Analysis of the Sukuk Market

Dubai, April 25, 2007

Overview

ƒ Introduction
ƒ What is a Sukuk?
ƒ Types of Sukuk
ƒ Composition of the Sukuk Market
ƒ Breakdown of the Sukuk Market
ƒ Expected Growth of the Sukuk Market
Introduction

ƒ 1974 beginning of the first Islamic Financial Institution by

the creation of the inter-governmental Islamic
Development Bank (IDB)

ƒ 2001 first GCC Sukuk issuance

• Bahrain Monetary Agency USD100 Million

ƒ 2002 World’s first Islamic global bond issue

• Federation of Malaysia USD600 Million
What is a Sukuk?

A Sukuk is an Islamic Bond compliant with Shariah law,

which pays a return based on tangible assets in lieu of an
interest rate.

ƒ Similarity with Conventional Bonds :

Bonds contractually obligate the issuer to pay specific
interest and principal to the bondholders meanwhile
Sukuk holders are entitled to share in the proceeds of the
realization of the Sukuk assets.
Types of Sukuk

ƒ 14 Eligible Asset Classes according to AAOIFI are:

• SUKUK AL-IJARAH
• SUKUK IJARAH MOWSUFA BITHIMA
• SUKUK MANFAA IJARAH
• SUKUK MANFAA IJARAH MOWSUFA BITHIMA
• SUKUK MILKIYAT AL-KHADAMAT
• SUKUK AL-SALAM
• SUKUK AL-ISTISNA’A
• SUKUK AL-MURABAHA
• SUKUK AL-MUSHARAKA
• SUKUK AL-MUDARABA
• SUKUK AL-WAKALA
• SUKUK AL-MUZRA’A
• SUKUK AL-MUSAQA
• SUKUK AL-MUQARASA
Composition of the Sukuk Market

ƒ Actual Size of the Market ~ USD 53 Billion

ƒ Syndicated loans vs Conventional Sukuk:

• Banks vs Capital Markets
• Different client base
• Cheaper for issuer but not for investor

ƒ Malaysia vs GCC Sukuk:

• Bay’ Al Dayn
• Underlying assets

ƒ Convertible vs Plain Vanilla:

• USD 2 Billion+ and USD 50-500 Million
Composition of the Sukuk Market

ƒ Most popular types of Sukuk are:

• Ijarah: Sukuk that represent ownership of equal shares in
a rented real estate or the usufruct of the real estate giving
owners the right to own the real estate and receive the
rent.
79 issues since 2001 / USD16.22 Billion

• Musharaka: Investment Sukuk that represent ownership

of Musharaka equity and are used for mobilizing the fund
for establishing a new project or developing an existing
one or financing a business activity on the basis of
partnership contracts.
24 issues since 2005 / USD 9.54 Billion
Composition of the Sukuk Market

• Mudaraba: Investment Sukuk that represent ownership of

units of equal value in the Mudaraba equity and are
registered in the names of holders on the basis of
undivided ownership of shares in the Mudaraba equity and
its returns according to the percentage of ownership share.
5 issues since 2003 / USD 3.41 Billion

• Murabaha: The issuer of the certificate is the seller of the

Murabaha commodity while the subscribers are the buyers
of that commodity, and the realized funds are the
purchasing cost of the commodity. The negotiability of
these Sukuk at the secondary market is not allowed by
Shariah.
34 issues since 2001 / USD 2.60 Billion
Composition of the Sukuk Market

• Istisna’a: Certificates that carry equal value and are

issued with the aim of mobilizing the funds required
for producing products that are owned by the
certificate holders.
6 issues since 2005 / USD 875 Million
Composition of the Sukuk Market

Size of Issues Since 2000

MUSHARAKA 10,170

MURABAHA 2,598

MUDARABA 3,414

ISTISNA'A 875

IJARAH 16,216

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000

USD MILLION
Source: Zawya, Sukuk monitor, Apr ‘07
Composition of the Sukuk Market

Sukuk Issues: Global Vs GCC

30,000
26,797
25,000
USD Million

20,000

15,000 12,065
10,687
10,000

5,000 2,562

0
2005 2006
Year
Source: Zawya, IFIS, Apr ‘07 GCC SUKUK GLOBAL
Breakdown of the Sukuk Market

ƒ Sovereign Sukuk:
• Qatar 10 – USD 700 Million
• Pakistan 10 – USD 600 Million
• Malaysia 07 – USD 600 Million

ƒ Next Sovereign Sukuk:

• Japan: “The Japan Bank of International Cooperation”
Ijarah Sukuk, 2007: USD 200-300 Million
• Indonesia: USD 500 Million
• Germany
• Pakistan
• Saudi Arabian Monetary Agency
• U.K
Breakdown of the Sukuk Market

ƒ Largest Corporate Issues:

• PCFC: USD 3.5 Billion in 2006

• Nakheel: USD 3.52 Billion in 2006
• Al Dar: USD 2.53 Billion in 2007
Breakdown of the Sukuk Market
Sukuk Issues: Corporate Vs. Sovereign
30,000

24,526
25,000

20,000
USD Million

15,000
11,359

10,000
5,731
4,537
5,000
2,272
1,180 1,479
336 0 530 250 180 800 707
0
2000 2001 2002 2003 2004 2005 2006
Year

Source: IFIS, Apr ‘07 Corporate Sovereign

Expected Growth of the Sukuk Market

ƒ Deals in the Pipeline:

• ADIB: USD 5 Billion, listed in London & UAE
• TAQA:USD 1 to 3 Billion listed in UAE
• Al-Baraka Banking Group USD 200 Million Rated
BBB- by S&P
• Saad Trading USD 5 Billion over 20 years
• Diyaar Al Muharraq USD 200 Million
• MTC: USD 1.2 Billion
• Saudi Electricity Co. SAR 11 Billion by 2015
Expected Growth of the Sukuk Market

Sukuk: Announced and Rumored

25,000
20,184
20,000
USD Million

15,000

10,000

5,000
258 1,054
0 52
0
AH

KA
A

AH
AB
A'
AR

RA
SN

AB
AR
IJ

HA
TI

UR
UD
IS

US
M
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Source: Zawya, Sukuk monitor, Apr’ 07
Thank You