In a landmark year for Islamic finance, 2014 saw a consistent conveyor belt of innovative, benchmark and groundbreaking new deals from a variety of new markets, participants and sectors: supported by a stout base performance as volumes rose and the Islamic debt capital markets demonstrated their continued resilience and strong growth prospects. In our inaugural issue for 2015, the illustrious IFN DOTY Awards Board brings you the best deals of the last 12 months, selected via a rigorous and robust judging process based on peer nominations and expert independent industry analysis. For a comprehensive review of the prestigious IFN Deals of the Year (DOTY) winners for 2014, we leave you in their capable hands…
2014 was one of those years that brought forth unexpectedly interesting and diverse deal flows. Many economists and analysts anticipated that the combined effect of US dollar tightening and declining petroleum prices would put a damper on the Islamic capital markets. Add to the mix various surprising political developments which froze any evolution in markets like Libya and Iraq, and the pessimistic view seems to have been borne out. The global banks are steadily reducing their footprints, and the Islamic financial sectors are eagerly stepping into their shoes. Yet 2014 saw a widening and a deepening of the Islamic capital market. As a result, 2014 production is estimated to top out just above 2013 production.
The three pillars of the Islamic capital market remain Malaysia, the UAE and Saudi Arabia. Not only are these three markets important centers for transacting, but their market players are carrying the message and practice of Islamic finance globally. UAE players are key to opening up Egypt and picking up the surprising slack in the overbanked Kuwait market. Malaysian leaders show on all landmark transactions and are making an impression in the United Kingdom, Luxembourg and Hong Kong.
This year, Malaysia and the UAE ran neck and neck in the number of submissions. Dealmakers in both markets submitted over 80 transactions each. And there was plenty of cross-fertilization between the two markets with UAE issuers and bankers active in Malaysia, and Malaysian bankers active in the UAE. Saudi deals represented just under 50 of the universe. The key trend in these markets is the importance of local currency issuances and cross border issuers taking advantage of the favorable swap rates and local market issuers preferring local currency obligations.
Important markers were laid down by London, Luxembourg and Hong Kong to consolidate their roles and to open new frontiers for the issuers, underwriters and investors. Senegal joined the UK and Luxembourg in establishing a sovereign benchmark for the domestic Islamic finance industry. Pakistan, Indonesia and Africa are continuing their expansion of Islamic markets regulation and activity. All of these markets saw new sovereign benchmarks. And many saw a powerful contribution from the IDB. Growth, however, is in fits and starts. 2013 newcomers Nigeria and Oman had no follow-up deals. Nominations for private equity deals faltered, but real estate kept its historical pace.
2014 nominations were on par with 2013. However, categories changed as we saw more banks come to market to bolster their regulatory capital. We also saw the hybrid structure pioneered by Malaysia in 2011 grow in popularity and undergo many interesting adaptations. 2014 is also the first year that you brought forward nominations in the new Social Impact Category and the new Regulatory Capital Category.
The 2014 nominations reversed 2013 in composition. If 2013 was the year of the tried and true, then 2014 was the year of the newly tried. Innovation, localization and globalization are the watchwords emerging from last year’s DOTY.
CORPORATE FINANCE: Barclays Bank’s disposal of certain retail and business banking products to Abu Dhabi Islamic Bank | |
Size: | AED650 million (US$177 million) |
Seller: | Barclays Bank |
Buyer: | Abu Dhabi Islamic Bank |
Lawyers: | Latham & Watkins (Legal counsel to acquirer), Linklaters and Al Tamimi & Co. (Legal counsels to seller) |
Date Closed: | April 2014 |
Shariah Advisor: | Abu Dhabi Islamic Bank |
The 2014 corporate finance market was rife with companies going private, acquisitions, and plain vanilla corporate deals. Abu Dhabi Islamic Bank (ADIB) made its second acquisition in the conventional market. Unlike its 2007 acquisition of Egypt’s National Bank for Development, ADIB acquired the UAE conventional retail banking portfolio of a global bank. This is the first time that an Islamic bank in the UAE acquired conventional banking assets with the intention of retaining the customers, converting the business platform, and expanding ADIB’s own footprint across the UAE. The transaction required the sale and purchase agreement to be structured in a 100% Shariah compliant manner and thus represented one of the few Shariah compliant sale and purchase agreements ever crafted and used on a transaction of this scale.
Many of the important challenges of the deal are post closing. ADIB has acquired a robust portfolio of retail credit cards, retail deposits, retail mortgages and personal loans. These are now undergoing conversion to Shariah compliant retail banking relationships. Honorable Mention: Axiom Telecom, SapuraKencana Petroleum, Cherat Cement Company, and Saudi Aerospace Engineering Industries (SAEI). |
CROSS-BORDER: The Islamic Corporation for the Development of the Private Sector (ICD) | |
Size: | US$100 million |
Arrangers: | Bank of Tokyo-Mitsubishi UFJ (Malaysia) (BTMU) |
Lawyer: | Dentons for BTMU |
Rating: | Unrated bilateral transaction |
Date Closed: | September 2014 |
Shariah Advisor: | ICD |
The purpose of this deal was to fund the ICD’s multi-jurisdictional Islamic financing activities. As the ICD provides deep support to IDB Group member countries in the development of Islamic finance, it has needed to diversify its sources of funding. The Japanese banks have been slowly flirting with Islamic finance. As the first facility is the first agreement to be contracted by BTMU with a multilateral international financial entity, this is a landmark transaction. Operating from the Malaysian International Islamic Finance Center, the BTMU deal achieved three milestones:
The base structure is a simple commodity Murabahah which helps to mitigate challenges of dealing between Malaysia and Saudi Arabia, and overcomes the need for specific underliers required for an Ijarah. Moreover, the deal utilized Bursa Malaysia’s Suq Al Sila for the execution of the Tawarruq steps. Honorable Mention: OPES Holding, Param Mitra Coal Resources, Sonatrach, and JANY Sukuk Company. |
CORPORATE FINANCE: Barclays Bank’s disposal of certain retail and business banking products to Abu Dhabi Islamic Bank
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Deal Size:
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US$700 million
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Arrangers:
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Rating:
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‘BBB-’
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Legal Counsel:
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Allen & Overy for the arrangers and Linklaters for the issuer
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Date:
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12th November 2014
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Shariah Advisors:
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The Sukuk structure required the use of assets, which were already utilized in connection with the 2012 refinancing. In order to use these assets for this Sukuk, consideration had to be given to the timing of release of the relevant assets from the 2012 refinancing and certain consents were required to be obtained from the financiers under the 2012 refinancing.
This transaction was innovative because it provided DIFCI with the flexibility to utilize assets which, at the time of the issuance, were not leased to third parties (and therefore were not income generating), but were rather used by DIFCI for its own benefit, i.e. ‘self-use assets’. The issuer SPV acquired the usufruct of the self-use assets and leased them back to DIFCI which generated a rental income stream, thus allowing the self-use assets (in addition to the other assets leased to third parties) to form part of a Wakalah portfolio for the Sukuk. Honorable Mention: Dubai International Real Estate; TNB Western Energy; Emirates National Factory for Plastic Industries; and Wa’ad Al- Shamal Phosphate Project. |
MOST INNOVATIVE: OPES Holding | |
Size: | EUR7.5 million (US$9 million) |
Arrangers: | Inoks Capital & Sidra Capital |
Lawyers: | Not disclosed |
Rating: | Unrated, privately placed |
Date Closed: | 17th January 2014 |
Shariah Advisor: | Sidra Capital |
OPES Holding (OPES) is a privately-owned real estate developer and contractor. OPES is one of five developers/contractors that have been licensed/authorized under the Priority Presidential Bill for Social Housing (the Bill) by the government of the Ivory Coast and are expected to supply the social housing market with 50,000 units. OPES is contracted to build 2,320 units of houses under the Bill with 482 to be delivered in Abidjan. This transaction covers the first 441. Unit buyers are either financed by retail banks and/or guaranteed by the respective corporate employers of the buyers.
Sidra Capital and INOKS Capital are the joint arrangers for the Mudarabah. The investors are GCC-based private family offices. INOKS Capital is the Mudarib and responsible for the Istisnah project financing to OPES. The investment is secured by pledges and assignments of shares, bank accounts, receivables from sales of housing units, land and offtake proceeds. INOKS Capital will continue to monitor the investment progress as the Mudarib. Sidra Capital, on the other hand continues its role as the investment advisor to the Arbab ul Mal of the Mudarabah. The essence of the deal is to allow debt to equity conversion aligning risk and reward between the Mudarabah and the finance beneficiary OPES. Although secured by offtakes, the completed Istisnah results in equity risk for housing units that are not taken up or for which payments and collateral are insufficient. The transaction is structured as a Mudarabah at investor level and Istisnah at project finance. This facilitates flow of capital from Shariah compliant Middle Eastern investors to non-traditional real estate investment destination of Cote d’Ivoire. Honorable Mention: Ley Choon Group Holdings; Gatehouse Bank Sigma Capital Joint Venture; DSI Sukuk Limited; and Amlak Finance. |
EQUITY: Mesaieed Petrochemical Holding Company | |
Size: | US$900 million (QAR3.2 billion) initial public offering (IPO) of shares in Mesaieed Petrochemical Holding Company (MPHC). The offer price was QAR10 (US$2.7) per share plus offering and listing costs of QAR0.2 (US$0.05) per share. |
Financial Advisors: | QNB Capital (lead financial advisor) and Deutsche Bank |
Lawyers: | Latham & Watkins |
Rating: | Unrated |
Date: | 21st January 2014 with listing on the 26th February 2014 |
Shariah: | The shares pass Shariah screens provided by AAOIFI, IdealRatings, FTSE, and MSCI. |
The first IPO in Qatar since 2010, the shares were five times oversubscribed. This is the first IPO under the current listing rules of the Qatar Financial Markets Authority (QFMA) and the first since Qatar was upgraded from ‘frontier’ to ‘emerging’ market status by MSCI in 2013. The IPO incorporates an innovative incentive share scheme designed to encourage the development of a personal savings culture in Qatar.IPO investors who retain at least 50% of their IPO shares also purchased the right to receive two sets of additional shares — at no further cost — in five and 10 years’ time (provided they hold 50% of their original shares by that time).The Qatari government also announced it would buy 750 shares in MPHC as a gift to each disadvantaged Qatari citizen and those with special needs. While the MPHC IPO was only open to Qatari nationals, foreigners can invest in the secondary market subject to foreign ownership restrictions imposed by law and MPHC’s Articles of Association.Honorable Mention: Gatehouse Bank Sigma Capital Joint Venture; OPES Holding; Boustead Plantations; and Emirates REIT (CEIC). |
IJARAH: Dubai International Financial Center (DIFC) Investments Sukuk | |
Deal Size: | US$700 million |
Arrangers: | Dubai Islamic Bank, Emirates NBD, Noor Bank, Standard Chartered Bank |
Rating: | ‘BBB-’ |
Legal Counsel: | Allen & Overy for the arrangers and Linklaters for the issuer |
Date: | 12th November 2014 |
Shariah Advisors: | Dar Al Sharia (DIB) and Standard Chartered Bank |
The Sukuk structure required the use of assets, which were already utilized in connection with the 2012 refinancing. In order to use these assets for this Sukuk, consideration had to be given to the timing of release of the relevant assets from the 2012 refinancing and certain consents were required to be obtained from the financiers under the 2012 refinancing.
This transaction was innovative because it provided DIFCI with the flexibility to utilize assets which, at the time of the issuance, were not leased to third parties (and therefore were not income generating), but were rather used by DIFCI for its own benefit, i.e. ‘self-use assets’. The issuer SPV acquired the usufruct of the self-use assets and leased them back to DIFCI which generated a rental income stream, thus allowing the self-use assets (in addition to the other assets leased to third parties) to form part of a Wakalah portfolio for the Sukuk. Honorable Mention: Dubai International Real Estate; TNB Western Energy; Emirates National Factory for Plastic Industries; and Wa’ad Al- Shamal Phosphate Project. |
MUDARABAH: Emirates Central Cooling Systems Corporation (EMPOWER) | |
Deal Size: | US$127.8 million |
Rab al Mal: | Dubai Islamic Bank |
Lawyers: | Clifford Chance for the Mudarib and Pinsent Masons for the Rab al Mal |
Rating: | Unrated bilateral transaction |
Date: | 26th August 2014 |
Shariah Advisors: | Dar Al Sharia |
In 2014, Mudarabah structures were less common than 2013. This is explained as many products migrated to Wakalah structures. Nonetheless, the application for Tier 1 capital, utilities and project development continued with a number of very attractive deals delivered in the market.
EMPOWER, the world’s largest district cooling company, sought funding for their Business Bay district cooling network. Dubai’s Business Bay area requires 350,000 refrigeration tons worth of capacity for business, retail and residential buildings as the area is built out. Dubai Islamic Bank, as part of its commitment to supporting the growth and improvement of Dubai’s infrastructure, delivered a five-year Mudarabah on an amortizing basis. Each amortization is a semi-annual constructive liquidation. Mudarabah structures work well with utilities that have stable or rising tariffs or increasing user uptake. Although Dubai Islamic Bank sought to reduce many of its risks in the Mudarabah, an interesting feature of the deal is that EMPOWER’s purchase undertakings are not at a fixed price. Honorable Mention: Alsa Engineering & Construction Co.; AHB Tier 1 Sukuk, Al Hilal Bank; and OPES Holding. |
MUSYARAKAH: Lalpir Power | |
Deal Size: | PKR2 billion (US$19.8 billion) |
Arranger: | Meezan Bank |
Rating: | Unrated |
Date: | August 2014 |
Shariah Advisor: | Meezan Bank |
The Musharakah category was once again well-contested. As in 2013, the category included perpetuals and corporate financings of medium-term durations.
The concept of unrated Islamic commercial paper with short-term durations up to six months is novel. Rarely tried, the concept puts the Sukukholders into a profit and loss sharing arrangement. This can work well with power companies as they often enjoy fixed or protected tariffs. Meezan Bank advised and arranged short-term Musharakah Sukuk of PKR2 billion for Lalpir Power as an Islamic alternative to commercial paper. The proceeds were used to meet Lalpir’s short-term working capital requirements. The Sukuk are based on Musharakah under Shirkat‐ul‐Aqd. As a result, the Sukukholders do not co-own assets. Rather they share operational performance risk and reward. The upside is capped in reference to the six-month KIBOR. The deal was well received by Pakistan’s Islamic mutual funds. They have long sought short-term tradable investments. Indeed the certificates were over-subscribed by investors with a substantial showing from the mutual funds. Honorable Mention: Malaysia Airports Holdings, Kesas Sdn Bhd, and Bumitama Agri Ltd. |
TAWARRUQ: DSI Sukuk for Drake & Scull International | |
Deal Size: | US$120 million |
Arrangers: | Al Hilal Bank, Emirates NBD Capital, Mashreqbank and Noor Bank |
Lawyers: | Simmons & Simmons Middle East and Simmons & Simmons for the issuer; and King & Spalding and King & Spalding International for the arrangers |
Rating | Unrated |
Date: | 12th November 2014 |
Shariah Advisors: | Emirates Islamic |
Tawarruq, often termed commodity Murabahah, is the process of generating cash or financing from a series of sales transactions, typically involving four counterparties.
Despite theoretical opposition and Shariah limitations, the tool has proven highly useful for businesses like Drake & Scull International (DSI), which are often ‘asset light’ but able to generate strong cash flows from their core integrated design, engineering and general contracting activities. DSI was able to privately place unrated senior unsecured Sukuk. The structure allowed floating quarterly profit payments and bullet dissolution payment at maturity. Following Bursa Malaysia’s example of Suq’ Al Sila, more regulated environments like the NASDAQ Dubai are creating platforms for transparent Tawarruq execution. This is the first Sukuk based on Murabahah trades of Shariah compliant certificates on the NASDAQ Dubai Murabaha Platform, which was recently established by NASDAQ Dubai in collaboration with Emirates Islamic and Emirates Islamic Financial Brokerage (Emirates NBD’s wholly owned subsidiaries). Honorable Mention: Saudi Arabian National Shipping Company (BAHRI); the ICD; Battersea Phase 3 Holding Company; and Projek Lintasan Kota Holdings. |
INFRASTRUCTURE & PROJECT FINANCE: Al Sharkiya Sugar Manufacturing Company (ASSM) (Al Nouran Sugar) | |
Deal Size: | Senior Islamic long-term syndicated facility of up to EGP1.5 billion (US$208.9 million) equal to 60% of total investment; subordinated Islamic finance for US$31 million (equivalent to EGP219 million) equal to 9% of total investment is provided by multilaterals; and equity EGP 391million (equivalent to US$56 million) being 31% of the total investment. |
Arrangers: | Abu Dhabi Islamic Bank Egypt, Audi Egypt & Banque Misr |
Lawyers: | Baker MacKenzie for the obligor and Clifford Chance and Maatouk Bassiouny legal consultants |
Rating: | Unrated |
Date: | April 2014 |
Shariah Advisors: | Abu Dhabi Islamic Bank Egypt |
With so many emerging markets improving and expanding their infrastructure, project finance remains a well contested category every year. Al Sharkiya Sugar Manufacturing Company (ASSM) stands out because all three arrangers (Banque Audi, ADIB Egypt & Banque Misr) once again pulled together a novel transaction giving proof of concept to new methods in the Egyptian market. ADIB Egypt’s role was on the drafting of the transaction while Banque Audi was the founder, Shariah provider in addition to being the intercreditor agent in the deal.
ASSM was established for the purpose of the construction and operation of a beet sugar production facility, sugar refining, molasses manufacturing, ethanol and byproduct production in the Al Sharkiya governorate. ASSM’s shareholding includes Al Nouran Multithreading Company (34%); the Arab Fund for Economic and Social Development (26%); the Islamic Corporation for the Development of the Private Sector (26%); and the Egyptian Sugar and Integrated Industries Company (ESIIC) (14%). The 600,000 ton capacity plant is meant to address Egypt’s widening sugar defi cit and reduce dependence on sugar imports. The financial structure introduces Istisnah — forward Ijarah to the Egyptian market. In this structure, the financiers entered into an Istisnah with ASSM to procure the plant, and executed a forward lease for the plant with ASSM. The method pushes construction risk to ASSM and its choice of contractors while giving the financiers control over the property and plant. The 8.5-year ASSM deal is not only a landmark for Islamic financing in Egypt, but is also an excellent case study on cooperation with conventional banks and corporates. Companies in Egypt are now recognizing Islamic finance as an efficient and safe vehicle for financing. Honorable Mention: TNB Western Energy; Safi IPP; Wa’ad Al- Shamal Phosphate Project; and SABIC & Exxon Mobil (KEMYA). |
REAL ESTATE: Midciti Sukuk for KLCC REIT | |
Size: | RM1.555 billion (US$442 million) issued in RM3 billion (US$852.7 million) program |
Arrangers: | AmInvestment Bank, CIMB Investment Bank, Maybank Investment Bank |
Legal Counsel: | Adnan Sundra & Low for the arrangers |
Rating: | ‘AAA’ |
Date: | 24th April 2014 |
Shariah Advisors: | CIMB Islamic, Maybank Islamic and Dr Aznan Hasan |
The transaction is the first ‘AAA/P1’ rated REIT Sukuk Murabahah program in Malaysia. The funds from the first issuance were raised to refinance/redeem Midciti and KLCC Real Estate Investment Trust (KLCC REIT)’s existing/future financings, to finance KLCC REIT’s capital expenditure, acquisitions and working capital requirements and to defray any expenses relating to the Sukuk Murabahah programs.
The key driver behind the rating’s success was to ensure KLCC REIT and KLCC Property Holdings, whose units and shares are stapled together and listed on the Bursa Malaysia stock exchange (KLCC Stapled Group), were viewed as a single economic entity. Combining KLCC Stapled Group’s strong parental linkage to Petroliam Nasional with KLCC REIT’s superior financial profile, portfolio of exceptional quality properties and longer-than-industry average lease term, resulted in RAM according the first corporate ‘AAA’ rating to a REIT. Honorable Mention: Gatehouse Bank Sigma Capital Joint Venture; OPES Holding; Boustead Plantations; and Limitless. |
SOVEREIGN: HM Treasury UK Sovereign Sukuk | |
Size: | GBP200 million (US$306.5 million) |
Arrangers: | Barwa Bank, CIMB Bank, HSBC, National Bank of Abu Dhabi, and Standard Chartered Bank |
Lawyers: | Linklaters for the issuer and Clifford Chance for the arrangers |
Rating: | Unrated, implied sovereign rating |
Date Closed: | 25th June 2014 |
Shariah Advisors: | Bait Al-Mashura Finance Consultation Company; CIMB Islamic Bank; HSBC Saudi Arabia and Standard Chartered Bank. |
Following the UK’s 2009 enabling legislation, the inaugural issuance gave proof of concept. The transaction validates the role of the UK as a key hub for the Islamic markets. The transaction also serves a number of ancillary benefits including providing high quality instruments for the investment by the UK’s domestic Islamic banks and sets a benchmark for the domestic banks, allowing them to be more efficient in pricing their liabilities and credit transactions. Because the UK maiden launch ticks all of these boxes, it jumps ahead of a very notable pool of candidates for sovereign of the year.
Honorable Mention: Grand Duchy of Luxembourg; Hong Kong Sukuk 2014; Perusahaan Penerbit SBSN Indonesia III (Republic of Indonesia); and Republic of Senegal. |
STRUCTURED FINANCE: Fawaz Abdulaziz Al Hokair & Co | |
Deal Size: | US$190 million |
Arranger: | Societe Generale |
Lawyers: | Latham & Watkins (English law) and Law Offices of Salman Al Sudairi in association with Latham & Watkins (Saudi law) for the obligor; and King & Spalding (English law) and King & Spalding in association with Law Offices of Mohammed Al Ammar (Saudi law) for the arranger |
Rating: | Unrated |
Date: | 26th October 2014 |
Shariah Advisors: | Societe Generale |
Shariah compliant Murabahah financing with operational control over point of Sale (POS) terminal receivables. The result is a synthetic compliant credit receivable securitization by Fawaz Abdulaziz AL Hokair & Co — possibly the largest Saudi Arabian retail operator. The structure utilized key quasi security and operational control structuring features to enable the cash flows generated by the identified point of sale terminals within the Kingdom of Saudi Arabia and in the UK. This structure provides the ability to monetize future cash flows generated by such point of sale terminals and providing an element of certainty for payments to the financiers. Al Hokair proposes to use the proceeds to fund certain international acquisitions of leading apparel brands.
Honorable Mention: Engro Foods; OPES Holding; Malaysia Airports Holdings |
SUKUK: HM Treasury UK Sovereign Sukuk | |
Size: | GBP200 million (US$306.5 million) |
Arrangers: | Barwa Bank, CIMB Bank, HSBC, National Bank of Abu Dhabi, and Standard Chartered |
Lawyers: | Linklaters for the issuer and Clifford Chance for the arrangers |
Rating: | Unrated, implied sovereign rating |
Date Closed: | 25th June 2014 |
Shariah Advisors: | Bait Al-Mashura Finance Consultation Company; CIMB Islamic Bank; HSBC Saudi Arabia and Standard Chartered Bank. |
This is the first Sukuk to implement the UK’s 2009 enabling legislation. The Sukuk uses an Ijarah structure and is employed by HM Treasury UK Sovereign Sukuk, a special purpose vehicle. Because of specific limitations relating to the movement of land and the role of the treasury as a prospective, tenant, the transaction deployed a head lease/sublease structure. This was legally perfected and registered at HM Land Registry, making it one of the most legally robust Sukuk in the international markets. Unlike many English Law deals, this transaction has no delegate, thereby giving direct rights against HMT in the event of non-payment.
Honorable Mention: Varlik Kiralama Anonim Sirketi; Bank of Tokyo-Mitsubishi UFJ (Malaysia); International Finance Facility for Immunization Company (IFFIm); and Al Hilal Bank. |
MURABAHAH & TRADE FINANCE: EXIM Sukuk Malaysia for Export-Import Bank of Malaysia | |
Deal Size: | US$300 million |
Arrangers: | HSBC Amanah, BNP Paribas Malaysia, CIMB Investment Bank, Maybank Investment Bank |
Lawyers: | Wong & Partners and Clifford Chance (Hong Kong) for the issuer and Zaid Ibrahim & Co., Linklaters Singapore, and Linklater (Dubai, UAE) for the arrangers |
Date: | February 2014 |
Rating: | ‘A3’ (Moody’s), ‘A-‘ (Fitch) |
Shariah Advisors: | HSBC Amanah, BNP Paribas Malaysia, CIMB Islamic Bank, Maybank Islamic |
Perhaps reflecting the concerns of many OIC central bankers about the shortage of Islamic trade finance, 2014 yielded fewer than expected trade finance or true supply chain Murabahah deals (although Meezan’s Engro was an excellent example of the latter). Count on Malaysia to do something.
The Export-Import Bank of Malaysia (MEXIM) was the first export-import bank to issue US dollar-denominated Sukuk. It was also the first US dollar-denominated Sukuk for 2014, making it the second consecutive year running where a Malaysian issuer has opened the year for international Sukuk issuance. The proceeds of the Sukuk Wakalah will be applied to MEXIM’s Shariah compliant working capital, general banking and financing activities as well as for other Shariah compliant corporate purposes. A key benefit of the transaction to MEXIM was the diversification of its investor base. Compared to MEXIM’s earlier capital markets efforts, which only attracted 5% of the investors from the Middle East, the 2014 Sukuk Wakalah drew 19% of its investors from the Middle East. Honorable Mention: Engro Foods and Etihad Etisalat Company (MOBILY). |
SYNDICATED: APICORP | |
Deal Size: | Tranche 1: SAR3 billion (US$798.97 million) Tranche 2: US$150 million |
Lead Arrangers: | Tranche 1: The Saudi British Bank, National Commercial Bank, Samba Financial Group, Riyad Bank and Banque Saudi Fransi Tranche 2: First Gulf Bank, HSBC Bank Middle East and National Bank of Abu Dhabi |
Date: | December 2014 |
Lawyers: | Latham & Watkins for the obligor and Allen & Overy for the arrangers |
Rating: | ‘Aa3’ |
Shariah Advisor: | Abu Dhabi Islamic Bank |
As always, the syndication market was active across the Islamic markets. Syndication allows obligors to enjoy discretion and financiers to test new markets or manage complex situations. APICORP has been a regular participant in the global syndicated markets since its inception. Historically, APICORP has been a conventional financier and investor. Therefore, APICORP did not previously approach the markets for a Shariah compliant syndication. But, over the past 10 years, management and customer demand have changed the nature of APICORP’s business. Today, the portfolio is substantially Shariah compliant with clients wishing to know if the sources of finds are also compliant. Hence, APICORP’s 2014 balance sheet management exercise is a dual-tranche syndication. APICORP has also been proactive in the management of its financial obligations, stretching tenors, taking advantage of positive price movements and tapping liquidity from new providers.
Honorable Mention: Twin Star Mauritius Holdings; United Arab Shipping; Garuda Indonesia (Persero) TBK; and SABIC & Exxon Mobil (KEMYA). |
RESTRUCTURING: Amlak Finance | |
Deal Size: | US$2.7 billion |
Lawyer: | Clifford Chance for the issuer |
Shariah Advisors: | Each of the creditors and obligors |
A sign of Dubai’s robust real estate revival is the successful restructuring of Amlak. A leading provider of Shariah compliant housing finance, Amlak needed to resolve the claims of nearly 30 commercial counterparties. This led to the restructuring of a variety of different Islamic financing and deposit structures including Murabahahs, Mudarabahs and bilateral and syndicated Wakalahs. The restructured facilities are regulated and coordinated through a common terms agreement and an inter-creditor agreement and benefit from an enhanced security package.
One of the challenges of the restructuring was the need to right size the balance sheet of Amlak Finance to reduce the total debt. This was achieved through the participants converting part of their debt into a convertible contingent instrument. The instrument is tied to a Mudarabah arrangement whereby the participants will benefit from realized value growth in Amlak’s underlying property portfolio over the life of the instrument. Any amount of the instrument which has not been redeemed by maturity can be converted into equity. The instrument is an innovative and bespoke feature of this transaction. Honorable Mention: STC Axis and Limitless. |
HYBRID: Cahaya Capital for Khazanah Nasional (Khazanah) | |
Deal Size: | US$500 million |
Arrangers: | CIMB Bank (L), Deutsche Bank (Singapore Branch), Standard Chartered Bank (Singapore Branch) |
Lawyers: | Allen & Overy, as English law counsel and Adnan Sundra & Low as Malaysian law counsel for the issuer and Linklaters Singapore as English law counsel and Zaid Ibrahim & Co as Malaysian law counsel for the arrangers |
Date: | 18th September 2014 |
Shariah Advisors: | CIMB Islamic Bank, the Shariah advisor of Deutsche Bank and the Shariah Supervisory Committee of Standard Chartered Bank |
NB: Almost all 2014 Wakalah deals were in hybrid structures: therefore the category is replaced by Hybrids. In 2014, many deals used Mudarabah structures in lieu of Wakalah structures for essentially the same purpose. | |
This was the first exchangeable Sukuk structure based on the Islamic principles of Mudarabah and Murabahah. This sixth Khazanah issuance is exchangeable into ordinary shares of Tenaga Nasional (TNB), which is the largest electric utility company in Malaysia and also the largest power company in Southeast Asia. Cahaya Capital (the issuer) is a Labuan-incorporated independent special purpose company specially incorporated for the purposes of this transaction. Khazanah was appointed as the Mudarib to perform certain duties in respect of the Mudarabah investments. The Mudarib invested 51% of the proceeds of the issue in shares in TNB with the remaining 49% of the proceeds of the issue invested by the issuer in a commodity Murabahah investment. As with the previous Khazanah exchangeable, this transaction was priced with a negative yield.
Honorable Mention: Mumtalakat Sukuk Holding Company; Abu Dhabi Islamic Bank; Saudi Telecom Company; and Ma’aden Wa’ad Al Shamal Phosphate Project. |
PERPETUAL: AHB Tier 1 Sukuk, Al Hilal Bank | |
Deal Size: | US$500 million |
Joint Lead Managers: | Abu Dhabi Islamic Bank, Al Rayan Investment, Sharjah Islamic Bank, HSBC, Al Hilal Bank, Citigroup, Emirates NBD Capital, National Bank of Abu Dhabi and Standard Chartered Bank |
Lawyers: | Allen & Overy for the issuer and Linklaters for the managers |
Date: | 24th June 2014 |
Rating: | Unrated |
Shariah Advisors: | HSBC, Al Hilal Bank, Citigroup, Standard Chartered Bank |
The pace of new perpetuals slowed down in 2014. Al Hilal went to market with a Basel III-compliant offering. The first of its kind in the UAE, the deal incorporated loss-absorption and non-viability features. The certificates will be classified as deeply subordinated and are callable in 2019.
The certificates provide for the full and permanent write-down of the certificates if a non-viability event (being the earlier of: (1) a decision that a write-off is necessary and (2) the decision to make a public sector injection of capital, or equivalent support, in each case, without which the bank would have become non-viable, as determined by the UAE central bank) occurs. The proceeds of the issuance of the certificates will be contributed by the trustee (as Rab al Maal) to the Mudarib (Al Hilal) and shall form the Mudarabah capital which will be invested in an unrestricted co-mingling Mudarabah basis by Al Hilal in its general business activities. The Mudarib shall distribute the profit to both the Trustee and the Mudarib in accordance with the profit sharing ratio 99% to the trustee (as Rab al Mal) and 1% to the Mudarib. The trustee shall apply its share of the profit (if any) generated by the Mudarabah on each periodic distribution date to pay the expected periodic distribution amount to the certificate holders. Honorable Mention: Malaysian Airport Holdings and Morgan Stanley Islamic Finance. |
REGULATORY CAPITAL: AHB Tier 1 Sukuk, Al Hilal Bank | |
Deal Size: | First issuance of RM609 million (US$173 million) from RM700 million (US$199 million) authorized |
Joint Lead Managers: | Abu Dhabi Islamic Bank, Al Rayan Investment, Sharjah Islamic Bank, HSBC, Al Hilal Bank, Citigroup, Emirates NBD Capital, National Bank of Abu Dhabi and Standard Chartered Bank |
Lawyers: | Allen & Overy for the issuer and Linklaters for the managers |
Date: | 24th June 2014 |
Rating: | Unrated |
Shariah Advisors: | HSBC, Al Hilal Bank, Citigroup, Standard Chartered Bank |
In 2014, banks continued to use favorable market conditions to boost their regulatory capital. Intriguingly, several banks choose issuances that bolstered Tier II capital. Al Hilal focused on Tier I with the first Basel III compliant offering in the UAE. The transaction follows regulatory capital Sukuk issues by Dubai Islamic Bank and Abu Dhabi Islamic Bank, both of which used similar Mudarabah structures.
The key challenges on the transaction included documenting the write-down feature in accordance with UAE central bank requirements and ensuring that the Shariah structure complied with the requirements of the Shariah committees of AHB and certain managers, while also adhering to international prudential requirements. The Mudarabah is a perpetual arrangement with no fixed end date. Al Hilal (as Mudarib) may elect to liquidate the Mudarabah, in whole but not in part, on the basis of a final constructive liquidation of the Mudarabah in the following circumstances:
For regulatory purposes, any liquidation of the Mudarabah and redemption of the securities requires both central bank approval and replacement by a similar type of perpetual. Honorable Mention: Maybank Islamic; AmIslamic Bank; Abu Dhabi Islamic Bank; and Morgan Stanley Islamic Finance. |
SOCIAL IMPACT: International Finance Facility for Immunisation Company | |
Deal Size: | US$500 million |
Arrangers: | Barwa Bank, CIMB Investment Bank, National Bank of Abu Dhabi, NCB Capital Company and Standard Chartered Bank |
Lawyers: | Slaughter and May and Zaid Ibrahim for the issuer and Allen & Overy for the arrangers |
Date: | November 2014 |
Rating: ‘ | AA+’ (S&P) and ‘AAA’ (MARC) |
Shariah Advisors: | JLM Shariah counsel |
Given the misguided efforts of extremists in Pakistan and Nigeria to stop vaccinations, the global Islamic finance community fought back supporting funding for children’s immunization in the world’s poorest countries through Gavi, the Vaccine Alliance.
Over 85% of the order book was from uniquely Islamic investors. The support for the Tawarruq-based transaction was strong. This is the first charity driven Sukuk transaction in the Islamic capital market. This transaction marks the largest Sukuk Murabahah issuance in the public markets and is also the largest inaugural Sukuk offering from a supranational. This transaction also involved complex UK tax issues, which required formal clearance from HM Revenue & Customs. The tax clearance that was obtained on this transaction paves the way for future transactions involving the private placement of Sukuk by UK-based entities using a Murabahah structure. It provides institutional investors with a socially responsible investment that will help protect tens of millions of children against preventable diseases. Honorable Mention: OPES Holding; Oceanpick Private; DanaInfra Nasional and Abu Dhabi Islamic Bank acquisition of Barclays UAE branches. |
Country Deals
(please note that to win a country DOTY the nation in question must have transacted a minimum of three deals during the relevant 12-month period)
AFRICA: Republic of Senegal | |
Deal Size: | XAF100 billion (US$182 million) |
Lead Arranger: | ICD and Citibank Senegal |
Lawyers: | Clifford Chance for the issuer and Hogan Lovells (Middle East), FDKA for the arrangers |
Rating: | ‘A’ (Agusto & Co) |
Date: | June 2014 |
Shariah Advisors: | ICD |
Islamic finance activity is evolving slowly but surely in Africa. In some years, multiple transactions dot North Africa. With new laws in place and players taking root, key markets like Egypt, Nigeria and Morocco are expected to take off. Yet none of the key OIC countries in Africa has a sovereign benchmark, until now.
The Sukuk issuance was structured as an amortizing Sukuk Ijarah whereby the Republic of Senegal granted a 99-year usufruct over certain assets and agreed to lease them back in return for making rental payments to investors. The transaction was guaranteed by the Republic of Senegal. The purpose of the transaction is to: “Finance projects of economic and social development”. This was the first major Sukuk issuance by a sovereign in Africa, followed by the Republic of South Africa Sukuk. The first of its kind deal intends to enable Senegal to attract new funding using Shariah compliant principles and setting a benchmark for domestic and regional CFA transactions. Honorable Mention: Al- Sharkiya Sugar Manufacturing Company; Safi IPP; Republic of South Africa and OPES Holding. |
EMERGING ASIA: Hong Kong Sukuk 2014 | |
Deal Size: | US$1 billion |
Arrangers: | HSBC and Standard Chartered Bank as global coordinators |
Joint Lead Managers: | CIMB, HSBC, National Bank of Abu Dhabi and Standard Chartered |
Lawyers: | Allen & Overy for the arrangers and Norton Rose Fulbright for the issuer |
Date: | 18th September 2014 |
Rating: | ‘AAA’ |
Shariah Advisors: | The Executive Shariah Committee of HSBC Saudi Arabia, Standard Chartered Bank Sharia Supervisory Committee, CIMB Islamic Bank and Shaikh Nedham Mohamed Saleh Abdulrahman Yaqobi |
The inaugural US$1 billion Sukuk was issued from Hong Kong by Hong Kong Sukuk 2014, a special purpose vehicle incorporated for the purpose of the issue by the government of the Hong Kong Special Administrative Region of the People’s Republic of China (HKSARG), which also acts as the guarantor. The HKSARG chose an Ijarah structure for its inaugural Sukuk issuance.
The deal was the world’s first US dollar-denominated Sukuk originated by an ‘AAA’-government. The issuance was the first to test the amendments to Hong Kong’s tax laws that were implemented in July 2013 to facilitate the issuance of alternative bond schemes and which ensure a tax framework for Sukuk that is similar to the existing laws for conventional bonds. This issuance was important as it sets a benchmark for future Sukuk issuances out of Hong Kong. Honorable Mention: Oceanpick Private; Twin Star Mauritius Holdings; Perusahaan Penerbit SBSN Indonesia III; and Bumitama Agri. |
INDONESIA: Perusahaan Penerbit SBSN Indonesia III | |
Deal Size: | US$1.5 billion |
Arrangers: | HSBC, CIMB, Emirates NBD Capital, Standard Chartered |
Legal Counsel: | Allen & Overy (US and English law) and Thamrin & Rachman Law Firm (Indonesian law) for the issuer and White & Case (US and English law) and AZP Legal Consultants (Indonesian law) for the arrangers |
Rating | ‘Baa3’/’BBB-‘/’BB+’ (Moody’s/Fitch/S&P) |
Date: | 2nd September 2014 |
Shariah Advisors: | Dar Al Sharia, HSBC, CIMB, Emirates NBD Capital and Standard Chartered |
As a G20 economy, much is expected from Indonesia. The Republic’s fifth US dollar global Sukuk since 2009 maintains a benchmark for global investment into Indonesia and shows innovation in style, who were eager buyers showing that Shariah structures are not an impediment for key conventional accounts. As with previous issues there is a 144A tranche to attract US institutional investors.
The transaction is the first Wakalah issuance by the sovereign and incorporated elements of leasing and procurement within the structure, the latter of which is a first in the sovereign Sukuk space. The Sukuk assets consisted of (i) government-owned properties leased back to the republic and (ii) infrastructure project assets procured from the republic. Honorable Mention: Bumitama Agri; Garuda Indonesia (Persero); Lumbung Padi Indonesia; and Axiom Telecom. |
LUXEMBOURG: Luxemburg Treasury Securities on behalf of The Grand Duchy of Luxembourg | |
Deal Size: | EUR200 million (US$240 million) |
Managers: | HSBC, BNP Paribas, Banque Internationale à Luxembourg and Qlnvest |
Lawyers: | Allen & Overy for the issuer and Linklaters for the arrangers |
Rating: | ‘AAA’ |
Date: | 17th October 2013 |
Shariah Advisors: | BNP Paribas and HSBC |
This was a long awaited non-Muslim country transaction that featured strongly in IFN’s Sukuk Race throughout 2014. At one point leading the race, several constitutional, property and trust issues had to be overcome, which slowed the pace.
The Grand Duchy of Luxembourg has been a strong supporter of the Islamic financial services industry, noteworthy for its founding membership in IILMC. Delivering the Sukuk was a further strong message from the government on the positioning of Luxembourg as a jurisdiction willing and able to support and service a variety of Islamic financial and investment products. The Ijarah structure involved the sale and lease of real estate assets by the Grand Duchy of Luxembourg. The Sukuk certificates are listed on the Luxembourg Stock Exchange and will be traded on the Euro MTF Market. As the second euro-denominated Sukuk after the Saxony Anhalt issuance of 2004, the transaction establishes a euro benchmark for the European market. Honorable Mention: Morgan Stanley Islamic Finance and International Islamic Liquidity Management. |
MALAYSIA: Midciti Sukuk for KLCC REIT | |
Size: | RM1.56 billion (US$445.97 million) issued in RM3 billion (US$857.63 million) program |
Joint Lead Managers/Joint Lead Arrangers/Joint Principal Advisors: | AmInvestment Bank, CIMB Investment Bank, Maybank Investment Bank |
Legal Counsel: | Adnan Sundra & Low for the arrangers |
Rating: | ‘AAA’ |
Date: | 24th April 2014 |
Shariah Advisors: | CIMB Islamic, Maybank Islamic and Dr Aznan Hasan |
Representing more than two thirds of Sukuk issuances, Malaysia never gives easy choices to analysts when it comes to Deal of the Year. Repeat issuers like Cagamas and Khazanah typically perfect the tried and true, sometimes modulating their prior methods with small tweaks. Bank of Tokyo-Mitsubishi UFJ (Malaysia) represents a concerted effort from a global player to enter the Islamic markets in a meaningful way. Others like MEXIM and KLCC REIT bring issuers to the market in a way that should impact a specific subsector in a meaningful way.
Although MEXIM brings important new resources for export oriented trade finance in Malaysia, KLCC REIT pips it given the wider proof of concept for all REITs to tap the Islamic capital market. KLCC REIT also represents a second foray, albeit indirectly, into the Islamic markets by Petroliam Nasional. The transaction’s complexity and success are tied to the nature of the stapled REIT units and shares of the sponsor. Honorable Mention: Bank of Tokyo-Mitsubishi UFJ (Malaysia); EXIM Sukuk Malaysia; Cagamas); Cahaya Capital (Khazanah). |
PAKISTAN: The Second Pakistan International Sukuk Company for the Islamic Republic of Pakistan | |
Deal Size: | US$1 billion |
Arrangers: | Citigroup, Deutsche Bank, Dubai Islamic Bank and Standard Chartered Bank |
Legal Counsel: | Norton Rose Fullbright (as to English law and US law) Khan & Associates (as to the laws of Pakistan) for the issuer; and Allen & Overy (as to English law and US law) Kabraji & Talibuddin (as to the laws of Pakistan) for the arrangers |
Date: | 3rd December 2014 |
Rating: | ‘B-‘, ‘Caa1’ |
Shariah Advisors: | Dar Al Sharia and Shariah Boards of Citi Islamic Investment Bank, Deutsche Bank, Dubai Islamic Bank and Standard Chartered Bank |
The Islamic Republic of Pakistan priced a US$1 billion 144A/RegS Sukuk offering due 2019, which marks its successful return to the international Sukuk market after an absence of nine years. The government of Pakistan was taking advantage of the fast growing and highly liquid base of Sukuk investors in a bid to boost the country’s economy.
Despite its non-investment grade rating, the deal appealed to global investors including US institutional investors. The deal is the largest non-investment grade rated Sukuk issued since 2008.
were registered with the Office of the Registrar in Islamabad in accordance with the requirements of the Registration Act, 1908 of Pakistan, thereby ‘perfecting’ such interests under Pakistani law. Preparing the disclosure for the Sukuk was complex because Pakistan had not gone to the Sukuk market since the financial crisis began. The Sukuk is a vital component of Pakistan’s commitment to raising funds under its obligations to the IMF. Honorable Mention: Engro Foods; Lalpir Power; Fatima Energy; and Cherat Cement Company. |
QATAR: Ezdan Holding | |
Deal Size: | US$500 million |
Arrangers: | Ahli United Bank, Al Hilal Islamic Banking, Abu Dhabi Islamic Bank, QFC Branch, Bank Islam Brunei Darussalam, Mashreq Al Islami and Union National Bank |
Lawyers: | Dentons Qatar for the issuer and Baker & Mckenzie Bahrain for the arrangers |
Rating: | Unrated |
Date: | April 2014 |
Shariah Advisors: | Bait-Al-Mashura Finance Consultations |
This was the first ever 100% Islamic international syndication Ijarah for a Qatari corporate. This was also the first ever 100% Islamic international syndication for Qatari real estate. The transaction applies a very high and strict Ijarah standard, but still meets LMA standards. The deal was able to attract conservative accounts like ADIB and Qatar First Bank.
Honorable Mention: ALYSJ JV and Mesaieed Petrochemical Holding Company. |
SAUDI ARABIA: Saudi Telecom Company | |
Deal Size: | SAR2 billion (US$532 million) |
Arrangers: | J.P. Morgan Saudi Arabia, NCB Capital Company, Standard Chartered Capital Saudi Arabia |
Lawyers: | Allen & Overy for the issuer and Clifford Chance for the arrangers |
Rating: | Unrated |
Date: | 14th June 2014 |
Shariah Advisors: | Shariah Supervisory Committee of Standard Chartered Bank and NCB Capital Company |
Saudi Arabia, consistently the second largest Islamic capital market and a key syndication market, enjoys growing issuances by its most trusted and often government-linked names. This happens despite the current thin capital market rules. The structure of the Saudi Telecom Company Sukuk program is a modification of the hybrid Mudarabah and Murabahah used widely in 2013 and 2014.
The profit amount/coupon is paid from the Mudarabah investment while the Murabahah covers the principal amount. As a regulated company, the structure required an ‘asset light’ approach in order to avoid regulatory issues. Honorable Mention: SABIC & Exxon Mobil (KEMYA); APICORP; the ICD; and Dar Al-Arkan Sukuk Company. |
TURKEY: Varlık Kiralama acting for Turkiye Finans Katılım Bankası | |
Deal Size: | RM800 million (US$227.4 million) |
Arrangers: | HSBC Amanah Malaysia, Standard Chartered Saadiq |
Legal Counsel: | Zico Law Office — Paksoy Law Office for the issuer and Adnan Sundra Law Office for the arrangers |
Rating | ‘AA3’ (RAM) |
Date: | 30th June 2014 |
Shariah Advisors: | IITFC |
The Turkish market faced a number of challenges in the face of reduced dollar liquidity. As a result, players from this G20 market explored international capital market alternatives.
Turkiye Finans was the first with its RM3 billion (US$857.63 million) program. This represents the first issuance by a Turkish issuer of Malaysian ringgit-denominated Sukuk in the Malaysian debt capital market to date. Some of the deal milestones include: being the largest ever senior single tranche issuance by any foreign financial institution in the ringgit debt market to date and being the first ever ringgit-denominated Sukuk issued by a foreign fully fledged Shariah compliant bank in the ringgit market to date. The landmark issuance is expected to pave the way for other issuers from Turkey and Europe into the Malaysian Sukuk market. Honorable Mention: ACWA Power International and Republic of Turkey. |
UAE: AHB Tier 1 Sukuk, Al Hilal Bank | |
Deal Size: | US$500 million |
Managers: | Abu Dhabi Islamic Bank, Al Rayan Investment and Sharjah Islamic Bank |
Bookrunners: | HSBC, Al Hilal Bank, Citigroup, Emirates NBD Capital, National Bank of Abu Dhabi and Standard Chartered Bank |
Lawyers: | Allen & Overy for the issuer and Linklaters for the managers |
Date: | 24th June 2014 |
Rating: | Unrated |
Shariah Advisors: | HSBC, Al Hilal Bank, Citigroup, Standard Chartered Bank |
The number three Islamic capital market, one determined to move up, the UAE offers a wide range of deals. But Al Hilal’s Basel III-compliant offering shows elements of risk taking, regulatory management and process improvement: together the package cannot be ignored. The first of its kind in the UAE, the deal features loss-absorption and non-viability.
Honorable Mention: Emirates National Factory for Plastic Industries; Abu Dhabi Islamic Bank (acquisition of Barclays); DIFC Investments; and Amlak Finance. |
UK: HM Treasury UK Sovereign Sukuk | |
Size: | GBP200 million |
Arrangers: | Barwa Bank, CIMB Bank, HSBC, National Bank of Abu Dhabi, and Standard Chartered Bank |
Lawyers: | Linklaters for the issuer and Clifford Chance for the arrangers |
Rating: | Unrated, implied sovereign rating |
Date Closed: | 25th June 2014 |
Shariah Advisors: | Bait Al-Mashura Finance Consultation Company; CIMB Islamic Bank; HSBC Saudi Arabia and Standard Chartered Bank |
Following the UK’s 2009 enabling legislation, the inaugural issuance gave proof of concept. The transaction validates the role of the UK as a key hub for the Islamic markets.
The transaction also serves a number of ancillary benefits including providing high quality instruments for the investment by the UK’s domestic Islamic banks and sets a benchmark for the domestic banks, allowing them to be more efficient in pricing their liabilities and credit transactions. The Sukuk uses an Ijarah structure, the most commonly used structure among sovereign Sukuk. Perfected transfer — the head lease/sublease structure was legally perfected and registered at HM Land Registry, making it one of the most legally robust Sukuk in the international markets. Some of the unique features of the transaction include the removal of the delegate giving direct rights against HMT in the event of non-payment. Another feature includes a procurement undertaking. A completely new instrument in Sukuk, the procurement undertaking was introduced to ensure that even though HMT could not own the underlying property involved, it would nevertheless be HMT that faced the investors. Honorable Mention: International Finance Facility for Immunization Company; Gatehouse Bank Sigma Capital Joint Venture; Battersea Phase 3 Holding Company; and QDD Athletes Village UK. |
Nearly 30 transactions were nominated for the 2014 IFN Deal of the Year. As expected the leading candidates such as Luxemburg Treasury Securities on behalf of The Grand Duchy of Luxembourg; Bank of Tokyo-Mitsubishi UFJ (Malaysia); Varlik Kiralama Anonim Sirketi; International Finance Facility for Immunization Company; HM Treasury UK Sovereign Sukuk; Hong Kong Sukuk 2014; the Republic of Senegal; and AHB Tier 1 Sukuk, Al Hilal Bank all performed well in other categories.
Each of these nominees represented a significant contribution to the market. A major theme this year is the cross-border activity within the Islamic markets and the integration of conventional centers like London, Hong Kong and Luxembourg. The UK Sovereign Sukuk, Luxembourg Treasury Securities and Republic of Senegal deals all established local and regional currency benchmarks. The Bank of Tokyo-Mitsubishi UFJ and Turkiye Finans deals issued in Malaysia show the vibrancy of the Malaysian global hub in attracting global players to settle there and Islamic frontier market institutions to play there. And Al Hilal gave proof of concept that an Islamic bank may easily issue Basel III-compliant perpetual securities.
Since the 1980s, Gulf-based Islamic banks and their international partners have made London their preferred center for liquidity management. Islamic investors have long preferred London as an investment destination. As much as Islamic investors love London real estate, they have long used London representative offices from which to stage their investments into Europe, the UK and Africa. Over the past 14 years, Islamic investors have established five Islamic banks in London with more branches and subsidiaries of GCC banks on the way. None of these developments have been ignored by the various UK governments, which have gone from grudgingly welcoming in the 1980s to full embrace in the 21st century.
This meant that a next step was necessary. In 2009, the UK took the necessary steps for the introduction of Sukuk in the domestic market. Immediately, the discussion of a sovereign issuance began. Yet, in a precursor of the 2012 debate in Egypt, opposition arose to the ‘selling of state’ assets to foreign investors. Quite a few other issues delayed the topic until UK prime minister David Cameron announced at the opening of the World Islamic Economic Forum in London that the UK would indeed issue Sukuk in 2014.
Issued on the 26th June, the transaction validated the UK’s role. The validation, however, came in an unexpected manner, at least for HM Treasury. The issuance was kept small at a mere GBP200 million (US$311.53 million). But, it was quickly gobbled up by investors in a subscription that was for GBP2.3 billion (US$3.5 billion). Although 39% was domiciled by UK investors, 37% was subscribed by the same type of Middle Eastern investor who voted with their money to make London an Islamic finance hub years ago. Another 24% were Asian, non-Middle Eastern investors. A transaction that putatively meets the Basel III criteria for a high-grade security was sold widely to central banks (25% of the Sukuk), and fund managers (16%). This left banks, prospectively the target investors with only 59% of the issuance. The 2014 HM Treasury UK Sovereign Sukuk PLC issuance assures that London remains a leading global hub of Islamic finance.
Therefore, we are delighted to announce that the debut Sukuk of the UK wins the crown of the 2014 Islamic Finance news Deal of the Year for 2014.
DEAL OF THE YEAR: HM Treasury UK Sovereign Sukuk | |
Size: | GBP200 million |
Arrangers: | Barwa Bank, CIMB Bank, HSBC, National Bank of Abu Dhabi, Standard Chartered |
Lawyers: | Linklaters for the issuer and Clifford Chance for the arrangers |
Rating: | Unrated, implied sovereign rating |
Date Closed: | 25th June 2014 |
Shariah Advisors: | Bait Al-Mashura Finance Consultation Company; CIMB Islamic Bank; HSBC Saudi Arabia and Standard Chartered Bank. |
The transaction served a number of ancillary benefits including:
Honorable Mention for Deal of the Year: Luxemburg Treasury Securities on behalf of The Grand Duchy of Luxembourg; Varlik Kiralama Anonim Sirketi; Bank of Tokyo-Mitsubishi UFJ (Malaysia); International Finance Facility for Immunization Company; Hong Kong Sukuk 2014; Republic of Senegal; and AHB Tier 1 Sukuk, Al Hilal Bank. |
The IFN DOTY is one of the most rigorous and highly contested awards in the industry. Winners are selected on the basis of a comprehensive selection of criteria looking at all aspects including structure, location, deal size, participants, assets and more. Key rules and regulations include:
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