Sukuk : A Viable Funding Option

HIGH-LEVEL WORKSHOP ON SUKUK

Moscow, Russia

15-17 December 2014

Presented by:
Arshad Ismail

Strictly Private & Confidential

CONTENT

SECTION

1. INTRODUCTION TO ISLAMIC CAPITAL MARKETS

2. SUKUK
PART I : OVERVIEW
PART II : DEVELOPING THE SUKUK MARKET
PART III : STRUCTURING ANALYSIS
PART IV : COMMON SUKUK STRUCTURES
PART V : GLOBAL MARKET TRENDS
PART VI : MALAYSIA AS CROSS BORDER SUKUK MARKETPLACE
3. SELECTED SUKUK TRANSACTION HIGHLIGHTS

2 2
Introduction to Islamic Capital Markets
What are Islamic Capital Markets?
Shariah essentially allows all economic activities unless clearly prohibited

Islamic Capital Markets operate in line with Shariah principles. Shariah is basically
Islamic law that is derived primarily from the Quran and Sunnah.
Shariah essentially allows all economic activities unless there is a clear prohibition. The
prohibited activities include:-

Gambling and Manufacture or sale

Financial services
gaming which are of non-halal
based on riba
not permitted by prohibited
(interest)
Shariah commodities

Entertainment Stock-broking or
Conventional activities which are share trading in
insurance not permitted by securities not
Shariah approved by Shariah

The legal relationships in Islamic finance are NOT about LENDING and BORROWING
but instead about trade and/or equity participation including SALE, PURCHASE,
LEASE, CONSTRUCTION, INVESTMENT, AGENCY and PARTNERSHIP.
4
What are Shariah Principles?
Shariah principles form the basis of Shariah-compliant financial transactions

Various products are available in the Islamic Capital Markets including Shariah-compliant
equities, Sukuk, unit trusts, Shariah indices, exchange traded funds and crude palm oil
futures contracts.

The products can be structured based on one or more Shariah principles:

LEASE CONTRACT AGENCY CONTRACT

WAKALAH BIL
IJARAH
ISTITHMAR
(Leasing)
(Investment Agency)

PARTNERSHIP CONTRACTS SALE AND PURCHASE CONTRACTS

MUDHARABAH MUSHARAKAH MURABAHAH ISTISNA

(Profit-Sharing) (Joint Ventures) (Cost Plus Sale) (Purchase Order)

5
Sukuk
PART I : OVERVIEW
What are Sukuk?
Bonds are financial obligations arising from conventional borrowing and
lending, whereas Sukuk represent ownership/interest in an asset

Sukuk have various definitions depending on jurisdiction including:

A document or certificate which represents the value of an asset. Securities Commission
Malaysia
An Islamic investment certificate which represents an undivided beneficial ownership of an
underlying assetwhich grants investors a share of an asset along with the cash flows and risk
commensurate with such ownership. Accounting and Auditing Organization for Islamic Financial
Institutions (AAOIFI)
Regardless of the jurisdiction or technical definition, the concept of Sukuk is universal and differs from
a conventional bond in the following respects:

Features Sukuk Conventional Bonds

Issuer Issuers principal activities or the use No restriction
of proceeds must not contradict
Shariah
Approvals Must be approved by the relevant Must be approved by the relevant
regulatory body and Shariah Adviser. regulatory body
In certain jurisdictions, together
with the Shariah regulatory body
Form Based on trade transaction, Based on model of borrowing/lending
represented by sale, lease, investment
or joint venture contracts

7
 What are Sukuk? (Contd)

Features Sukuk Conventional Bonds

Utilisation of Should not contradict Shariah No restriction
Proceeds
Asset Yes Typically no, except for Asset
requirement Backed Securities and secured
transactions
Security Can be structured as clean or secured
Credit Can be included as features of both instruments
Enhancement /
Ring-fencing
Use of Special Required under selected structures to Typically not required except for
Purpose Vehicle facilitate the underlying Shariah contracts and Asset Backed Securities
(SPV) as issuing target investors transactions when bankruptcy
conduit remoteness is required
Exposure to Sukuk enjoy a wider investor base from both Conventional bonds are not
Bigger Market sets of investors Islamic & conventional, acceptable to Islamic investors. As
thereby maximizing demand for the securities such, limited exposure to
conventional investors only
Sukuk may also lead to better
profiling/exposure for issuers and enhance
their credit profile in new markets

8
What are Sukuk? (Contd)

Features Sukuk Conventional Bonds

Programme/ Lead Manager/Lead Arranger fees are similar No additional Shariah Advisory Fee
Issuance Cost to conventional bonds transactions
Documentation costs could be marginally
higher
Shariah Advisory fee
Documentation In addition to the common issue documents, Common issue documents such as
additional documents to evidence the Islamic Programme Agreement/ Facility
transactions Agreement, Subscription
Agreement, etc
Tax Incentives Tax deductibility on issuance expenses for No tax incentives on issuance
(in Malaysia) selected structures: Ijarah and Wakalah expenses

Risk Both conventional bonds and Sukuk are exposed to credit risk and market risk

9
Why Sukuk?
Key Advantages of Issuing Sukuk

To tap into a new and wider investor base (Islamic and conventional funds)

Potential pricing competitiveness vis-a-vis conventional bonds

Diversification of investors

Alternative source of funding - Provides issuers option to tap a new funding source
(in addition to the bank market and conventional fixed income investors)

Tax Incentive in Malaysia Tax deductibility on issuance expenses for selected

structures

10
Sukuk
PART II : DEVELOPING THE SUKUK MARKET
Developing the Sukuk Market
Making Islamic Capital Markets effective, efficient and conducive

Depending on a countrys existing regulations on capital market transactions and its legal and tax
framework, the development of Sukuk in a new market would typically involve the following:
Policy
What should be done?
Principles
Sukuk structures typically involve purchase or lease of, or investment into,
underlying assets which may attract tax and/or stamp duties, depending on the
jurisdiction
Regulators have to look at the economic substance of the Islamic financial
Creating a transactions and make the necessary amendments to the tax legislation in order
"level playing to ensure Sukuk will be at par with bonds
field"
Drawing on the Malaysian experience, all taxes, levies and duties that would
otherwise be payable on the underlying transactions have been neutralised.
Thereby placing Sukuk on a level paying field vis--vis bonds
Also, profits/returns payable under Sukuk are treated similar to interest for tax
purposes.
In Malaysia, the Shariah Advisory Council of Securities Commission Malaysia acts as
the sole authoritative body to advise on Shariah matters pertaining to Islamic
capital market products
Regulation for
Shariah Alternatively, other jurisdictions including United Kingdom and Hong Kong have
Advisory taken the approach to be guided by the resolutions of Shariah advisor(s)
appointed for the respective Sukuk transactions
Developing the Sukuk Market (Contd)
Making Islamic Capital Markets effective, efficient and conducive

Policy
What should be done?
Principles
The Islamic Finance industry is still growing and evolving, as such the regulatory
Evolving framework in Malaysia does not encompass all known Islamic structures in the
Regulatory industry. Securities Commission Malaysia provides the flexibility to new Shariah
Landscape structures which may not be covered under current regulations

Broadening the local investors base is fundamental to create demand in

Broadening the investment into local Sukuk issuances by the government, government linked
Investor Base agencies, state owned enterprises and corporate

In order to encourage growth of the Sukuk market in Malaysia, the government

Incentives to introduced incentives such as tax deduction/exemptions to issuers/investors in
Encourage order to boost issuance of/investment in Sukuk e.g. no withholding tax for
Growth of the
Market profit/coupon for non-resident investors under Malaysias Income Tax Act
Sukuk
PART III : STRUCTURING ANALYSIS
Structuring Sukuk
Typical Terms and Conditions of a Reg S USD Sukuk Transaction

Parameters Example

Issuer Typically, a special purpose vehicle

Facility Trust Certificates Programme

Islamic Structure Including Musharakah, Ijarah, Wakalah or such other structure as advised by the Shariah Adviser

Rating Ratings issued by international rating agencies namely, S&Ps, Moodys and Fitch

Capital expenditure, general corporate purposes and working capital, all for purposes which do not
Utilisation of Proceeds contradict Shariah

Bought deal/Private Placement/Bookbuilding. International Sukuk transactions (Reg S/Rule 144A) are
Mode of Issue typically issued via bookbuilding

Standard bond documentation conditions precedent including execution of legal documentation, regulatory
Conditions Precedent approvals, and statutory documents

Standard bond documentation representations and warranties including the issuer having the capacity to
Representations and Warranties enter into the transactions, the issuer being in compliance with applicable laws and regulations, and not
being in breach of the Transaction Documents

Events of Default Including a default in payment obligations and a breach of any conditions of the Transaction Documents

Perform certain obligations including complying with all terms and conditions under the Transaction
Positive Covenants Documents, and with all applicable laws and regulations

Not do certain things e.g. amending its statutory documents which would be inconsistent with the
Negative Covenants Transaction Documents, reducing its issued and paid-up capital, and pledge or secure assets after the
securities have been issued

Information Covenants Including submission of audited accounts

Transaction Documents Including but not limited to the Programme Agreement, Trust Deed and other asset related documents

Governing Law English Law. Asset related documents are typically governed by local law

15
 Structuring Sukuk
Execution process: Typical timeline is approximately 12 - 16 weeks
Weeks
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Financial/Legal/ Appointment of Parties
A
Technical Due Legal, financial & technical
Diligence due diligence

B Cashflow Preparation & review of

Preparation & cashflow projections
Review

Engaging with relevant

C Ratings Process rating agencies

Shariah approval on T&Cs

D Shariah Review &
Shariah approval on
Approval
documentation

E Regulatory Submissions to regulatory

Approval authorities

F Programme Agreement,
Documentation Trust Deed & asset related
documents

Prepare marketing material

G Marketing &
Marketing of offering,
Distribution
including roadshow
Launch
Final OC & Listing
H Issuance Compliance with CPs
Settlement

16
 Structuring Sukuk
Indicative Fees and Expenses for Reg S USD Sukuk Transactions
Indicative Upfront Fees Indicative Amount (USD)
Arranger/Manager/Bookrunners Fees Depending on credit of the issuer
Legal Fees
International Legal Counsel Issuer 175,000 220,000
International Legal Counsel Arranger 150,000 170,000
Domestic Legal Counsel Issuer Depending on the jurisdictions
Domestic Legal Counsel Arranger Depending on the jurisdictions
Reporting Accountant Fee 150,000 200,000
Shariah Advisory Fee 25,000
Listing Agent Fee 10,000
Fiscal Agent Fee 30,000
SPVs Establishment Expenses Depending on the jurisdictions
Miscellaneous (e.g. out-of-pocket expenses) 30,000
TOTAL (USD) 690,000 845,000
(excluding Arranger/Manager/Bookrunners Fees, Regulatory Fees*
and Rating Fees**)
*if applicable
**Corporate rating flat fee of USD 70,000 and issuance rating of 0.05% to 0.07% of issuance size or USD 50,000, whichever is
higher.
Indicative Annual Recurring Fees Indicative Amount (USD)
Fiscal Agent Fee 30,000
Rating Surveillance Fee 60,000
SPV Corporate Services Expenses Depending on the jurisdictions
TOTAL (USD)
Note: For programme size of up to USD1.0 billion in nominal value (or its equivalent in any other currencies)
90,000
17
 Structuring Sukuk
Indicative Fees and Expenses for MYR Bonds and Sukuk
Conventional Bonds Sukuk
Indicative Upfront Fees
Indicative Amount (MYR) Indicative Amount (MYR)
130,000 180,000 200,000 250,000
Legal Counsel Fee (Arranger)
Reporting Accountant Fee (if applicable) 100,000 150,000 100,000 150,000
Securities Commission Fee 51,000 51,000
Rating Fee 600,000 600,000
Shariah Advisory Fee N/A 75,000
Trustee Fee 10,000 10,000
Agency Fee 75,000 75,000
BNM Depository Fees 30,000 30,000
FAST Charges & RENTAS Annual Fees 1,400 1,400
Miscellaneous (e.g. out-of-pocket expenses) 30,000 30,000
TOTAL (MYR)
(excluding Arranger/Manager/Bookbuilding 1,027,400 - 1,127,400 1,172,400 1,272,400
Fees*)

Indicative Annual Recurring Fees Indicative Amount (MYR)

Agency Fees 75,000 75,000
Rating Surveillance Fees 400,000 400,000
Trustee 50,000 50,000
RENTAS Annual Fees 4,000 4,000
TOTAL (MYR)
529,000 529,000

Note: For Islamic MTN programme size of up to MYR1.0 billion in nominal value, 1 st issue in 2tranches
18
Structuring Sukuk
Modes of Issuance

The issuance of Sukuk is managed by the lead managers via the following modes:

Bookbuilding

Modes
of
Private
Issuance
Placement
Bought Deal

19
Structuring Sukuk
Bookbuilding Typical Global Roadshow Destinations for Reg S USD Sukuk
transactions

Marketing typically includes a deal roadshow to generate higher interest amongst

investors

The roadshow would usually cover key financial centres in Switzerland, Germany, South
Korea, Hong Kong, Singapore, Kuala Lumpur, Abu Dhabi, Dubai, Riyadh, Bahrain and
London, among others. It would enable issuers to engage potential key/anchor investors
for the offering

Proposed Roadshow Locations Roadshow Schedule Illustration

Location Duration Format
1-1
London Kuala Lumpur 1 day Meetings/Group
Presentation
Middle East 1-1
Hong Kong Singapore 1 day Meetings/Group
Presentation
Kuala Lumpur
Hong 1-1
Kong/South 2 days Meetings/Group
Singapore Korea Presentation
Middle East
1-1
(Abu Dhabi /
3 days Meetings/Group
Dubai / Riyadh /
Presentation
Bahrain)
1-1
Europe 2 days Meetings/Group
Presentation
20
Common Islamic Structures for Sukuk Issuances
Proposed Islamic structures depend on the issuers nature of business and the
availability of tangible assets, amongst other considerations

Murabahah Wakalah Ijarah

(Cost Plus Mark up Sale) (Agency) (Lease)

Contract for a sale and Investment agency contract
purchase of asset(s) whereby a party authorises
Cost and profit margins another party to act on behalf
are made known of the former based on the
upfront and agreed by agreed terms and conditions
parties involved Government of Malaysia
Description issued the first sovereign USD
Sukuk structured under the
Shariah principle of Wakala in
2011
Lease-based contract whereby a
lessor (asset owner) leases out an
asset to a lessee at an agreed
lease rental for a predetermined
lease period. The ownership of
the leased asset shall always
remain with the lessor
Most common and popular Islamic
structure for issuers globally,
either on sale-and-leaseback or
head-lease and sub-lease basis

Commonly adopted by Commonly adopted by Commonly adopted by companies

companies which are companies which are asset which have sufficient fixed assets
Nature of asset light or light or restrictions on to allocate for the proposed
Issuers restrictions on transfer transfer of tangible assets issuance as the underlying assets
Business of tangible assets will be locked up to maturity of
the Sukuk

Issuing International Sukuk typically involves setting up of a special purpose vehicle as the issuing entity,
Entity whereas in Malaysia, the fundraising entity itself also assume the role of the issuer.

21
Common Islamic Structures for Sukuk Issuances
Proposed Islamic structures depend on the issuers nature of business and the
availability of tangible assets, amongst other considerations
Murabahah Wakalah Ijarah
(Cost Plus Mark-up Sale) (Agency) (Lease)
Low Dependence on Issuers Tangible Assets High

Tangible asset is Required, subject to minimum Leasable asset required to

required, but not of 51% of the value of the match 100% of the issuance size
Underlying Issuers own assets assets portfolio Legal title of asset typically
Assets Typically involves use of remains with the original
commodity(ies) registered owner. Investors as
purchased from, and beneficial owner of the assets
sold to commodity
brokers
Gaining prominence in Acceptable to the majority of Most common and popular
the Malaysian sukuk global Shariah scholars. Islamic structure for both
market. issuers and investors globally
Marketability Tradability restriction including GCC (Gulf
for certain investors as Cooperation Council)
the Sukuk represent
debt/receivables
Cagamas Berhad Qatar Islamic Bank Government of Turkey (2013,
(2013)(RM) (2013)(USD) 2012)(USD)
Golden Assets Islamic Development Bank Government of Indonesia
Notable International Finance (2012, 2011)(USD) (2013, 2012)(USD)
Issuances (2012)(RM) Government of Malaysia Government of Dubai (2013,
TH Plantations (2011)(USD) 2012)(USD)
(2012)(RM) Kuveyt Turk (2014)(USD) Government of Qatar
(2012)(USD)
22
Sukuk
PART IV : COMMON SUKUK STRUCTURES
Sukuk Ijarah (Lease)

2 Purchase Assets

2 Asset Purchase Price

Declare
Trust &
Issue
Sukuk Sukukholders
Company Ijarah
3 SPV 1
(Lessee/ Obligor/ Lease Assets
Servicing Agent) (Trustee)
4 1
Purchase Undertaking
Proceeds

5 Rental

5 Servicing Agency Agreement

6 Sale Agreement

6
Exercise Price

2424
Sukuk Ijarah (Lease)
Case Study: Government of UK GBP200million Certificates

This structure diagram was extracted from the prospectus dated 30 June 2014

2525
Sukuk Wakalah (Agency)

Tangible > 51% Commodities < 49%

Company
Company
(Wakeel/Original Commodity
(Purchaser)
Owner/Lessee/ Obligor) 5(iv) Buyer
Leases 3
Assets Sale of
commodities
8
1(a) 2 5(i) 5(iii) on spot
Exercise Purchase Bursa Suq
Appoint as Assets sale of commodities Al-Sila
Price Order at Sale Price
Substitution Wakeel
Undertaking
4 Commodity
SPV Suppliers
(Trustee) 5(ii) Purchase of
commodities
on spot
Issuer
6
8 1(b) 1(b) 7
Purchase
Undertaking Exercise Issue Sukuk Periodic
Price Sukuk proceeds Distributions
Sukukholders

26
Sukuk Wakalah (Agency)
Case Study: Government of Malaysia USD2,000million Certificates

This structure diagram was extracted from the prospectus dated 28 June 2011.

27
 Sukuk Wakalah (Agency)
Case Study: Exim Sukuk Malaysia Berhads USD1.0 billion Multi-Currency Sukuk
Issuance Programme
Islamic Structure Challenges and Highlights Structure and Diagram of Cashflows
MEXIMs Sukuk issuance was designed to raise Islamic
funding to build MEXIMs Islamic banking and finance
business. Sukukholders
MEXIMs Sukuk were widely marketed to Middle Eastern MEXIM (Wakeel) Cash
Movements
based investors to promote and develop Malaysias global
Non-Cash
Sukuk market. Sukuk Issue Periodic Distribution
Movements
Proceeds Amount and Distribution Wakalah Incentive Fee
Amount Agreement
Majority of Middle Eastern based investors only permit
Sukuk with asset based Sukuk structures such as Ijarah,
Musharakah, Mudarabah and Wakalah to be tradable.
EXIM Sukuk Malaysia Berhad
The following challenges were faced when structuring (Issuer, Trustee and Purchaser and Seller of Tangible and Non-Tangible Assets)
MEXIMs Sukuk:

Islamic investors tradability requirements, requiring

asset based Sukuk (backed by tangible assets); and Cost price of Purchase of Deferred Sale
Sale of
purchase of Price
Commodities Commodities
Purchase of Sale of commodities
MEXIMs lack of tangible assets to provide for its Tangible Assets Purchase Exercise
Tangible Assets
Price
Sukuk given that it is a conventional bank. and Non-
Tangible Assets
Price and Non-
Tangible Assets

The Wakalah structure (as illustrated on the right)

conceived for this exercise addressed the key issues Substitution Bursa Malaysia
faced by MEXIM with the following: Undertaking Islamic
Agreement
Services
MEXIM
MEXIM will only require to source/identify tangible Sdn Bhd
(Obligor)
assets of 34% of the Sukuk issuance proceeds;

The tangible asset component can first be sourced Sale of Proceeds from
externally and gradually substituted with MEXIMs Commodities Sale Price

growing Islamic banking assets business through a MEXIM

substitution undertaking agreement; and (Purchaser and Seller of Tangible Assets)
Bursa Suq Al-Sila
The intangible asset component of the Wakalah
portfolio (Commodity Murabahah) supports the Intangible Asset (Commodity
Tangible Asset
remaining portion of Wakalah portfolio to reduce the
(>34% outstanding Sukuk proceeds at all times)
Murabahah) (<66% outstanding Sukuk
required tangible assets. proceeds at all times)
This structure diagram was extracted from the prospectus dated 27 September 2013.
28
Sukuk Murabahah (Cost Plus Mark-up Sale)

Sukuk Proceeds
4 Sale of Commodities on spot
6
Issue Sukuk Company
4 (as Purchaser/ 6
Issuer) Selling Price =
Sukuk
Proceeds
Sukukholders Commodity
represented Buyer
by Trustee Sale of
Commodities
2 Commodity Bursa Suq
5
Trading Al-Sila
Purchase Order with
7 Participant
Undertaking to
(CTP)
Sale Price = Purchase
Purchase Price + profit
margin Commodity
Suppliers
Purchase Price =
Company as Sukuk Proceeds
Purchase
1 Agent on 3
behalf of
Agency Agreement 3
Sukukholders
Purchase Commodities on spot

2929
Sukuk
PART V : GLOBAL MARKET TRENDS
 Global Sukuk Market Current State

International Bonds International Sukuk

(Conventional & Sukuk) (including Ringgit Sukuk)
USD Bil Total Amount Issued (USD Bil) Number of Issues USD Bil Total Amount Issued (USD Bil) Number of Issues
5,000 14,000 50
USD 37 bln 450
46.45
4,500
4,295.0
USD 3,082 bln 45 43.03 400
12,000
4,000 3,823.1 40
3,545.4 3,643.8 36.69 36.84 350
3,494.5
3,500 10,000
35
3,082.0 300
3,000
8,000 30
250
2,500
25
6,000 200
2,000 18.76
20
16.00
1,500 4,000 150
15
1,000 100
2,000 10
500
5 50
- 0
2009 2010 2011 2012 2013 3Q 2014 - 0
2009 2010 2011 2012 2013 3Q 2014

The international Sukuk market is relatively small compared to the global debt
market.
However, the Sukuk market has experienced exponential growth as evidenced by an
aggregate outstanding amount of USD257.6 billion1 as at 3Q 2014.

Source: Bloomberg International bonds market vs global Islamic bonds market (excluding securities with maturities equal to or less than 12 months) 31
31
1. Excluding government short term securities
Global Sukuk Market Current State

Government and financial sectors dominated the primary global Sukuk market in
2014.

0.7% 0.6%
3.6% 1.2% 0.2% 0.2% Government
4.1% 38.5% Financial
14.7% Utilities
Industrials
Materials
Communications
Health Care
Consumer Staples
Consumer Discretionary
36.2% Energy

Source: Bloomberg (based on total issuance amount of USD57.98billion)(as at 3Q 2014) 32

1. Excluding government short term securities
 Trends in the Global Sukuk Market

The year 2014 has been a ground-breaking year in the Islamic capital markets as we witness
non-Muslim majority global financial centres tap the global Sukuk market for their sovereign
funding needs:
July 2014: UK became the first country outside of the Muslim majority nations to issue
Sukuk. The 200 million (USD343 million) issue with maturity of 5 years, priced at
2.036%, was 11.5 times oversubscribed attracting orders of more than 2 billion from
global investors
September 2014: The Hong Kong government's USD1 billion five-year Sukuk, priced at
2.005%, were oversubscribed 4.7 times with orders of US$4.7 billion
September 2014: South Africa, the third non-Muslim majority country to issue sovereign
Sukuk, issued USD500 million Sukuk which were more than four times oversubscribed,
with an order book of $2.2 billion. The Sukuk, with maturity of 5 years and 9 months,
were priced at 3.90% with a spread of 180 b.p. above the corresponding mid-swap
benchmark rate
October 2014: Luxembourg issued its debut 200 million (USD253 million) five-year
Sukuk, with an order book that was more than two times oversubscribed. The AAA-rated
sovereign Sukuk were priced at a profit rate of 0.436%
Other non-Muslim majority countries including Australia and Thailand have also expressed
interest to tap the global Sukuk Market.

33
Pricing Analysis Government of UK

2.5
The UK Sukuks yield move in
tandem with the conventional
2
UK Gilt

1.5
The market data shows that
UK 1 3/4 there are more demand for the
1 UK Sukuk
UK Sukuk in the secondary
market compared to the
conventional UK Gilt, given that
0.5
the UK Sukuk is priced higher
than the conventional UK Gilt
0
1-Jul-14 1-Aug-14 1-Sep-14 1-Oct-14 1-Nov-14 1-Dec-14

Amount Remaining Yield to

Coupon Maturity Islamic
Issuer Outstanding Issue Date Tenure Maturit Price
(%) Date Structure
(GBP mil) (years) y (%)
United Kingdom Gilt
(1% TREASURY GILT
30,212.43 1.75 22 Nov 2013 22 July 2019 4.62 1.345 101.81 N/A
2019 )

Ijarah (Head
HM Treasury UK
200.00 2.036 2 July 2014 22 July 2019 4.62 1.304 103.27 Lease and Sub
Sovereign Sukuk Plc
Lease)

Source: Bloomberg Historical Prices (as of 8 Dec) 34

Snapshot of the Global Sukuk Market
Malaysia continues to lead the world in sukuk, with over 63% market share in
2Q14
Global Sukuk Issuance Yearly Comparison Global Sukuk Issues 2Q14 vs. 2Q13 Global Sukuk Issues by Size & No of Deals

USD mil USD mil

Other MENA USD mil Capital Raised # of Deals
80,000 15,000 100
40,000 Others MENA
90
35,000 80
60,000
30,000 70
25,000 60
54,797 50,821
40,000 20,000 25,177 10,000 50
44,759 21,348
15,000
40
33,054
12,738 12,210
30
20,000 10,000
8,881 20
14,283 14,621 16,454 5,000 8,434 8,653 10
13,212
0 0 5,000 0
2011 2012 2013 2014 2Q13 2Q14 Apr-14 May-14 Jun-14

Global Sukuk Trends by Quarter Global Sukuk Issues by Sector in 2Q14 Global Sukuk Issues by Issuer Type (in USD mil)
USD mil MENA Global Agriculture 13
Quasi
40,000 36,224 Conglomerates 63
33,115 Transport 78
Sovereign
35,000 29,782 Services 107 2,812
30,000 Retail 141 8%
23,459 Healthcare 172
25,000 Oil and Gas 320
Corporate
20,000 Telecommunications 640 10,944 Sovereign
Construction 1,339 33% 20,074
15,000 10,481
8,434 Real Estate 2,319 59%
7,800
10,000 Power and Utilities 2,688
Financial Services 6,376
5,000 1,345
Gov't Institutions 19,574
0
0 5,000 10,000 15,000 20,000 25,000
2Q13 3Q13 4Q13 1Q14 USD mil USD mil

Global Sukuk Issues by Country in 2Q14 Global Sukuk Issues by Currency in 2Q14 Global Sukuk Issues by Structure in 2Q14
Gambia 3 GMD 3 BAIEINAH 94
Luxembourg 40 BND 161 Al Salaam 194
Brunei 161 Wakala-Murabaha 350
BHD 350
Bahrain 350 Modarabah 500
Indonesia 430 IDR 429
Musharakah 913
Pakistan 502 PKR 502 Modarabah-Murabaha 2,053
Turkey 1,601 SAR 2,053 Wakala 3,040
UAE 3,350
Bai Bithaman Ajil 3,324
USD 8,990
Saudi Arabia 4,953
MYR
Ijarah 7,070
Malaysia 22,440
Murabaha 16,479
0 5,000 10,000 15,000 20,000 25,000 0 5,000 10,000 15,000 20,000
0 5,000 10,000 15,000 20,000
USD mil USD mil
USD mil
Source: Zawya 2Q14 Report
Sukuk
PART VI : MALAYSIA AS CROSS BORDER SUKUK MARKETPLACE
 Malaysia : Cross Border Sukuk Marketplace
Malaysia has seen a number of cross-border MYR Sukuk transactions
including issuers from neighbouring countries

Last
Amount Maturit Coupon
Issue Issuer Country Industry Obligor Rating
Issued (MYR) y (%)
Date
Golden Assets Golden Assets
5/8/2014 International Singapore Financials 375,000,000.00 AA2s 5Y 5.35
International Finance
Finance Ltd
TF Varlik Kiralama Turkiye Finans Katilim
30/6/2014 Turkey Financials 800,000,000.00 AA3 5Y 6.00
Anonim Sirketi Bankasi AS
Consumer Bumitama Agri Ltd
18/3/2014 Bumitama Agri Ltd Indonesia 500,000,000.00 AA3 5Y 5.25
Staples
Consumer Al Bayan Group Holding
8/11/2013 ABHC Sukuk Bhd Saudi Arabia 120,000,000.00 AA3s 1Y 4.2
Discretionary Company
Tadamun Services Islamic Development
31/7/2013 Supranational Financials 300,000,000.00 AAA 5Y 3.6
Bhd Bank
Consumer First Resources Ltd
6/6/2013 First Resources Ltd Singapore 600,000,000.00 AA2 7Y 4.35
Staples
Bahrain Bahrain Mumtalakat
30/4/2013 Mumtalakat Bahrain Financials 150,000,000.00 AA2 5Y 5.35
Holding Co BSC
Holding Co BSC
31/1/2013 Noble Group Ltd Hong Kong Energy 300,000,000.00 Noble Group Ltd AA2 3Y 4.3
National Bank of National Bank of Abu
10/12/2012 Arab Emirates Financials 500,000,000.00 AAA 15Y 4.75
Abu Dhabi PJSC Dhabi PJSC
Development Bank Development Bank of
3/8/2012 Kazakhstan Financials 240,000,000.00 AA2 5Y 5.5
of Kazakhstan JSC Kazakhstan JSC
Gulf Investment
18/6/2012 Kuwait Financials 325,000,000.00 Gulf Investment Corp GSC AAA 10Y to 15Y 5.1 to 5.3
Corp GSC
Abu Dhabi National Abu Dhabi Water &
5/3/2012 Arab Emirates Utilities 650,000,000.00 AA1 10Y 4.65
Energy Co Electricity Author

37
 Malaysia : Cross Border Sukuk Marketplace
Malaysia has seen a number of cross-border MYR Sukuk transactions
including issuers from neighbouring countries

Country 11 - 15 years
5% 1 - 3 years
10 years
Supranational UAE 10%
12%
Maturity
11% 17% 1 - 3 years
6 - 9 years
5% 4 - 5 years

Singapore 6 - 9 years
33% Bahrain 10 years
4% 11 - 15 years
4 - 5 years
68%
Hong Kong
7%
AA3s
AA3 3%
Indonesia 10% AAA
4% 36% Ratings
AAA

Kuwait AA1
AA2s
13% 21% AA2

Saudi Arabia Kazakhstan AA2s

Turkey
3% 2%
6% AA3
AA2 AA1
25% AA3s
5%

Note: Charts are based on issuances by 12 foreign issuers (MYR 12.72Billion; USD4.04 Billion Equivalent) 38
Source: Bloomberg (as of 26th August 2014)
Malaysia : Cross Border Sukuk Marketplace
Malaysia has seen a number of cross-border MYR Sukuk transactions
including issuers from neighbouring countries
Indicative Rating Mapping Long Term Rating Scale
International Rating Agencies Malaysian Rating Agencies
S&P Moodys Fitch RAM MARC
Investment Grade
AAA Aaa AAA
AA+ Aa1 AA+
AA Aa2 AA
AA- Aa3 AA-
A+ A1 A+
A A2 A Investment Grade
A- A3 A- AAA AAA
BBB+ Baa1 BBB+ AA1 AA+
BBB Baa2 BBB AA2 AA
BBB- Baa3 BBB- AA3 AA-
Speculative Grade A1 A+
BB+ Ba1 BB+ A2 A
BB Ba2 BB A3 A-
BB- Ba3 BB- BBB1 BBB+
B1 B BBB2 BBB
B2 BBB3 BBB-
B3 Speculative Grade
BB1 BB+
BB2 BB
BB3 BB-
B1 B+
B2 B
B3 B-
C1
C2 C
C3
D D
39
Selected Sukuk Transaction Highlights
USD Sovereign Sukuk: Wakala Global Sukuk Berhads USD2.0 billion
Islamic Trust Certificates
First global sovereign USD Sukuk structured under the principle of Wakala
Transaction Overview Transaction Details
June 2011
Wakala Global Sukuk Berhad is a single Issuer Wakala Global Sukuk Berhad
USD2.0 billion
purpose vehicle established by the
Government of Malaysia, owned by the Facility Sukuk
Minister of Finance (Incorporated) and the Series 1: USD1.2 billion
Federal Lands Commissioner, to undertake Size
Series 2: USD0.8 billion
WAKALA GLOBAL SUKUK the proposed Sukuk issuance of up to USD2
billion in nominal value Series 1: 5 years
BERHAD Tenure
Series 2: 10 years
The Wakala Sukuk establishes a new
Joint Malaysian Adviser benchmark in the Islamic capital markets. Series 1: 2.991% (UST + 145 bps)
Coupon
Joint Bookrunner Wakala Global Sukuk offering was Series 2: 4.646% (UST + 165 bps)
Joint Lead Manager structured under the Shariah principle of Maybank KEs Joint Malaysian Adviser, Joint
Wakala Role Bookrunner, Joint Lead Manager
Trust Certificates
Issuance 28 June 2011
Date
Transaction Highlights Distribution Analysis
The establishment of a 10-year benchmark Sukuk reinforces Malaysias position Allocation by geography (%)
as a leading international Islamic financial centre. The Sukuk assets under the
Wakala principle comprise (i) a tangible asset component consisting of Rest of
leasable assets and Shariah-compliant shares; and (ii) a Murabaha receivable Malaysia, Asia, 22%
27%
component arising from a sale of Shariah-compliant commodities Europe
Middle , 14%
The Wakala Global Sukuk represents a number of firsts: East, 29% US, 8%
First global sovereign USD Sukuk for 2011;
First global sovereign USD Sukuk structured under the Shariah principle of Demand breakdown (in USD billion)
Wakala; Maybank
Largest dual-tranche global sovereign USD Sukuk at issue; and Sales
contribution,
First 10-year global sovereign USD Sukuk and lowest absolute yields, 3
achieved by an Asian sovereign for a new USD issuance Others, 6

The deal was significantly oversubscribed by 4.5 times, attracting interest in

excess of USD9.0 billion and was fully distributed to over 320 global investors
41
USD Sovereign Sukuk: Perusahaan Penerbit SBSN Indonesia Is
USD650.0 million Islamic Trust Certificates
The Government of Indonesias first ever sovereign Sukuk issuance
Overview on Issuer Transaction Details
March 2009
USD650 million Perusahaan Penerbit SBSN Indonesia I Perusahaan Penerbit SBSN
Issuer
was established in Indonesia on 21 Indonesia I
October 2008 by the Republic of
Facility Trust Certificates
Indonesia, with its registered office at
the Ministry of Finance of the Size USD650 million
PERUSAHAAN PENERBIT Republic of Indonesia
Tenure 5 years
SBSN INDONESIA I
The issuer is a special purpose vehicle Issue date 4 March 2009
formed solely for the purpose of
International Co-Manager participating in the USD650 million Maturity 4 March 2014
Trust Certificates and is a wholly- Rating Moodys: Ba3; S&P: BB-; Fitch: BB
Trust Certificates owned subsidiary of the Republic of
Indonesia Issue Price 100
Regulatory Format Reg S / 144A
Maybank KEs Role International Co-Manager
Transaction Highlights
On 4 March 2009, the Government of Indonesia via a Perusahaan Penerbit SBSN Indonesia I, a special purpose vehicle, issued
USD650.0 million in Trust Certificates, representing the Government of Indonesias first ever sovereign Sukuk issuance
The Trust Certificates facility received a rating of Ba3 from Moodys, BB- from S&P, and BB from Fitch
The Trust Certificates were listed on SGX-ST in Singapore
As International Co-Manager, Maybank KE assisted the Government of Indonesia to successfully place out the Trust Certificates to
Investors

Amount Issued Amount Outstanding Coupon Islamic Rating

Issuer Format Issue Date Maturity
(USD) (USD) (%) Principle (F/M/S&P)
PERUSAHAAN PENER 144A 650,000,000 650,000,000 8.80 Ijarah 4/23/2009 4/23/2014 BBB-/Ba1/BB+
PERUSAHAAN PENER Reg S 650,000,000 650,000,000 8.80 Ijarah 4/23/2009 4/23/2014 BBB-/Ba1/BB+

42
USD Government-Linked Corporate Sukuk: Sime Darbys Inaugural USD
Sukuk
Diversification of USD funding sources led to its foray in the Reg S Sukuk market
Sime Darbys Funding Requirements Programme and Issuance Salient Terms
January 2013
USD800 million Inline with the Sime Darby Groups global Sime Darby Global Berhad (wholly-
business, Sime Darby required access to foreign Issuer
owned subsidiary of Sime Darby)
currency debt capital market funding.
Facility Multi-Currency Sukuk Programme
Sime Darbys USD funding had traditionally been
dominated by bank borrowings, and Sime Darby Programme
USD1.5 billion in nominal value
wanted to diversify its funding base into the USD Size
SIME DARBY GLOBAL debt capital markets.
Format Reg S
BERHAD
Our Funding Solution Structure Islamic (Ijarah)
Joint Principal Adviser, Joint Lead By establishing a multi-currency sukuk programme Issuance Size 5 years:: USD400 million
Arranger, Joint Lead Manager, (the Multi-Currency Sukuk Programme), Sime and Tenure 10 years: USD400 million
Dealer, Joint Shariah Adviser, Darby can issue sukuk in a host of international
Listing Agent currencies including USD. Programme
and Issuance A/A/A3 by S&P, Fitch and Moodys
Sukuk Sime Darby, one of the largest listed government Ratings
linked-companies in Malaysia would then be able
to make its debut appearance in the international Joint Principal Adviser, Joint Lead
Maybank KEs
Reg S markets and tap new and large investor Arranger, Joint Lead Manager, Dealer,
Role
pools in the Middle East. Listing Agent (Bursa Malaysia)
Transaction Highlights Awards & Recognition
Stronger Rating Than Malaysias Sovereign Rating: programme ratings of A, A and A3
from S&P, Fitch and Moodys respectively and similar ratings for the first issuance Best Deal of the Year Best Islamic Finance
higher than the international sovereign rating of the Government of Malaysia. (Malaysia) 2013 Deal 2013

Successful International Reception: 9-day international roadshow spanning Asia,

Europe and the Middle East saw the participation of over 180 institutional investors. Bank Negara Malaysia
Best Foreign Currency
Bond Deal 2013 Emas Status
Overwhelming Response: despite the heavy supply in the primary USD bond market,
Sime Darby Global was able to attract a very strong order book of more than USD8.0
billion, or an over-subscription rate of over 10 times via 376 orders.

Tight Yields Set New Pricing Benchmarks: (i) lowest ever coupon by any corporate Best Corporate Sukuk
/ New Sukuk 2014
globally in the USD sukuk market (ii) lowest ever USD coupon in a sukuk format by an
Asian issuer (iii) lowest ever coupon by a Malaysian issuer in the USD market, in both
the 5- and 10-year tenures.
 USD Government-Linked Corporate Sukuk: Exim Sukuk Malaysia
Berhads USD1.0 billion Multi-Currency Sukuk Issuance Programme
The worlds first EXIM bank to issue USD sukuk
Transaction Overview Transaction Details
February 2014
USD300 million Issuer EXIM Sukuk Malaysia Berhad
On 19 February 2014, Export-Import Bank
of Malaysia Berhad (MEXIM) issued its Multicurrency Sukuk Issuance
Facility
USD300.0 million, 5-year Reg-S Sukuk Programme
(Sukuk) issuance via EXIM Sukuk Malaysia Programme Size USD1.0 billion
Berhad, pursuant to its USD1.0 billion
EXIM SUKUK MALAYSIA Multicurrency Sukuk Issuance Programme Programme
Perpetual
(the Programme). Tenure
BERHAD
Issuance Size USD300 million
Joint Principal Adviser, The Sukuk is structured under the Shariah
principle of Wakala comprising of a Issuance Tenure 5 years
Joint Lead Arranger, Joint
Lead Manager, Joint tangible asset component; and a Murabaha Issuance Date 19 February 2014
Bookrunner receivable component arising from a sale of
A- by Fitch Ratings and A3 by
Shariah-compliant commodities. Rating
Moody's
Sukuk The issue was accorded credit ratings of A- Mode of Issuance Bookbuilding
by Fitch Ratings and A3 by Moody's, which
are on par with the Malaysian sovereign Joint Principal Adviser, Joint
Maybank KEs Role Lead Arranger, Joint Lead
ratings.
Manager, Joint Bookrunner

Transaction Highlights Distribution Analysis

The worlds first EXIM bank to issue USD sukuk.
The inaugural Sukuk offering was priced at 140 basis points over US Treasuries 16% 19%
(UST), which is equivalent to an all-in yield of 2.874% per annum, which was
tightened from the initial price guidance of 165 basis points over UST. Middle East
The Sukuk was executed intra-day following strong investor demand. The Asia
Sukuk was oversubscribed by approximately 10.6 times, attracting more than Europe
USD3.0 billion orders and was fully distributed to over 185 Islamic and
conventional investors. 65%
 USD Sukuk: IDB Trust Services Limiteds USD1.5 billion Islamic Trust
Certificate Issuance
Strong demand from investors worldwide and aggressive pricing
Transaction Overview Salient Terms
September 2014 The Islamic Development Bank (IsDB) is Issuer IDB Trust Services Limited
USD1.5 billion a supranational developmental bank,
Guarantor The Islamic Development Bank
established in 1975. Owned by 56 member
countries of the Organization of Islamic Facility Trust Certificate Issuance Programme
Cooperation (OIC), the IsDBs primary
objective is to foster the economic Programme Size USD10.0 billion
development and social progress of Issue Size USD1.5 billion in nominal value
member countries and Muslim
communities in non-member countries. Profit Rate 2.11%
IDB TRUST SERVICES
LIMITED Issue Date 25 September 2014
Issued by IDB Trust Services Limited
pursuant to its USD10.0 billion Trust Tenure 5 years
Joint Lead Manager, Joint Certificates Programme, the USD1.5
billion, 5-year issuance is guaranteed by Programme and Issue AAA, AAA, Aaa by S&P, Fitch and
Bookrunner
Ratings Moodys, respectively
the IsDB and rated the highest possible
Islamic Trust Certificates ratings by S&P, Fitch and Moodys. Format Reg S

The net proceeds will be used for IsDBs London Stock Exchange, Bursa Malaysia
general corporate purposes. Listing (under the Exempt Regime) and NASDAQ
Dubai

Transaction Highlights Maybank KEs Role

Joint Lead Manager and Joint
Bookrunner
Worldwide investor demand: There was strong demand for this Sukuk from Euroclear Bank S.A./N.V. and
investors globally; with final allocation of 59% to investors from Middle East Clearing Systems
Clearstream Banking, societ anonyme
and North Africa (MENA), 27% to investors from Asia and 14% to investors
from Europe. Distribution Analysis
Aggressive-pricing and oversubscription: The transaction collated a strong Investor Type Geographical Breakdown
order book which closed at approximately USD2.0 billion, 2.0 times the initial
target issue size of USD1.0 billion. Financial
Europe
Central Institutions 14%
Upsizing and low all-in profit rate: Due to overwhelming demand, the Banks 34%
transaction was upsized to USD1.5 billion at the lowest end of the spread, with 43%
MENA Asia
final price at 10bps above the Mid-Swap (MS) against the initial price 59% 27%
Fund
guidance of 10-15bps above MS. At MS + 10bps, the all-in profit rate is 2.11%
Others Management
for the 5year Sukuk. 11% 12%
Thank You
arshad.mi@maybank.com.my

For more information, please visit

www.maybank.com