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Islamic Finance and Sukuk Market Review. December 2008. Principles of Islamic Finance. Islamic finance is an ethical and equitable mode of finance which derives its principles from the Quran (the Holy Book) and the Sunnah (the traditions of the Prophet Muhammad) - PowerPoint PPT Presentation
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1
Islamic Finance and Sukuk Market ReviewDecember 2008
2
Principles of Islamic Finance
3
Islamic finance is an ethical and equitable mode of finance which derives its principles from
the Quran (the Holy Book) and the Sunnah (the traditions of the Prophet Muhammad)
While Shariah law prohibits interest, this does not mean that capital is costless in an Islamic
system
Islam recognizes capital as a factor of production but it does not allow the factor to make a
prior or predetermined claim on the productive surplus in the form of interest
Profit-sharing is the method recommended by Islam
In Islam, the owner of capital can legitimately share the profits made by the entrepreneur
What makes profit sharing permissible in Islam, as opposed to interest, is that in the case of
the former it is only the profit-sharing ratio, not the rate of return itself, that is predetermined
Profit-sharing methodology drives
Islamic finance solutions
Principles of Islamic finance
4
Any predetermined payment over and above the amount of principal is prohibited
The investor must share in the profits or losses arising out of the enterprise or
commercial activity for which the capital was provided
– As defined in the Shariah, Islamic finance is based on the belief that the provider of capital
and the user of capital should equally share the risk of business ventures
Islamic finance is fundamentally based on assets
– Money is only a medium of exchange, a way of defining the value of asset; it has no value
in itself, and therefore should not be allowed to give rise to more money, via fixed interest
payments, simply by being put in a bank or lent to someone else
Gharar (Uncertainty, Risk or Speculation) is also prohibited
– This term denotes a contract between two parties where one may be exploited
– This includes misdescription or ignorance of goods, or their price; encompasses a sale of
goods which the seller is not in a position to deliver; and/or the making of a contract which is
conditional upon an unknown event
– Investments should only support practices or products that are not forbidden or discouraged
by Islam (Alcohol, Armaments, Tobacco)
Compliance with Islamic principles
Principles of Islamic finance (cont)
5
Industry evolution: growth over the last 30 years
• Commercial banking
1970s
• Commercial banking
• Project finance & syndications
1980s
• Commercial banking
• Project finance & syndications
• Equity
• Ijarah
1990s
• Commercial banking
• Project finance & syndications
• Equity
• Ijara
• Sukuk market
• Structured alternative assets
2000s
• Commercial banking
• Project finance & syndications
• Equity
• Ijarah
• Sukuk market
• Structured alternative assets
• Risk management
• Private equity
2007+
• Commercial banking
1970s
• Commercial banking
• Project finance & syndications
1980s
• Commercial banking
• Project finance & syndications
• Equity
• Ijarah
1990s
• Commercial banking
• Project finance & syndications
• Equity
• Ijara
• Sukuk market
• Structured alternative assets
2000s
• Commercial banking
• Project finance & syndications
• Equity
• Ijarah
• Sukuk market
• Structured alternative assets
• Risk management
• Private equity
2007+
Islamic finance has followed in the wake of innovations in the global financial services industry
A natural progression of the Islamic finance industry
Competitive retail landscape
Increasingly sophisticated corporate banking products
Innovative capital market solutions
The Islamic finance industry has grown
rapidly over the past ten years
6
Islamic finance encompasses a wide
range of products comparable to traditional banking products – from
current accounts and home financing to
syndicated finance and capital markets – which
have been adapted to comply with Sharia
requirements
Major instruments in Islamic finance
Product Type Description
Sukuk
Sukuk are trust certificates which represent an undivided pro-rata ownership of an underlying asset. The certificates are feely tradable. Sukuk holders as undivided pro-rata owners of underlying leased assets jointly assume the incidents of ownership and are thereby entitled to jointly share the income generated through the use of the underlying asset.
Murabaha
A ‘cost-plus’ financing popular for providing trade financing. Involves the sale of a goods—often a commodity—at a price that includes cost plus a stated profit known to both the vendor and the purchaser. The price is usually paid back by the buyer in deferred payments.
MudarabaInvolves ‘provider’ of capital and ‘manager’ of capital. The manager utilises the capital for investments in a pre-agreed manner and returns it in the end with a pre-agreed share of profits.
Istisna
An Istisna contract is made-to-order construction contract, for a project in which payment can be made in advance of delivery. The manufacturer designs and manufactures the item in accordance with the buyer’s wishes. Repayment can commence either during the construction phase or upon completion.
MusharakaParticipants share in profit/losses in proportion to capital contribution. Similar in nature to joint ventures.
Ijara (Lease)
Client selects the assets to be financed by the financial institution and the financial institution then purchases these assets from the manufacturer and leases it to the customer for a fixed period. This type of financing can equally be used to refinance assets owned by the client in a sale and lease back arrangement.
Sukuk—representing certificates of ownership—
straddle a majority of
Islamic finance
structures
7
Sukuk – An Overview
8
Sukuk – an overview
Sukuk is a Shariah compliant capital market instrument
By nature, it is analogous to conventional asset backed securities (with several exceptions)
Business activities/assets that would be used as underlying assets backing the Sukuk would need to be Shariah-compliant. The proceeds of the Sukuk must be used for Shariah-compliant purposes only
Government of Bahrain (2001), Government of Malaysia (2002), State of Qatar (2003), Department of Civil Aviation, Dubai (2004), Government of Pakistan (2005), Government of Brunei (2006) and Ras Al Khaimah Investment Authority (2007)
Can be structured as a Regulation S and Rule 144A transaction and
rated by an international rating agency
Sukuk can be issued under various structures
The most widely used one is Sukuk Al-Ijara, a lease based instrument
The primary subscriber can resell the Sukuk in the secondary market; the secondary market buyer will be the new
pro-rata beneficial owner of the underlying assets
Sukuk vs. Conventional BondConventionalIslamicParameter
• A comparatively smaller pool of conventional bond investors will mean that there is less demand for the paper.
• A larger pool of Sukuk investors creates more demand, hence may help to achieve slightly more competitive pricing (Malaysia ’s experience)
Financing Cost
• No additional administrative costs associated with conventional bond issues
• Additional fees: legal and Shariah advisory feeAdministrative Cost
• Conventional bonds can only tap the conventional bond investors
• Sukuk issues enjoy a wider investor base from both sets of investors –Islamic (Islamic banks, takaful cos, Islamic asset management cos) & conventional
Investor Base
• An issuer of conventional bonds is not limited in its business activities
• A Sukuk issuer shall be engaged in business activities which are permissible under Shariah
The Issuer
ConventionalIslamicParameter
• A comparatively smaller pool of conventional bond investors will mean that there is less demand for the paper.
• A larger pool of Sukuk investors creates more demand, hence may help to achieve slightly more competitive pricing (Malaysia ’s experience)
Financing Cost
• No additional administrative costs associated with conventional bond issues
• Additional fees: legal and Shariah advisory feeAdministrative Cost
• Conventional bonds can only tap the conventional bond investors
• Sukuk issues enjoy a wider investor base from both sets of investors –Islamic (Islamic banks, takaful cos, Islamic asset management cos) & conventional
Investor Base
• An issuer of conventional bonds is not limited in its business activities
• A Sukuk issuer shall be engaged in business activities which are permissible under Shariah
The Issuer
9
Structure Asset Type Description Benefits Considerations
Ijara
Existing tangible assets such as plant, machinery, buildings etc
Involves a sale and leaseback of tangible assets
Most commonly-applied and accepted Sukuk structure
Tradable on secondary market Wide Shariah acceptability (AAOIFI-compliant) Relatively easy documentation process
Identification of assets 100% of assets have to be tangible Assets remain in the ownership of investors
till maturity Assets should be unencumbered at time of
sale
Head-lease & Sub-lease
Existing tangible assets
Involves long- and short-term leases of tangible assets
Tradable on secondary market Shariah acceptability Template document available Avoid sale of assets which can be sensitive in
certain jurisdictions
Tangible assets required; with possibility of using suitable operating rights as underlying assets (subject to Shariah approval)
Long-term lease has to be for a period of more than 50 years (for Shariah structuring purposes)
Istisna’/ Ijara
Combination of existing tangible assets and istisna’ contracts (construction contracts)
Involves a sale and leaseback of a pool of assets comprising of tangible assets and construction contracts
Allows issuer to execute a Sukuk Ijara even if there is a lack of tangible assets to achieve benchmark sized financing
Tradable on secondary market provided that one-third of the value of the Sukuk must be in the form of tangible assets
Tangible assets must comprise at least one-third of the value of the Sukuk in order to be tradable
Construction contracts must be Shariah-compliant in nature
Assets remain in the ownership of investors till maturity
Istithmar
Revenue generating agreements
Linked to business activity
Transfer of certain rights and obligations to Issuer
Income from agreements are used to service the periodic payments
Shariah acceptability
No tangible assets required
Assets can be long-term agreements
Template documents available
Issuer does not give up operating control of the business
Identification of assets and suitability Size of Sukuk limited to size of business and
require significant due diligence on business Non-Middle Eastern investors may require
more education on the structure Introduces ‘business’ risks (performance
risk of company) which is not a typical credit risk
Summary of Sukuk Structures
10
Sukuk Ijara with tangible assets
Most widely used structure and
accepted Sukuk structure
Islamic lease-based securities, similar to
Equipment Trust Certificates and Unit
Trusts
Tradable in secondary market
Main Documentation:
Purchase Agreement
Lease Agreement
Service Agency Agreement
Purchase Undertaking
Sale Undertaking
Declaration of Trust
11
Sukuk Ijara with tangible assets and Istisna’ contracts
Allows Issuer to execute a Sukuk Ijara even if there is a lack of tangible assets to achieve benchmark
sized financing
Accepted by Shariah
Main Documentation:
Purchase Agreement
Lease Agreement
Istisna Agreement
Service Agency Agreement
Purchase Undertaking
Sale Undertaking
Declaration of Trust
12
Sukuk Market and GCC Market Overview
13
Sukuk market: trends and themes
Due to the global credit crisis volume has fallen
dramatically
In 2008(YTD) c. US$7.8 billion has been issued,
compared to c. US$13.8 in 2007
Volume & Number
-44%
5-year tenor remains sweet spot for Sukuk issuers
A shift to local currency issuances—in the wake of a weak dollar—is the evident trend from 2006 into 2008
In 2008 USD/EUR issuances only comprised 9% of the total; compared to 75% of the total issuances in 2004
The revaluation story attracted significant hedge fund activity in the region
Summary2008 (YTD)20062004*
0-3 4-5 6-10 >10
Co
un
try
Saudi Arabia UAE Qatar Bahrain Kuwait Pakistan Indonesia Europe/USA
AED SAR USD & EUR Other Local Currency
Cu
rren
cyT
eno
r
The UAE and Saudi Arabia remain the largest Sukuk markets by volume issued
In 2008 the c. US$5bn Sukuk were issued out of the UAE through 8 issues (US$1.6bn through 2 for Saudi Arabia)
Indonesia led the largest number of issuances in 2008 with 9 Sukuk (note all domestic)
•Source: Dealogic, HSBC Amanah Analysis;
•Country, currency, tenor analysis is based on domestic and international issuances excluding Malaysia (19 November 2008)
Malaysia vs. ROW
Rest of World Malaysia
62%38%
14
HSBC/DIFX Sukuk/Bond Index (Libor Spread) MSCI GCC Index
U.S. Fed takes over Freddie & Fanny
Merrill sold to Bank of America; Lehman files for Chp. 11; and AIG recieves
US$85bn
Crisis spreads to Europe
UAE offers US$13.6bn to domestic banks;
guaranteees deposits and interbank lending Britain begins bank
nationalization with GPB37bn injection (RBS,
Lloyds & HBOS)
MoF adds US$19bn injection
Kuwait guarantees all local deposits; suspends trading
of Gulf Bank
Saudi injects additional funds into the banking
sectors following US$3bn in October
Qatari government begins purchasing equity stakes in
local banks
Amlak and Tamweel merge under a government owned
entity
Iceland nationalized banks; seeks US$6bn from IMF
Saudi cuts repo rates and reduces reserve
requirements
GCC market developments
September October November
Significant widening of Dubai-based CDS commences
AED denominated spreads continue to weigh on secondary market
UAE Central bank announced it will boost financial sector liqudity; banks now allowed to borrow 100% of reserve requirment
Lehman falls and the US government rescues AIG with a US$85bn loan while banning short selling and guaranteeing deposits
Moody’s releases report announcing concern with banks’ real estate exposure
Amlak and Tamweel announce merger discussions
UAE announces guarantee of deposits of local and foreign banks
QIA announced plan to purchase 10-20% of capital of banks listed on the Doha Borse
Confirming rumors, the IMF announced Abu Dhabi will help pay Dubai’s debts
Kuwait’s Gulf Bank hit by losses on currency derivatives contracts
Doha Banks plans to raise US$404mn by selling shares to QIA; Commercial Bank of Qatar raises US$887mn equity capital from the government
Barclay’s announced it has raised GBP7.3bn hybrid capital from Qatar and Abu Dhabi
Saudi government announced it will inject more into the banking sector following a US$3bn injection in October
Amlak and Tamweel to merge under Real Estate Bank, a unit of the UAE Ministry of Finance
The GCC has not been ensconced from the global
credit crisisLike many emerging
markets, the worst may be yet to come
Abu Dhabi Qatar
CDS Spreads (5yr)
EIBOR LIBOR
EIBOR vs. LIBOR
*Source: Bloomberg; HSBC Analysis
15
Regional equity performance
*Source: Bloomberg
Dubai Kuwait Saudi Arabia
3 Year Performance
Price Earnings Ratio Market Capitalization (US$)
Sep ‘08 Present % Sep ‘08 Present %
Kuwait 14 12.3 -12% 282,163 134,813 -52%
Saudi Arabia 19.6 10.3 -48% 451,411 216,295 -52%
Dubai 11.5 4.3 -62% 91,865 42,133 -54%
Regional equity markets have been hammered
over the past few months
The real estate sector—most significantly in
Dubai—has lead the dive
16
GCC market update: pricing environment
Regional CDS spreads have widened
significantly over the past month
In particular Dubai sovereign and
sovereign-linked CDS spreads have widened
by c.200bps over the past month
Credit spreads on debt from all sectors have
increased dramatically as witnessed by the HSBC/DIFX Indexes
0
500
1000
1500
2000
02/08/0716/08/0730/08/0713/09/0727/09/0711/10/0725/10/0708/11/0722/11/0706/12/0720/12/0703/01/0817/01/0831/01/0814/02/0828/02/0813/03/0827/03/0810/04/0824/04/0808/05/0822/05/0805/06/0819/06/0803/07/0817/07/0831/07/0814/08/0828/08/0811/09/0825/09/0809/10/0823/10/0806/11/08
Financial Services Sukuk GCC Senior Fins GCC Subordinated Fins GCC Conv. Corporate
c
*Source: Bloomberg; HSBC Analysis (17 November 2008)
HSBC-DIFX Indexes
+210
+285+325 +325
+370 +360
+445
+650
+725 +710
+950
+740+690
+150+195 +215
+
+100
+200
+300
+400
+500
+600
+700
+800
+900
+1000
Sau
di G
ov
Qa
tar
Gov
Abu
Dh
abi
Go
v NC
B
AD
CB
Ra
sGas
Sam
ba
Bah
rain
TA
QA
AB
C
Du
bai
Em
irate
sG
roup
Em
irate
sB
ank
DP
Wo
rld
Mas
hre
qB
ank
Du
bai
Ho
ldin
gs
+210
+285+325 +325
+370 +360
+445
+650
+725 +710
+950
+740+690
+150+195 +215
+
+100
+200
+300
+400
+500
+600
+700
+800
+900
+1000
Sau
di G
ov
Qa
tar
Go
v
Ab
u D
hab
i G
ov NC
B
AD
CB
Ra
sGas
Sam
ba
Ba
hra
in
Go
v
TA
QA
AB
C
Du
bai
Go
v
Em
irate
sG
roup
Em
irate
sB
ank
DP
Wo
rld
Mas
hre
qB
ank
Du
bai
Ho
ldin
gs
Year Ago
Current
Regional CDS Spreads*
Govt
17
Timing
Details
Considerations
12th October, 24 November 2008
Announced that it will guarantee retails deposits in local banks and inter-bank lending among all banks operating in the country. Further on the 14th of October, Sheikh Mohammed ordered AED 70bn to the Ministry of Finance to inject further liquidity to banks.
The UAE has previously injected AED50bn of liquidity for interbank lending
UAE forms Emirates Development Bank out of two largest lenders
The steps announced were designed as preventative measures against the current financial turmoil and to maintain confidence in the financial markets.
UAE
29th October 2008
The Kuwaiti government has approved a bill to guarantee bank deposits and will seek parliamentary approval for this shortly.
Further to the announcement of Kuwaiti government support for local deposits, the Government has also announced that it will take an equity stake in Gulf Bank KSC, the second largest lender in Kuwait by assets.
Kuwait
12th October, 24 November 2008
Saudi Arabia has committed that it would make up to SR 150bn (USD 40bn) available to its banks, if required.
Saudi Arabia cut its repo rate by one percent and reduced cash reserve requirements by 3% to boost liquidity
The steps announced were designed as preventative measures against the current financial turmoil and to maintain confidence in the financial markets
Saudi Arabia
13th October 2008
Qatar launched a US$5.3 billion plan to buy bank shares.
In the plan, the Qatar Investment Authority, the state’s sovereign wealth fund, will buy between 10-20% of banks’ listed capital on the Doha exchange.
Qatar
GCC government support
18
Islamic finance investor base
*Source: Bloomberg; HSBC Analysis (17 November 2008)
Investment Agencies
Central Banks
Local governments/municipalities
Governments
Ministries of religious affairs
Endowment funds
Pension funds
Institutions
Non-bank financial instiutions
Islamic financial institutions
High Net -worth
Retail
2000s1990s1980s1970s
Investment Agencies
Central Banks
Local governments/municipalities
Governments
Ministries of religious affairs
Endowment funds
Pension funds
Institutions
Non-bank financial instiutions
Islamic financial institutions
High Net -worth
Retail
2000s1990s1980s1970s
Key Islamic InvestorsGrowing Islamic Investors
Islamic Issuers Islamic Investors
More than two thirds of Islamic funds are from the Middle East
Islamic Assets: Global Distribution
QREIC Sukuk
Sole Lead Manager/ Bookrunner
Middle East (70%)
Europe (27%)
Asia (3%)
QREIC SukukQREIC Sukuk
Sole Lead Manager/ Bookrunner
Middle East (70%)
Europe (27%)
Asia (3%)
Tabreed USD200m Sukuk
Sole Global Coordinator/Joint Bookrunner
Middle East (76%)Asia (13%)Europe (10%)Other (1%)
Tabreed USD200m SukukTabreed USD200m Sukuk
Sole Global Coordinator/Joint Bookrunner
Middle East (76%)Asia (13%)Europe (10%)Other (1%)
IDB USD500m Sukuk
Joint Lead Manager
Asia (35%)Middle East (32%)Europe (26%)Supranational (7%)
IDB USD500m SukukIDB USD500m Sukuk
Joint Lead Manager
Asia (35%)Middle East (32%)Europe (26%)Supranational (7%)
Gulf Finance House Sukuk
Joint Lead Manager/ Bookrunner
Middle East (55%)
Europe (25%)
Asia (20%)
Gulf Finance House SukukGulf Finance House Sukuk
Joint Lead Manager/ Bookrunner
Middle East (55%)
Europe (25%)
Asia (20%)
19
Comments Typical geographical and investor type distribution
• Many corporate borrowers take advantage of the 144a market to target the U.S. institutional investors base in global jumbo transactions
Corporate Jumbos (144a)
Funds (65%)
Banks (15%)
Pension/Insurance (10%)
Retail (10%)
US (60%)
UK (20%)
Europe (15%)
Asia (5%)
• Historically distributed into local as well as European banks and funds
• Last primary market bonds were placed at the beginning of 2007
Senior Financial
(RegS only)
UK (35%)
Middle East (35%)
Europe (15%)
Asia (15%)
Banks (75%)
Funds (15%)
Other (10%)
• Trades at significant premium to senior presently (250bps to 400+bps)
• Any new issue would require strong local sponsorship to gain traction with the global investor base and would probably only follow after a successful senior issuance out of the region
LT2 Financial
(RegS only)
Middle East (40%)
UK (35%)
Asia (15%)
Europe (10%)
Banks (60%)
Funds (30%)
Other (10%)
• Predominately driven by and distributed into the local Islamic accounts with some additional follow-on demand from Asian and European Islamic funds
Sukuks
Middle East (60%)
Europe (25%)
Asia (15%)
Banks (80%)
Funds (15%)
Other (5%)
• Started as hedge fund driven bet on a possible de-pegging of the local currency from the US$
• Has then been further taken up by local accounts but demand for this product has started to dry up
Local Currency
Middle East (60%)
Europe (20%)
US Offshore (15%)
Asia (5%)
Banks (60%)
Funds/Hedge Funds(35%)
Retail (5%)
Middle East investors by products
20
HSBC Islamic Finance Credentials
21
HSBC has been the clear and consistent number
one lead manager of GCC bond issuances each year since 2003,
both by number and volume of new issues
HSBC will bring unparalleled experience and market intelligence
to the lead management of Sukuk/ Bond issuance
HSBC has developed the most comprehensive
investor coverage and knowledge inside and
outside the Middle East for regional Sukuk/ Bond
issuance
Bank USD $ m IssuesMkt Shr
1 HSBC 1,389.37 334.1%
2 Calyon 666.58 116.4%
3 RBS 601.85 414.8%
4 Barclays Capital 500.00 212.3%
5 Ntnl Bk of Abu Dhabi 500.00 212.3%H
Source: Bloomberg, 15th Oct, 2008
GCC Sukuk Issuance 2007– 2008 YTD
Bank USD $ m IssuesMkt Shr
1 HSBC 3,842.36 715.8%
2 Barclays Capital 2,824.68 811.7%
3 JP Morgan 2,076.73 38.6%
4 Dubai Islamic Bank 1,800.78 77.4%
5 Deutsche Bank AG 1,653.78 46.8%
Source: Bloomberg, 15th Oct, 2008
Selected GCC Sukuk issues
Selected Awards
December 2006
US$800 million Sukuk
Abu Dhabi Islamic Bank
Sole Bookrunner
US$800 million Sukuk
Best International Islamic Bank 2008
“Try as they might, no other international financial institution can match HSBC Amanah’sproduct innovation and breadth of coverage in Islamic banking and finance”
Best International Islamic Bank 2008
Best International Islamic Bank 2008
“Try as they might, no other international financial institution can match HSBC Amanah’sproduct innovation and breadth of coverage in Islamic banking and finance”
Best Sukuk Deal 2008
Maybank Sukuk (US$300 m)
“Size isn’t everything. This is certainly the case for the winning Sukuk deal, at only US$300m. Malaysia’s Maybank became the first bank to raise subordinated bank capital in the form of a Sukuk”
Best Sukuk Deal 2008
Best Sukuk Deal 2008
Maybank Sukuk (US$300 m)
“Size isn’t everything. This is certainly the case for the winning Sukuk deal, at only US$300m. Malaysia’s Maybank became the first bank to raise subordinated bank capital in the form of a Sukuk”
Best International Islamic Bank 2007
"No other institution can match its breadth and depth across products and geography ”
Best International Islamic Bank 2007
Best International Islamic Bank 2007
"No other institution can match its breadth and depth across products and geography ”
Best Sukuk Deal 2007
Khazanah US$750m
Exchangeable Sukuk - the largest ever equity -linked issue out of Malaysia and since January 2005, in Asia (ex Japan)
Best Sukuk Deal 2007
Best Sukuk Deal 2007
Khazanah US$750m
Exchangeable Sukuk - the largest ever equity -linked issue out of Malaysia and since January 2005, in Asia (ex Japan)
Best Sukuk House 2007
Notable Deal: Sabic Sukuk
First corporate sukuk and first public issuance in Saudi Arabia. First structure to be approved by a Saudi Shariah board for distribution in the Kingdom. First tradeable capital market instrument in the country.
Best Sukuk House 2007
Best Sukuk House 2007
Notable Deal: Sabic Sukuk
First corporate sukuk and first public issuance in Saudi Arabia. First structure to be approved by a Saudi Shariah board for distribution in the Kingdom. First tradeable capital market instrument in the country.
September 2008
SAR 1 billion Sukuk
Saudi Bin Ladin Group
Sole Lead Manager and Bookrunner
September 2008
SAR 1 billion Sukuk
Sole Lead Manager and Bookrunner
September 2008
SAR 1 billion Sukuk
Sole Lead Manager and Bookrunner
August 2008
Joint Bookrunner
SAR 5 billion Sukuk
Saudi Basic Industries Co
August 2008
Joint Bookrunner
SAR 5 billion Sukuk
Saudi Basic Industries Co
November 2007
Joint Bookrunner
US$325 million Sukuk
Ras Al Khaimah Investment Authority
November 2007
Joint Bookrunner
US$325 million Sukuk
Ras Al Khaimah Investment Authority
July 2007
Sole Bookrunner
SAR 5 billion Sukuk
Saudi Electricity Company
July 2007
Sole Bookrunner
SAR 5 billion Sukuk
Saudi Electricity Company
MENA Region Domestic Bonds 2008 YTD
HSBC Amanah: a powerhouse in Islamic capital markets
22
Global Sukuk 2002-Present (ex -MYR)
Bank USD $ m Issues Mkt Shr1 HSBC 7,724 19 20.3%2 Barclays Capital 5,989 8 15.7%3 Dubai Islamic Bank 5,207 10 13.7%4 Deutsche Bank AG 2,839 9 7.5%5 JP Morgan 2,183 4 5.7%
Source: Bloomberg, 15 th October 2008
Global Sukuk 2002-Present (ex -MYR)
Bank USD $ m Issues Mkt Shr1 HSBC 7,724 19 20.3%2 Barclays Capital 5,989 8 15.7%3 Dubai Islamic Bank 5,207 10 13.7%4 Deutsche Bank AG 2,839 9 7.5%5 JP Morgan 2,183 4 5.7%
Bank USD $ m Issues Mkt Shr1 HSBC 7,724 19 20.3%2 Barclays Capital 5,989 8 15.7%3 Dubai Islamic Bank 5,207 10 13.7%4 Deutsche Bank AG 2,839 9 7.5%5 JP Morgan 2,183 4 5.7%
Source: Bloomberg, 15 th October 2008
The HSBC Amanah Sukuk team, based in
Dubai and Riyadh, has been active since 2000 and has been the clear
leader in the Sukuk market—in terms of deal
size, issuances, and innovation—ever since
Source: Bloomberg, 15 th Oct, 2008
GCC Sukuk Issuance 2007- 2008 YTD
Bank USD $ m Issues Mkt Shr1 HSBC 3,842.36 7 15.8%2 Barclays Capital 2,824.68 8 11.7%3 JP Morgan 2,076.73 3 8.6%4 Dubai Islamic Bank 1,800.78 7 7.4%5 Deutsche Bank AG 1,653.78 4 6.8%
Source: Bloomberg, 15 th Oct, 2008
GCC Sukuk Issuance 2007- 2008 YTD
Bank USD $ m Issues Mkt Shr1 HSBC 3,842.36 7 15.8%2 Barclays Capital 2,824.68 8 11.7%3 JP Morgan 2,076.73 3 8.6%4 Dubai Islamic Bank 1,800.78 7 7.4%5 Deutsche Bank AG 1,653.78 4 6.8%
GCC Sukuk Issuance 2007- 2008 YTD
Bank USD $ m Issues Mkt Shr1 HSBC 3,842.36 7 15.8%2 Barclays Capital 2,824.68 8 11.7%3 JP Morgan 2,076.73 3 8.6%4 Dubai Islamic Bank 1,800.78 7 7.4%5 Deutsche Bank AG 1,653.78 4 6.8%
Bank USD $ m Issues Mkt Shr1 HSBC 3,842.36 7 15.8%2 Barclays Capital 2,824.68 8 11.7%3 JP Morgan 2,076.73 3 8.6%4 Dubai Islamic Bank 1,800.78 7 7.4%5 Deutsche Bank AG 1,653.78 4 6.8%
Bank USD $ m Issues Mkt Shr1 HSBC 3,230.35 46 13.9%2 CIMB 2,201.32 62 9.5%3 Calyon 1,633.45 3 7.0%4 Standard Chartered PLC 1,548.44 13 6.7%5 Dubai Islamic Bank 1,547.93 6 6.6%
All Islamic Financing 2008 YTD
Source: Bloomberg, 15 th Oct, 2008
Bank USD $ m Issues Mkt Shr1 HSBC 3,230.35 46 13.9%2 CIMB 2,201.32 62 9.5%3 Calyon 1,633.45 3 7.0%4 Standard Chartered PLC 1,548.44 13 6.7%5 Dubai Islamic Bank 1,547.93 6 6.6%
All Islamic Financing 2008 YTD
Source: Bloomberg, 15 th Oct, 2008
SAR 5bn Sukuk
Saudi Basic Industries Co.
Joint Bookrunner
August 2008
SAR 8bn Sukuk
Saudi Basic Industries Co.
Joint Bookrunner
August 2007
US$325m Sukuk
Ras Al Khaimah Investment Authority
Joint Bookrunner
November 2007
US$300m Sukuk
Qatar Real Estate Investment Co.
Sole Bookrunner
July 2007
SAR 5bn Sukuk
Saudi Electricity Company
Sole Bookrunner
July 2007
US$200m Sukuk
Gulf Finance House
Joint Bookrunner
July 2007
US$800m Sukuk
Abu Dhabi Islamic Bank
Sole Bookrunner
2006
US$225m Sukuk
Sharjah Islamic Bank
Sole Bookrunner
2006
SAR 3bn
Saudi Basic Industries Co.
Sole Bookrunner
2006
US$200m
National Central Cooling (TABREED)
Joint Bookrunner & Global Coordinator
2006
US$200m Sukuk
Amlak Finance
Sole Bookrunner
2005
US$500m Sukuk
Islamic Development Bank
Joint Bookrunner
2005
US$550m Sukuk
Emirates
Joint Bookrunner
2005
US$700m
State of Qatar
Sole Bookrunner
2006
US$1,000m Sukuk
Department of Civil Aviation Dubai
Joint Bookrunner
2004
HSBC Amanah GCC Sukuk credentials
23
SABIC Sukuk – 2006
Sukuk Deal of the Year Islamic Finance News 2006
Saudi Arabian Deal of the Year Islamic Finance News 2006
Most Innovative Capital Markets Transaction & Most Innovative Bond Deal Finance Asia
Khazanah Nasional Berhad Sukuk – 2006
Best Sukuk Deal Euromoney 2007
Sovereign Deal of the Year Islamic Finance News 2006
Malaysia Deal of the Year Islamic Finance News 2007
Government of Malaysia – 2002
Best Asian Sovereign Bond Euromoney
Deal of the Year Institutional Investor
Most Innovative Capital Markets Transaction FinanceAsia
Most Innovative Bond Deal FinanceAsia
Ras Al Khaimah Investment Authority – 2007
Best Sovereign Deal Islamic Finance News 2007
Alaqaria Sukuk – 2007
Qatar Deal of the Year Islamic Finance News 2007
Qatar Deal of the Year The Banker 2008
Gulf Finance House – 2007
Bahrain Deal of the Year Islamic Finance News 2007
State of Qatar Sukuk – 2003
Best Sovereign Deal Middle East and Africa Euroweek
Excluding regional Malaysian Ringgit
denominated issuances, HSBC Amanah continues to be the leader by every
measure of Sukuk underwriting since 2002
US$ Global Islamic Bonds 2002 to 2007
Bank USD $ m Issues Mkt Shr1 HSBC 7,723 19 212 Barclays Capital 5,989 8 16.33 Dubai IslamicBank 5,207 10 14.14 Deutsche Bank 2,655 8 7.25 JP Morgan 2,183 4 5.9Source: Bloomberg, 15
Bank USD $ m Issues Mkt Shr1 HSBC 7,723 19 212 Barclays Capital 5,989 8 16.33 Dubai IslamicBank 5,207 10 14.14 Deutsche Bank 2,655 8 7.25 JP Morgan 2,183 4 5.9
Bank USD $ m Issues Mkt Shr1 HSBC 7,723 19 212 Barclays Capital 5,989 8 16.33 Dubai IslamicBank 5,207 10 14.14 Deutsche Bank 2,655 8 7.25 JP Morgan 2,183 4 5.9Source: Bloomberg, 15th Oct, 2008
US$300m Sukuk
Malayan Banking Berhard
JLM & Bookrunner
2007
US$750m Sukuk
Khazanah Nasional Berhard
Joint Bookrunner
2006
BN$500m Sukuk
Government of Brunei
Sole Advisor
August 2007
US$600m Sukuk
Islamic Republic of Pakistan
Joint Bookrunner
2005
US$600m
Government of Malaysia
Sole Bookrunner
2003
Malayan Banking Berhad (Maybank) – 2007
Best Sukuk Deal Euromoney 2008
Malaysia Deal of the Year Islamic Finance News 2007
HSBC Amanah non-GCC Sukuk issues and notable awards
24
HSBC has set the standard in the Islamic finance space, executing a wide range of “firsts” in the market
Government of Malaysia, 2002- First Islamic Sovereign Global Bond
State of Qatar, 2003 – First Islamic Sovereign Eurobond from the Middle East
Government of Brunei, 2006- First Capital Market Initiative in the Kingdom
The Islamic Republic of Pakistan, 2005- First Global Islamic Bond Issue by the issuer
Department of Civil Aviation, Dubai, 2004– Largest Islamic Sovereign Global Bond
Sharjah Islamic Bank, 2006– First rated Commercial Bank Sukuk from Middle East
Khazanah Exchangeable Sukuk, 2006- First Shariah-compliant Exchangeable Bond
Qatar Real Estate Inv. Co., 2007- First rated Sukuk for a Qatari corporate
Maybank, 2007– First ever Subordinated Tier 2 Sukuk
Tabreed, 2006– First internationally rated GCC corporate Sukuk
Leading the way in innovative transactions
25
Selected Sukuk Deal Summaries
26
The Sukuk Mudaraba was SBG’s debut Sukuk issuance into the Saudi debt capital markets
The transaction opened up to new investor base for SBG
First ever: unrated Sukuk of its size to be successfully distributed entirely within the Kingdom; Sukuk issued through an offshore vehicle which is registered, cleared and settled through Tadawul (also a first for the Kingdom); and Sukuk relating to Makkah developments
The Sukuk will enhance Saudi Binladin’s position in this sector and complete one of the first boutique hotels in Makkah
Issuer: Purple Island Corporation (SPV registered in the BVI and owned by certain members of the Binladin Group owners
Rating: Not rated
Guarantor: SBG
Maturity: 1 September 2013
Issue Amount: SAR 1,004 million (equivalent USD200 million)
Profit: 7% fixed
Listing: Riyadh
Sole Manager/
Bookrunner: HSBC
Breakdown by geography
Breakdown by investors
Saudi Binladin Group – SAR 1bn Sukuk
On 1 September 2008, Purple Island
Corporation launched a 5-year SAR1,004 million
Sukuk guaranteed by Saudi Binladin Group
(“SBG”)
The deal was a successful issuance
despite being unrated and issued during the
slow summer period
HSBC is the sole manager / bookrunner
for this offering
Transaction overview
Transaction highlights
Saudi (100%)
27
This transaction further consolidates HSBC’s position as the number one lead manager of Saudi Arabian Sukuk issuance. HSBC has again demonstrated its dominance in the Saudi capital market by Lead Managing, Structuring and Bookbuilding the fourth Saudi Arabian Sukuk – SABIC’s third Sukuk issuance in less than two years
HSBC’s input and assistance allowed the Sukuk to become the first in Saudi Arabia to be rated at the time of issuance
After opening up the SAR Sukuk market in 2006, HSBC has led ALL SAR public Sukuk issuances, aggregating SAR 21bn in size
Final distribution again achieved investor diversification, with banks comprising only 32% of the issue. Retail investors comprised more that half of the total in terms of number, and HSBC attracted new/first-time investors
Issuer: Saudi Basic Industries Corporation (“SABIC”)
Rating: A+ [S&P]
Issue Date: 26 May 2008
Maturity: 15 May 2028 (first Put: 15 May 2013)
Issue Amount: SAR 5 billion (equivalent USD1.3 billion)
Profit: 3m SAR Sibor + 48 bps
Listing: London and Dubai
Joint Lead Manager HSBC
Joint Bookrunner: HSBC
Breakdown by geography
Breakdown by investors
Pension Funds, Mutual Funds & ThriftFunds (37.4%)Institutions & Corporates (30.3%)
Bank Treasury (32.2%)
Retail (0.1%)
SABIC – SAR 5bn Sukuk al-Istithmar
On 26 May 2008, SABIC issued a SAR 5 billion
Sukuk, targeted at Saudi and GCC investors
This is the first rated Sukuk in the Kingdom,
and rated level to issuer rating. It was also the
first public Sukuk in Saudi Arabia to allow
investors to subscribe with as little as a
minimum of SAR10,000
Notwithstanding continuing market
volatility and tightening liquidity, the issue
attracted substantial demand, resulting in an
order book of more than 50 accounts nearly 1.3x the ceiling established by the Saudi regulator
Transaction overview
Transaction highlights
Saudi (99%)
Non Saudi (1%)
28
The deal was successfully closed despite difficult and volatile market conditions. At the time of closing, another transaction in the market for a Dubai government linked entity was aborted due to poor demand from investors
The transaction was over-subscribed beyond the issue size of US$325m with 27 accounts participating in the issue
Final distribution achieved investor diversification, with banks comprising 53% of the issue while corporates, private banks and fund managers made up the remaining 47%
HSBC played a crucial role in the successful closing of the transaction by generating almost two-thirds of the order book
Issuer: RAKIA Sukuk Company Limited
Obligor: The Ras Al Khaimah Investment Authority
Rating: Unrated
Guarantor: Government of Ras Al Khaimah
Maturity: 5 December 2012
Issue Amount: US$325
Profit: 3m US$ Libor + 150 bps
Listing: London and Dubai
Joint Lead Manager HSBC
Joint Bookrunner: HSBC
Breakdown by geography
Breakdown by investors
Banks (53%)
Corporates (20%)
Private Banks (22%)
Fund Managers (5%)
RAKIA – US$325m Investment Sukuk
On 26 November 2007, Ras Al Khaimah
Investment Authority (“RAKIA”) priced and
launched a 5 year US$325m Sukuk
The deal was a successful US$
denominated issuance during a volatile market
conditions
HSBC was a joint lead manager/bookrunner for
this offering
The transaction reinforces HSBC’s leading position in
Islamic capital markets and also HSBC’s
position as the number one lead manager of
Middle East bond issuance
Transaction overview
Transaction highlights
Middle East (75%)
United Kingdom (12%)
Rest of Europe (13%)
29
Despite external market volatility and mid-way increase in issuance ceiling, an orderbook of SAR 10bn in size was built up, allowing the company to issue at the revised ceiling of SAR 8bn. Half the allocated orders in number went to retail investors
Final distribution achieved investor diversification, with bank comprising only 40% of the issue. Retail investors comprised half the total in terms of number, and HSBC attracted new/first-time investors
HSBC is the only house to have Sukuk approved by a Saudi Shariah Committee (SABB Amanah Shariah Committee). The transaction firmly reinforces HSBC’s position as the leading Sukuk/DCM house and emphasizes its leadership in the Kingdom’s capital market
Issuer: Saudi Basic Industries Corporation (“Sabic”)
Rating: Not rated
Maturity: 15 July 2027 (first Put: 15 July 2012)
Issue Amount: SAR 8bn (US$2.1bn)
Coupon: 3m SAR SIBOR + 38 bps
Joint Lead Manager: HSBC
Sole Regional Coordinator: HSBC
Breakdown by geography
Breakdown by investors
Pension, Mutual & other funds (30%)
Corporate & Institution (30%)
Banks (40%)
SABIC – SAR8bn Sukuk al-Istithmar
On 6 August 2007, SABIC issued a SAR 8bn Sukuk, targeted at Saudi
and GCC investors. HSBC was a joint lead
manager/bookrunner and sole regional coordinator
for this landmark offering
This is the largest-ever Sukuk/bond issued by a
Saudi entity and the largest non-equity linked Sukuk in the region by a
publicly quoted corporate, beating the
recent record set by Saudi Electricity
Company (sole led by HSBC)
Transaction overview
Transaction highlights
Saudi Nationals (94%)
Non-Saudi (6%)
30
This is the first rated Sukuk for a Qatari corporate
The deal was priced at US$3m L + 73 bps, the tighter end of the initial price guidance of “75bps area” in a volatile market environment.
HSBC Financing Solutions Group successfully acted as the ratings advisor in this exercise as well as advising on structuring the Sukuk to receive the same ratings as the Company
The transaction reinforces the Group’s leading position in Islamic Capital and highlights the seamless and successful co-operation between Investment Banking, Amanah, Debt Capital Markets and the Financing Solutions Group teams in providing integrated value-added proposition to Alaqaria
Issuer: Qatar Alaqaria Sukuk Company
Obligor: Qatar Real Estate Investment Co. Q.S.C.
Obligor Ratings: A2 (Moodys) / BBB+ (Fitch)
Issuer Ratings: A2 (Moodys) / BBB+ (Fitch)
Maturity: 2 August 2012
Issue Amount: US$300m
Profit: 3m US$ Libor + 73 bps
Listing: London
Lead Manager HSBC
Bookrunner: HSBC
Breakdown by geography
Breakdown by investors
Banks (82%)
Funds (12%)
Corporates (6%)
QREIC – US$300m 5 year Sukuk
On 27 July 2007, Qatar Real Estate Investment Co (“Alaqaria”) priced
and launched a US$300m 5 year Sukuk issue
This is the first rated Sukuk for a Qatari
corporate
HSBC acted as Sole Lead Manager and
Bookrunner for the issue
Transaction overview
Transaction highlights
Middle East (70%)
Europe (27%)
Asia (3%)
31
This transaction represents the largest Sukuk or bond issuance (domestic or international) by a Saudi Arabian issuer
Final distribution achieved SEC’s goal of investor diversification, with banks comprising about 50% of the issue
The issuance highlights the Group’s ability to harness domestic SAR liquidity, even during turbulent external market conditions
The success of this issuance reinforces the Group’s position as the leading Sukuk and bond house and its leadership in the Kingdom’s debt markets
Issuer: Saudi Electricity Company (“SEC”)
Rating: Not rated
Issue Date: 23 July 2007
Maturity: 15 July 2027 (first Put: 15 July 2012)
Issue Amount: SAR5bn (US$1.3bn)
Profit: 3m SAR Sibor + 45 bps
Sole Boookrunner: HSBC
Sole Lead Manager: HSBC
Breakdown by geography(issue is restricted to Saudi nationals and entities only)
Breakdown by investors
Bank Treasury (50%)
Funds (26%)
Institutions & Corps (24%)
Saudi Electricity Company – SAR 5bn Sukuk al-Istithmar
On 23 July 2007, Saudi Electricity Company
(“SEC”) issued its debut SAR 5bn (US$1.3bn)
Sukuk
This is the largest-ever Sukuk or bond issued from Saudi Arabia and the largest non-equity
linked Sukuk in the region by a publicly
quoted corporate
Although purely a domestic transaction,
the issue attracted substantial demand with
a final order book of SAR 7bn from 33 accounts,
nearly 3 times SEC’s issuance target
Transaction overview
Transaction highlights
Saudi Arabia (100%)
32
HSBC was able to leverage off Maybank’s many credit strengths to price at 6m US$ Libor + 33 bps, the tight end of initial guidance (of 35 bps +/- 2 bps). This represented the tightest ever pricing in US Dollars for a Malaysian borrower and also the tightest ever USD Sukuk pricing globally (excluding supranational borrowers)
Combined with an aggressive but transparent pricing strategy, the transaction attracted almost US$2.4bn of orders, an oversubscription of over 7x
Strong interest in the transaction was seen from both Islamic and conventional investors, with over 70 accounts in the book. Every Islamic order brought into the book was done so by HSBC on a sole basis
Issuer: MBB Sukuk Inc.
Obligor: Malayan Banking Berhad
Obligor Ratings: A3 / A- / A-
Issue Ratings: Baa1 / BBB+ / BBB+
Pricing / Settlement Date: 18 / 25 April 2007
Maturity / Call Date: 25 April 2017 / 2012
Re-offer Spread: 6m US$ Libor + 33 bps
Listing: Singapore and Labuan
Joint Lead Manager & Bookrunner: HSBC
Breakdown by geography
Breakdown by investors
Asia (61%)
Europe (24%)
Middle East (15%)
Banks (60%)
Asset Managers (28%)
Insurance Co (9%)
Private Banks (3%)
Maybank – US$300m Subordinated Tier 2 Sukuk
On 18 April 2007, Malayan Banking Berhad
(“Maybank”) successfully priced a
landmark US$300m Subordinated Lower Tier
2 Sukuk
The transaction represents the world’s first ever subordinated bank capital Sukuk and
showcases HSBC’s continued leadership in
innovation in the Islamic capital markets
HSBC acted as Joint Lead Manager and Joint
Bookrunner on this prestigious transaction
Transaction overview
Transaction highlights
33
The transaction was 2 times oversubscribed (total order book being close to US$1bn) beyond the initial target issue size of US$500m, with 47 accounts participating in the issue
The issue was upsized to US$800m after the high allocation demand from the participating accounts. Non-Middle Eastern investors accounts for 50% of the order book, which is the highest ever achieved by a commercial bank Sukuk issue
The transaction highlights the seamless and successful co-operation between CIBM Amanah, Debt Capital Markets and the Ratings and Capital Advisory teams and reinforces the Group’s leading position in the Islamic Capital Markets
Issuer: ADIB Sukuk Company Ltd
Obligor: Abu Dhabi Islamic Bank PJSC (“ADIB”)
Rating: A2 (Moody’s) / A (Fitch)
First Issue Date: 12 December 2006
Maturity Date: 12 December 2011
Issue Amount: US$800m
Coupon: 3m US$ Libor + 40 bps
Lead Manager: HSBC
Sole Arranger/Bookrunner: HSBC
Breakdown by geography
Breakdown by investors
Middle East (50%)Europe (37%)Asia (12%)US Off-shore (1%)
Banks & Treasury (56%)
Fund Managers (28%)
Corporates (8%)
Others (8%)
ADIB – US$5bn Trust Certificate Programme
On 30 November 2006, ADIB priced and
launched its debut debt capital market issue; US$800million 5 year
Sukuk issue under the programme
This is the first rated Trust Certificate Programme by a
commercial bank and the largest in size among all
trust certificate programmes
This transaction reinforces HSBC’s
leading position as an arranger of Islamic EMTN
issuance – HSBC was the arranger of the only
other Shariah-compliant EMTN Programme in
2005
Transaction overview
Transaction highlights
34
The offering was upsized from an initial size of US$500m to US$750m after overwhelming demand from international investors during the first two days of bookbuilding
A well devised marketing strategy was implemented to educate Middle Eastern investors on the innovative exchangeable bond structure and conventional investors on the Islamic aspects of the structure
The book was over-subscribed by about 6 times the initial issue size with high quality demand from dedicated CB specialists, Middle Eastern Islamic and conventional investors and some fixed income funds
HSBC played a key role in assisting Khazanah achieve its key objective of maximizing demand from the Middle East by generating over 50% of the demand from the region
Demand was well diversified with the Middle East comprising 29% of allocations, Europe 41%, Asia 26% and offshore US accounts taking 4%
Issuer: Rafflesia Capital Limited Obligor: Khazanah Nasional BerhadUnderlying shares: Telekom Malaysia (“TM”)Base issue size: US$650mGreenshoe: US$100m or 15.4% of base issue sizeTenor: 5 YearsPeriodic payment: 1.25% per annum payable annuallyYield: 5.07%Exchange premium: 19% Redemption amount: 121.14% Reference share price: MYR9.1143 (VWAP on pricing date)Exchange price: MYR10.85Issuer’s call option: After 3 years subject to 130%Listing: HKSE and Labuan HSBC role: Joint Bookrunner and Joint Lead Manager
Breakdown by geography
Breakdown by investors
Europe (41%)
Middle East (29%)
Asia (26%)
US offshore (4%)
Khazanah – US$750m Exchangeable Islamic Bonds
On 27 September 2006, Khazanah successfully
issued US$750m of Shariah compliant
Islamic bonds which are exchangeable into shares of Telekom
Malaysia
This transaction marks:
– The first-ever Shariah compliant exchangeable
bond transaction
– The largest equity-linked issue ever out of
Malaysia
– The largest equity-linked issue in Asia ex-
Japan since January 2005
Transaction overview
Transaction highlights
6.0x104
0
1
2
3
4
5
6
Subscription No. of Accounts
0
40
80
120
x No. of accounts
35
The Sukuk structure utilised an existing business as the underlying assets and is the first one where the company itself is the issuer rather than an SPV
While purely a domestic transaction, the issue attracted substantial demand with a final order of over SAR 4.3 billion, allowing issuance at the maximum approved size (SAR 3 billion). Final distribution achieved Sabic’s objective in diversifying its investor base and will act as a catalyst to the Kingdom’s debt capital market
This landmark transaction firmly highlights HSBC’s debt credentials in Saudi Arabia and reinforces HSBC’s position as the number one lead manager of Middle East Bond issuance
Issuer: Saudi Basic Industries Corporation (“Sabic”)
Rating: Not rated
Issue Date: 29 July 2006
Tenor: 5 years
Issue Amount: SAR 3bn (US$800m)
Coupon: 3m SAR SIBOR + 40 bps
Sole Bookrunner: HSBC
Breakdown by geography
Breakdown by investors
Saudi Nationals (100%)
Pension, Mutual & other funds (49%)
Corporate & Institutions (15%)
Banks (36%)
SABIC – SAR3bn Sukuk Istithmar
On 29 July 2006, SABIC issued a SAR 3bn (US$
800m) Islamic bond (Sukuk Al-Istithmar).
HSBC was sole bookrunner and lead
manager for this debut transaction
This is the first corporate Sukuk/bond in Saudi
Arabia and the first public bond issuance in
Saudi Arabia; it is also the largest in the region
by a publicly quoted corporate
It is also the first tradable Sukuk/bond in
the Kingdom and the first to be cleared
through the Saudi Stock Exchange
Transaction overview
Transaction highlights
36
In addition to being the first investment grade corporate Sukuk globally, the offering is also the first unsupported (by a sovereign guarantee, explicit or implicit) corporate rating in the GCC region
A total order size of US$285m was achieved; however the Issuer opted to limit the total amount of the offering to US$200m
Following the allocation process, 75.5% of the Sukuk were placed in the Middle East, 13.8%Asia and 9.7% Europe
Issuer: Tabreed 06 Financing Corporation
Obligor: National Central Cooling Company (PJSC) (“Tabreed”)
Rating: BBB- (S&P)
Issue Date: 20 July 2006
Maturity Date: 20 July 2011
Issue Amount: US$200m
Coupon: 6m US$ Libor + 125 bps
Joint Bookrunner: HSBC
Global Coordinator: HSBC
Breakdown by geography
Breakdown by investors
Middle East (75.5%)Asia (13.8%)Europe (9.7%)Others (1%)
Banks & Treasury (87%)
Fund Managers (12%)
Private Banks (1%)
Tabreed – US$200m 5 year Sukuk
On Monday 10th July, Tabreed priced and
launched a 5-year US$200 million Sukuk
via Tabreed 06 Financing Corporation
The offering represents the first internationally rated corporate Sukuk
globally and the underlying Istisna-Ijara structure is the first of
its kind. It offers an innovative solution to
issuers lacking assets to achieve benchmark sized
Shariah-compliant financing
Transaction overview
Transaction highlights
37
Islamic Republic of Pakistan - US$600m 5 year Sukuk
On Tuesday 18th January 2005, HSBC acted as Joint
Lead Manager and Bookrunner on the Islamic
Republic of Pakistan’s US$600m Sukuk Floating
Rate Trust Certificates issue
The highly successful transaction is the debut
Sukuk offering from Pakistan and represents
the first international Sukuk issue by a non
investment grade obligor
Issuer: The Islamic Republic of Pakistan
Rating: B+
Issue Date: 27 January 2005
Maturity Date: 27 January 2010
Issue Amount: US$ 600 million
Coupon: 6m US$ Libor + 220 bps
Reoffer Spread: 6m US$ Libor + 220 bps
Joint Bookrunner: HSBC
Transaction rationale
As a result of substantial investor appetite the issue was upsized to US$600m from an initially anticipated US$500m
With 82 investors participating in the offering, the issue achieved widespread geographical distribution and account diversification
The Sukuk structure diversified Pakistan’s investor profile to include Islamic investors whist simultaneously embracing conventional bond accounts
Of the total order book, 48% of orders were given jointly to Citigroup & HSBC, while a further 45% of the book comprised of orders obtained by HSBC exclusively
Transaction highlights
Breakdown by geography
Breakdown by investor type
Middle East (47%)
Asia (30%)
Europe (22%)
Govt & Central Banks (25%)Asset Managers (23%)Islamic Banks (20%)Banks (18%)Private Banks (11%)Insurance and Corporates (3%)
38
The Sukuk successfully achieved IDB’s objective of investor diversification: final allocations saw two-thirds of the deal placed outside the Middle East
The final order book exceeded US$700m and contained 29 orders, including ticket sizes up to US$100m
The quality of the order book was clearly demonstrated by strong participation from central banks – Approximately a third of the deal was allocated to these investors
Pricing and launch followed a road show that visited centres in Asia, Europe and the Middle East
Issuer: IDB Trust Services Ltd.
Obligor: The Islamic Development Bank
Rating: AAA (S&P) / AA (Fitch)
Issue Date: 15 June 2005
Maturity Date: 22 June 2010
Issue Amount: US$500m
Coupon: 6m US$ Libor + 12 bps
Joint Bookrunner: HSBC
Breakdown by geography
Breakdown by investors
Middle East (32%)Asia (35%)Europe (26%)Supranational (7%)
Banks & Treasury (43%)Central Banks (32%)Corporates (12%)Agency (10%)Insurance Co. (2%)Private Bank (1%)
IDB – US$500m 5 year Sukuk
On Wednesday 15th June, Islamic
Development Bank priced and launched the
inaugural Sukuk issue under its US$1bn EMTN
Programme
The transaction has a maturity of 5 years and was priced at Libor +12
bps
With this issue, IDB has effectively re-positioned
its credit in the market and created a strong benchmark for future
issuance
Transaction overview
Transaction highlights
39
The purpose of the financing is for the expansion and development of Dubai International Airport, reflecting Dubai’s fast growing status as a major regional and global hub
The deal achieved a diversified book by investor type with around 70% of the deal placed among non-Islamic investors. Investor types included central banks, banks, supranationals, corporates, insurance and pension companies and private banks
This is Government of Dubai’s debut international sukuk issue - in 2003 HSBC lead managed an AED 1.5 billion domestic bond issue
Although the pre-marketing roadshow only visited the GCC region, the deal still achieved 16% placement outside the Middle East
Issuer: The Government of Dubai, acting through DCA
Rating: Unrated
Issue Date: 28 October 2004
Maturity Date: 4 November 2009
Issue Amount: US$1bn
Coupon: 6m US$ Libor + 45 bps
Reoffer Spread: 6m US$ Libor + 45 bps
Joint Bookrunner: HSBC
Breakdown by geography
Breakdown by investors
Banks (73%)Financial Institution (9%)Central Banks (8%)Pension Companies (4%)Corporates (4%)Others (2%)
The Government of Dubai – US$1bn 5 year Sukuk
On Thursday 28th October the Government of Dubai, acting through
Department of Civil Aviation (DCA), issued a
US$1bn Islamic bond issue (Sukuk al-ljara).
HSBC was joint bookrunner and lead
manager
Due to over-subscription and a final order book
over US$1.2bn, the deal was increased in size
from an initial US$750m
This transaction consolidates HSBC’s
position as the number one lead manager of
Middle East sukuk issuance
Transaction overview
Transaction highlights
Middle East (73%)
Asia (11%)
Europe (16%)
40
Having announced initial price guidance in a range of +38-43 bps, the deal was priced at 40 bps over Libor. This was despite Qatar’s fixed rate US$ bond due 2009 trading at Libor +55 bps at the time of pricing. The appeal of the Sukuk / FRN product, together with the rarity value of new Qatar sovereign issuance, enabled strong book-building at the lower margin
Qatar achieved its objective of broadening its investor base as new investors accounted for about two-thirds of the allocated orders and around three-quarters of the issue amount
Qatar maintained a balanced distribution between liquidity-orientated and buy-and-hold investors and an equal split between Islamic and conventional accounts. This ensures sufficient secondary market liquidity for the notes, as Middle East investors are typically reluctant to trade
Issuer: State of Qatar
Rating: A+
Issue Date: 30 September 2003
Maturity Date: 9 October 2010
Issue Amount: US$700m
Coupon: 6M US$ Libor + 40 bps
Sole Bookrunner: HSBC
Breakdown by geography
Breakdown by investors
Banks (83.1%)
Financial Institutions (6.7%)
Corporates (4.5%)
Private Bank (4.5%)
Other (1%)
State of Qatar – US$700m 7 year Sukuk
The State of Qatar’s issuance was only the
second time that a sovereign has issued
internationally rated and listed Islamic securities, and it was the first time
that a Sukuk al-Ijara had been issued from the
GCC under the Regulation S format
The final order book closed more than twice
subscribed at US$1.2bn. The deal was increased
from US$500m to US$700m, the largest
ever international Islamic financing, restricted by
the underlying asset that is valued at
approximately US$700m
Transaction overview
Transaction highlights
Middle East (72%)Europe (14%)Asia (11%)US (3%)
41
The deal was priced on 25 June late evening at US$ Libor +95bp – At the tightest end of the price talk range
The order book closed more than 2 times oversubscribed at US$1.1bn
An equal split between Islamic and conventional accounts to ensure sufficient secondary market liquidity for the Sukuk
First sovereign Islamic bond issue to be rated by international rating agencies (Moody’s & S&P) and to be listed on the Luxembourg Stock Exchange. First Islamic bond to be distributed under Reg. S and Rule 144A
Initial price guidance on 20 June: At US$ Libor + 95bp area. Interest from Asia alone grew to over US$600 million. The momentum enabled Malaysia to tighten price guidance to a range within 92 - 95 bps
Issuer: Federation of Malaysia
Rating: BBB/Baa2
Issue Date: 3 July 2002
Maturity Date: 3 July 2007
Issue Amount: US$600m
Coupon: 6 month US$ Libor plus 95 bps
Sole Bookrunner: HSBC
Breakdown by geography
Breakdown by investors
Banks (81%)
Funds (17%)
Corporates (2%)
Private Bank (0.3%)
Federation of Malaysia – US$600m 5 year Sukuk
Most Innovative Bond Issue of the Year
– THE ASSET
Most Innovative Capital Markets Transaction of
the Year– FINANCEASIA
Best Asian Sovereign Bond
– EUROMONEY
Most Innovative Bond Deal of the Year
– FINANCEASIA
Sovereign Bond of the Year
– ASIAMONEY
Deal of the Year– INSTITUTIONAL
INVESTOR
Transaction overview
Transaction highlights
Middle East (51%)Asia (30%)Europe (15%)USA (4%)
42
Issued by HSBC Bank Middle East Limited, PO Box [66/4604], Dubai, UAE, which is incorporated in Jersey, Channel Islands and regulated by the Jersey Financial Services Commission to carry on investment business under the Financial Services (Jersey) Law 1998. Services are subject to the Bank's terms and conditions.
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HSBC Bank Middle East LimitedIncorporated in Jersey, Channel Islands
Registered Office: HSBC House, EsplanadeSt.Helier, Jersey JE4 8UB
Channel IslandsMember of HSBC Group