 bps
HSBC‟s Role Joint Lead Manager and Bookrunner
Istithmar Sukuk: Case Study Saudi Electricity Company‟s SAR 7 Billion Sukuk Al Istithmar 2009
On 6th July 2009, Saudi
Electricity Company issued a
SAR 7 billion Sukuk-al-
Isthithmar, its second such
issuance in the local market
This was the largest local
currency Sukuk or bond for a
utility in the GCC region, and
generated by far the largest
order book in Saudi Arabia for
any debt issuance
Prior to this HSBC sole led
SEC’s debut Sukuk issuance,
and has now lead managed all
public SAR issues in Saudi
Arabia
Transaction Overview
Transaction Highlights
Breakdown by Geography
(Issue is restricted to Saudi nationals
and entities only)
Breakdown by Type
24
Manafae Sukuk: Structure Overview (1/2) Voucher-based
Main Documentation:
Purchase Agreement
Distribution Agreement
Purchase Undertaking
Declaration of Trust
etc.
The Manafae Sukuk structure is
based on concepts (rights based
underlying assets) initially
developed by HSBC for a number
of transactions starting with
Saudi Basic Industries
Corporation (SABIC)’s SAR3 bn
Sukuk in 2006
The underlying asset is the
capacity or rights of commercial
activities, allowing for the use of
intangibles
In case unencumbered tangible
assets are limited, this structure
will potentially allow the greatest
potential amount of issuance for
both one-off and programme
issuances as well as for either
amortising or bullet maturing
Sukuk
Purchase Price Sale of
Voucher
Appointment of
Distributor
Description
1
The SPV (Issuer) issues Sukuk which entitle Sukuk Holders to
Periodic Distribution Amounts and the Redemption Amount, and the
SPV receives the Sukuk Proceeds.
2
The SPV applies full proceeds of the issuance towards the purchase
of Vouchers from Corporate (Seller of Assets) pursuant to a Purchase
Agreement.
The Vouchers entitle the SPV to a certain prescribed quantum of
underlying assets and the rights to receive any proceeds from the sale
of the underlying assets to end-customers (Corporate‟s Customer
Base).
3
Corporate (Distributor) is appointed as the sole and exclusive
distribution agent by the SPV pursuant to a Distribution Agreement for
the distribution and sale of the Vouchers (and the assets represented
by such Vouchers) to its customers.
SPV
(Issuer / Trustee)
Sukuk Proceeds Sukuk Issue
Investors
(Sukuk Holders)
1
Corporate
(Seller of Assets)
Corporate
(Distributor)
2 3
Corporate’s
Customer Base
Transaction
Fund flow
Inception
25
Manafae Sukuk: Structure Overview (2/2) Voucher-based
Corporate, acting as distribution
agent of the Vouchers for the
SPV (Trustee), sells the Vouchers
to Corporate’s end-customers at
a minimum sale price (“MSP”)
and pays the Required
Distribution Revenue to the
Sukuk Holders via the SPV
If Corporate sells the Vouchers in
excess of the MSP, it retains the
excess as an incentive fee
In the event of a shortfall as a
result of a sale of all Vouchers at
a price less than the aggregate
MSP, Corporate will indemnify
the SPV for the shortfall
If a shortfall arises as a result of a
sale of an insufficient number of
Vouchers, Corporate will be
required, pursuant to a Purchase
Undertaking, to purchase the
remaining Vouchers for an
amount equal to the shortfall the
SPV will exercise
Exercise
Price
Sale of
Excess
Voucher
Required
Distribution
Revenue
Description
4
The number of Vouchers required to be distributed and sold during a
Collection Period (which corresponds to Periodic Distribution periods)
will be set out in a Distribution Notice sent by the principal paying
agent to Corporate prior to each Collection Period.
The prescribed minimum sale price (“MSP”) for each Voucher will also
be set out (comprising a cost price and profit element), with the
aggregate profit amount payable in respect of all Vouchers sold in that
Collection Period being equal to the relevant periodic distribution
amount.
5
a. An amount equal to the relevant Periodic Distribution Amount is
required to be paid across to the SPV (via the transaction
account) on the relevant Periodic Distribution Date.
b. Amounts in excess of the Periodic Distribution Amount if any are
credited to a ledger Reserve Account held by Corporate via a
Collection Account.
c. Such amounts will (i) firstly, be used to purchase additional
Vouchers and (ii) secondly, be retained on account by Corporate
(by way of incentive fees), and such incentive fees may be
required to be returned in certain circumstances (such as a
shortfall).
6 The SPV pays a Periodic Distribution Amount to the Sukuk Holders on
the relevant Periodic Distribution Date.
7
Upon an event of default or at maturity, the SPV will, pursuant to a
Purchase Undertaking, require Corporate to buy all remaining
Vouchers at a price equal to the outstanding face amount of the
Sukuk and any accrued and unpaid periodic distribution amounts, less
any amounts standing to the credit of the Collection Account (the
“Exercise Price”).
8 The Exercise Price will be paid across to the SPV for onward payment
to the Sukuk Holders, and the Sukuk are redeemed.
SPV
(Issuer / Trustee)
Redemption
Amount
Sukuk
Redemption
Investors
(Sukuk Holders)
8
Corporate (Purchaser / Obligor)
Corporate
(Distributor)
7 5a
Corporate’s
Customer Base
4 Sale of
Voucher
Sale
Revenue
Reserve
Account
5b Excess
Revenue 5c
6 Periodic Distribution
Amount
5c Excess
Allocated
Excess
Allocated
Transaction
Fund flow
Ongoing & Maturity
27
Trans Thai-Malaysia (Thailand) Ltd (“TTM(T)”) is equally owned by PTT and Petronas and was established to own and operate the
natural gas pipeline system that delivers and processes gas to Thailand and Malaysia
The MYR Sukuk transaction was successfully executed through a 1.5 days bookbuilding process and attracted over MYR2.6bn in
bids from a wide group of investors to arrive at an over-subscription rate of more than 4.33x over the issue size guidance of
MYR600m
The transaction had a balanced distribution as follows: Funds (21.7%), Insurance companies (30.0%), Financial institutions (43.3 %)
and Government agencies (5.0%)
The MYR Sukuk was rated by MARC, with HSBC assisting in the ratings process. TTM succeeded in achieving the highest rating of
AAA from MARC
This is a ground-breaking transaction achieving a financing tenor which is longer than typical USD denominated project financings in
Thailand or Malaysia
TTM successfully achieved a weighted average pricing (on an after swap to USD fixed rate basis) of below 4.00% which is extremely
attractive for TTMT especially for up to 15 years tenor and significantly lower than recent non-recourse project financings in Asia,
reflecting HSBC's strength in the MYR debt capital markets and MYR swap market
Distribution by investor type % of allocation
Summary of terms and conditions
Issuer TTM Sukuk Berhad (“TTM”)
Format Islamic Sukuk (Senior)
Structure Sukuk Commodity Murabaha
Issue Ratings AAA (MARC)
Amount MYR600m
Settlement Date 15th November 2010
Maturity November 2015 to 2025
Tenor 5 to 15 years
Coupon/Profit 4.00% to 5.05%
Governing Law Malaysia
HSBC Role Joint Lead Arranger and Manager and
Swap Counterparty
Execution highlights
“Best Islamic Finance Deal of the Year in Southeast Asia” “Cross Border Deal of the Year” “APAC Oil & Gas Deal of the Year”
Trans Thai-Malaysia (“TTM”) Sukuk Berhad MYR600 million Sukuk Issuance
In Nov 2010, TTM Sukuk Berhad
(“TTM”) successfully priced a
MYR600mn Sukuk issuance
This landmark transaction
achieved many firsts in the capital
market space:
First-ever cross border
project bonds in Asia and in
Islamic format
First-ever Sukuk offering by a
Thai entity and the first Islamic
financing transaction for a
company under the PTT Group
First Thai borrower in the
Malaysian Ringgit debt market
The first project finance bond
offering by a foreign borrower in
the Malaysian Ringgit capital
markets and the first project
finance bond transaction in
Malaysia since 2008
The hedge transaction represents
the longest tenor for a MYR/USD swap
transacted
HSBC acted as Joint Lead Arranger
and Manager on this prestigious MYR
landmark Sukuk transaction
HSBC also acted as Joint Swap
Counterparty in respect of the
hedging of the transaction for TTM
28
Tanjung Bin Energy Sdn Bhd
Tanjung Bin Energy Issuer Bhd
MYR6.5bn (USD2.1bn)
Senior USD Loan
Senior Sukuk Murabahah
Senior MYR Loan
Junior MYR Loan
Malaysia
Financial Advisor, Coordinating Bank,
Senior USD Loan MLA, Sukuk Murabahah
JLA and JLM, Hedge Coordinator, Swap
Provider, Account Bank, Senior Security
Agent, Senior Facility Agent, Senior
Intercreditor Agent
HSBC acted as Financial Advisor, Coordinating Bank, USD Loan Mandated Lead Arranger, Islamic project bond
(Sukuk) Joint Lead Arranger and Joint Lead Manager, Lead Hedge Coordinator and Swap Provider, Account
Bank, Senior Security Agent, Senior Intercreditor Agent, Senior Facility Agent for the Tanjung Bin Energy 1,000
MW supercritical coal-fired power plant in Johor, Malaysia, with total Project Cost of MYR 6.7bn (USD 2.2bn);
The Project is a cornerstone of the strategy of the Malaysian government to diversify the power generation fuel
mix from gas to coal and will serve to meet the increasing demand for power in line with projected growth under
the 10th Malaysia Plan. The plant will commence generation in 2016 and serve base loads ensuring system
stability and reliability in the light of a projected reduction in the reserve margin in Peninsular Malaysia;
Malakoff Corporation Bhd (“Malakoff”) is the leading IPP in Malaysia, with 25% market share in the power
generation sector. The Project will increase Malakoff’s effective generating capacity to over 6 GWs and is a core
component of the Sponsor’s strategy to maintain its leading position in Malaysia and regionally.
Transaction highlights
Transaction
Details
Early 2010
First International Bank project financing of an IPP in Malaysia;
First combined Islamic project bond/ USD loan solution in the IPP sector in Malaysia;
First competitive tender procurement of power generating capacity in Malaysia;
Innovative financing plan and dual-SPV structure developed and implemented by HSBC combined Islamic
project bonds, senior dual-currency loans, junior MYR loans to achieve the lowest all-in cost of financing for the
project;
AA3 rating achieved for a structure not previously seen in the Malaysian market. Transaction instrumental in the
evolution of the bond market for Malaysian IPPs and paves the way for future non-vanilla bond structures.
March 2012
Facility Amount Tenor
1) Senior Sukuk MYR3,290m 20 yrs
2) Senior USD Loan USD400m 15 yrs
3) Senior RM Loan MYR700m 12 yrs
4) Junior Equity Bridge Loan MYR1,300m 5 yrs
Borrower: Tanjung Bin Energy Issuer Bhd
Sponsor: Malakoff Corporation Bhd
Financial Close: March 2012
Ranking: Senior secured / junior unsecured with Sponsor recourse
Repayment: Senior: amortising with balloon amounts of c. 20% of issuance
Junior: 100% bullet at maturity
Malakoff Corporation Bhd (Tanjung Bin Energy Issuer Bhd) Malakoff Corporation Bhd 1,000 MW supercritical coal-fired power plant
29
Tanjung Bin Energy Issuer Berhad, a 100% owned subsidiary of Tanjung Bin Energy Sdn Bhd, who in turn is wholly owned by Malakoff
Corporation Berhad, was structured as a vehicle to issue Islamic bonds for the development of the new 1,000 MW super-critical coal fired
power plant.
The Sukuk was part of a financing package which includes a senior facility of US$400 mil term loan and a RM700 mil term loan and a junior
facility comprising equity loans of RM1.3bil.
The MYR Sukuk transaction was successfully executed through an accelerated 2 hour bookbuilding process and attracted over MYR16.9bn
in bids from a wide group of investors to arrive at an over-subscription rate of more than 5.13x over the issue size of MYR3.29bn.
The transaction had a balanced distribution as follows: Funds (18.7%), Insurance companies (13.2%), Financial institutions (39.9 %) and
Government agencies (5.0%)
The MYR Sukuk was rated by RAM, with HSBC leading in the ratings process. TBEIB was awarded a rating of AA3 from RAM reflecting the
projects high reliability and credit worthiness and setting a new Malaysian benchmark for AA3-rated project bonds.
This ground-breaking transaction is a significant milestone for Malakoff as it marks the commencement of Tanjung Bin’s expansion and
serves to strengthen Malakoff’s position as the leading independent power producer in Malaysia and within the ASEAN region
The transaction also marks the first participation of international lender for a power project financing in Malaysia.
This transaction pioneered the Malaysian infrastructure market as the 1st combined MYR bond and USD loan project financing for an IPP
in Malaysia.
Distribution by Investor Type
% of allocation Summary of Terms and Conditions
Issuer: Tanjung Bin Energy Issuer Berhad (“TBEIB”)
Format: Islamic Sukuk (Senior)
Structure Sukuk Commodity Murabaha
Issue Ratings AA3 (RAM)
Amount MYR3,290mn
Settlement Date 16th March 2012
Tenor 5 to 20 years
Coupon/Profit 4.65% to 6.20%
Governing Law Malaysia
HSBC Role Joint Principal Adviser/ Joint Lead Arranger and Joint
Lead Manager
Execution Highlights
On 6 March 2012, Tanjung Energy
Issuer Berhad (“TEIB”) successfully
priced a MYR3,290mn Islamic Medium
Term Notes issuance with tenors
ranging from 5 to 20 years
HSBC acted as Joint Lead Arranger
and Manager on this prestigious MYR
Sukuk transaction
HSBC acted as the sole coordinating
bank for this landmark non-recourse
project financing for a greenfield
power plant; both for the senior and
junior facilities
This ground-breaking transaction
marks the commencement of Tanjung
Bin’s expansion and serves to
strengthen Malakoff’s position as the
leading independent power producer
in Malaysia and the ASEAN region
Malakoff Corporation Bhd (Tanjung Bin Energy Issuer Bhd) MYR3,290 million Sukuk issuance
30
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