Cross-Border Sukuk Issues

Cross-Border Sukuk Issues

David Testa, Executive Director

Head of Islamic Finance, WestLB

London Sukuk Summit

Royal Horseguards Hotel, 21 June 2007

WestLB and Islamic Finance Expansion & Innovation Two Case Studies Stimulants for Continued Growth

WestLB AG Cross-Border Sukuk Sukuk SummitLondon Branch David Testa London

Page 3 21 June 2007

WestLB has arranged and underwritten: over 15 Islamic financings since the beginning of 2005 principal aggregate amount of over US$6.0bn

USD 210,000,000Sukuk

Joint Mandated Arranger& Joint Bookrunner

October 2005

USD 850,000,000Islamic Finance

Joint Mandated Arranger

March 2006

USD 500,000,000Commodity Murabaha


April 2006

USD 100,000,000Musharaka Trust Sukuk


September 2006

USD 150,000,000Musharaka Trust Sukuk

Sole Underwriter& Bookrunner

September 2006

WestLB – Islamic Finance Highlights

*Source: Dealogic Loanware, no. of facilities

USD 1,000,000,000Ijara Syndicate


January 2006

USD 300,000,000Syndicated Standby Morabaha

Joint Mandated Arranger & Joint Bookrunner

December 2006

USD 31,000,000True Murabaha

Sole Mandated Arranger & Sole Bookrunner

December 2006

USD 600,000,000Dar Al-Arkan

Joint Lead Manager& Joint Bookrunner

March 2007

USD 1.1bn Commodity Murabaha

Facility

Joint Mandated Arranger& Joint Bookrunner

April 2007

£225m Commodity Murabaha

Facility

Sole Mandated Arranger& Bookrunner

May 2007


Page 4 21 June 2007

Expansion and Innovation

Important Market: New but fast growing niche in the global capital markets: Growing at approximately 10-15% per annum S&P estimate the market to be approximately US$400bn, with a potential

of US$4 trillion (report Oct 2006)

Islamic finance markets: strong growth over the last 2-3 years: total volumes just over US$8bn in 2004 over US$28bn in 2006 over half the volume in 2004 originated from Malaysia, but the balance

has shifted, with financings in the GCC accounting for some US$15bn of the 2006 total

BUT – still a “niche within a niche”: Over US$2 trillion of conventional bonds and short-term note issuance in

2006 Total GCC syndicated loan volumes for 2006 reached over US$65bn


Page 5 21 June 2007

Expansion & Innovation

A new product - the first GCC sovereign Sukuk issued in 2001

Rapid growth 2005 volume of issuance: 55 issues in 2005 raising US$9.6bn* 2006 volume of issuance: 66 issues raising US$17.0bn* 2007: 40 issues totalling US$33.8bn announced*

Volumes in GCC increasing: 2005: 11 issues raising US$2.3bn* 2006: 17 issues raising US$6.4bn* 2007: US$50bn commonly forecast*

* Source: IFIS


Page 6 21 June 2007

Expansion & Innovation

Sukuk Statistics Q2 2007; by Country Up to 10th June 2007

Country Total issued in USD$ (Million)

No. of Issues

United Arab Emirates 4,945.90 6

Saudi Arabia 600.00 1

Malaysia 5,858.17 35

Kuwait 200.00 1

Pakistan 16.48 1

Bahrain 101.00 7

Sum Total of all Countries 11,721.55 51

Source: IFIS (Islamic Finance Information Service)

GCC Total: US$5,846.9m (15 issues representing 49.9% of total issuance)


Page 7 21 June 2007

Expansion & Innovation Convertible issues

Dubai Ports Authority: US$3.5bn Musharaka Sukuk Nakheel: US$3.52bn Pre-IPO Sukuk (including look-back rights)

Exchangeable issues Aabar Petroleum US$460m Sukuk issue Mudarabah structure Aldar Properties US$2.53bn Sukuk issue Mudarabah structure

Put and Call Options SABIC US$8000m 20 year Sukuk issue with 5 year put The Investment Dar US$150m Musharaka Sukuk due 2011

Put and call options at the end of year 3

Co-ownership structure Sharjah Islamic Bank US$225m Sukuk Certificates due 2011

Co-ownership structure utilising assets in SIB’s Islamic portfolio

MTN Programmes Sa’ad Group US$5bn programme Others soon to follow…

Securitisation First significant issues awaited…


Page 8 21 June 2007

Expansion & Innovation: Wide Appeal of Sukuk Issues

Sukuk issues consistently appeal to both Islamic and conventional investors:

Issue Launch Spread

Bookrunners’ Comments

Dubai Civil Aviation

US$ 1bn, 5 yr Sukuk,(Dec 2004)

45bp “27% distribution outside of the Middle East”“Islamic money represented slightly in excess of 30% of the book”

IDB Trust Services, US$ 500mn(June 2005)

14.3bp “more than 90% of the accounts … were conventional buyers”“Asia 35%, Europe 26%, the Middle East 32%”“Banks took 43%, central banks 23%, corporates 12%, agencies 10%, insurance 2%”

Sharjah Islamic BankUS$225m(October 2006)

65bp “the first rated Sukuk by a bank”“25 accounts participated…with Middle Eastern investors taking 58% of the paper, Europeans 34% and Asian investors 8%” “Banks bought 84% of the deal and funds 16%”

Source: DEALOGIC Bondware


Page 9 21 June 2007

Expansion & Innovation: Secondary Market Sukuk secondary market activity – still very limited: Over 100 Sukuk issues listed on Bloomberg (SUKU) –only a small minority

are priced Very few secondary trades Primary market still to gain critical mass Islamic investors on a “learning curve” too

Source: SUKU pages Bloomberg


Page 10 21 June 2007

Expansion and Innovation

Global spread: Islamic finance is spreading beyond the GCC and South-East Asia:

Germany August 2004: Anhalt-Saxony €100m Sukuk

Kazakhstan March 2005: US$50m commodity murabaha for Bank TuranAlem

Turkey October and December 2005: US$50m commodity murabaha for TSKB and US$44m “true” murabaha for FFK Fon Leasing**

USA June 2006: US$165m Sukuk for East Cameron Partners (Texas)

Japan August 2006: JBIC US$300-500m Sukuk issue announced and still “under investigation”

China September 2006: US$250m Sukuk announced to finance a Chinese power project

UK April 2007: Government to review feasibility of Sukuk issue

UK May 2007: £225m Islamic LBO for Aston Martin acquisition from Ford Motor Company by The Investment Dar and consortium**

** Sole arranger: WestLB



Islamic Finance – Focus on the UK UK initiatives:

Labour Government: "long-term ambition to make Britain the gateway to Islamic finance and trade“ Aiming to make the City of London one of the world‘s leading centres for Islamic

finance

Retail focus in the UK: "Islam is Britain's second-largest faith, and Muslims are involved in every walk of British life“ Islamic Bank of Britain

Wholesale Islamic banking in the UK: "Islam is Britain's second-largest faith, and Muslims are involved in every walk of British life“ European Islamic Investment Bank Bank of London and the Middle East Further licence applications with the FSA

Legislation to facilitate the offering of Islamic finance products in the UK: “Alternative financing arrangements” Initial retail focus Finance Act 2005: ijara structures extended to commercial property Finance Act 2006: wakala and diminishing musharaka

Finance Bill 2007 for Sukuk issues to be treated for tax purposes as conventional issues

UK Sovereign Sukuk Issue: feasibility study announced in April 2007



“The name’s Bond….Islamic Bond”



Aston Martin: first fully Sharia-compliant LBO in the UK

WestLB is Mandated Lead Arranger, Underwriter and Bookrunner

Joint Mandated Lead Arrangers:

• Bahrain Islamic Bank

• EIIB

• Standard Bank

£225m Islamic facilities:

£200m term

£25m revolver



Aston Martin - Day 1: Commodity Murabaha Structure

1. Participations

4. Metals

Investment Agent

(WestLB)

Participants

MetalsSupplier

2. Metals

3. Spot payment

Bidco

5. Metals

6. Spot payment

MetalsBuyer

7. Deferred payment

Aston Martin transaction:

MLA, Underwriter and Bookrunner: WestLB

Murabaha Agreement between Bidco and WestLB as Investment Agent

Mudaraba Agreement between WestLB and the syndicate banks

Two tranche structure: £200m term facility £25m revolving facility

8 year final maturity, 5 year put option

Profit rate 3 or 6 month LIBOR + 295bp



Aston Martin - long-term structure: Musharaka1. Facility commitments

2. AML identifies Asset Pool to contribute to Musharaka

3. Purchase price for interest in Asset Pool

4. IA and AML co-own assets

5. Balance of cash to Musharaka to apply to the co-owned assets

6. Co-owned assets transferred to Musharaka

7. IA leases its interest in its proportion of the co-owned assets back to AML

8. Purchase undertaking – exerciseable on event of default

9. AML appointed as manager of Musharaka

Participants

Aston Martin Lagonda

Investment Agent

Musharaka JV(managed by Aston

Martin Lagonda)

Co- owned Assets

Asset Pool

Co-ownership interests

1. £

3. £

2. £

LeaseAgreeme

nt

PurchaseUndertakin

g

Management Agreement

WORK IN PROGRESS



Issuer DAAR International Sukuk Company (a limited liability company incorporated in the Cayman Islands)

Guarantor Dar Al-Arkan Real Estate Development Company (DAAR)

Issue US$600,000,000 Trust Certificates due 2010

Maturity 3 years, bullet

Floating Rate 3-month US$ LIBOR

Coupon US$ LIBOR plus 200bp

Issue Type Sukuk al-Ijara

Joint Lead Managers and Joint Bookruners

ABC Islamic Bank (E.C.); Arab National Bank; Standard Bank Plc; Unicorn Investment Bank, B.S.C. (c); and WestLB AG, London Branch

Saudi Arabia - First Off-Shore Sukuk



Dar Al Arkan US$600m Sukuk Al Ijara

Sale Proceeds

(US$)

Sale of Real Estate Assets

Issue Proceeds

(US$)

Guarantee

3 Year Lease

Lease Payments

On-shoreOffshore

Certificates

Payment for Real Estate Rights (US$)

Transfer of Real Estate

Rights

SAUDI SPV

DAARISSUER(DAAR International Sukuk Co.)

SUKUK HOLDERS



Stimulants for Continued Growth

Expansion of Islamic banking system – eg, in the GCC and UK

GCC funding needs Infrastructure requirements/real estate Corporate “Islamicisation”: listed companies and family companies

Europe Event-driven financing Continued FDI

Asia: widening interest following Malaysia’s lead (Singapore, Japan, Indonesia, Thailand)

Developing harmonisation/standardisation Central Bank of Bahrain AAOIFI Islamic Financial Services Board

Gaps in the market Islamic Sukuk/Mudarabah funds Securitisation



WestLB Contacts

Islamic Finance – Origination & Structuring

David McCaig Telephone (+44) 20 7020 7532Head of Emerging Markets Fax (+44) 20 7020 7530Managing Director e-mail [email protected]

David Testa Telephone (+44) 20 7020 3622Head of Islamic Finance Fax (+44) 20 7020 7530Executive Director e-mail [email protected]

Mobile (+44) 7770 435 312

Walid Sarieddine Telephone (+ 44) 20 7020 7533 Director Fax (+ 44) 20 7020 7530

e-mail [email protected] Mobile (+44) 7769 670 660

Sami Neffati Telephone (+ 44) 20 7020 7523 Manager Fax (+ 44) 20 7020 7530

e-mail [email protected] (+44) 7825 420 765

Economy & Finance

Cross-Border Sukuk Issues