2006 was a year of record mergers and acquisitions (M&A) in all markets. And, what kicked it off? The Ports, Customs & Free Zone Corporation (PCFC) Sukuk (Dubai Ports World) – the funding issue for DP World to acquire The Peninsular and Oriental Steam Navigation Company (P&O)’s international ports contracts. No better way to highlight the growing sophistication and capacity of Islamic fi nance and the institutions offering it. But the PCFC Sukuk was not the only groundbreaking high profi le Sukuk issuance in 2006. As a result, the entire Deals of the Year selection process was tremendously diffi cult, as too many deals were closely matched in quality, skill, innovation, and market expansion.
Deal of the Year:
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Size:
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US$3.5 billion Sukuk
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Arrangers:
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Lawyers:
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Rating:
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Unrated
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Date Closed:
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23rd January
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Shariah Advisors:
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The PCFC Sukuk was the world’s fi rst convertible Islamic bond; and it marked the fi rst signifi cant participation of Islamic fi nance in the global M&A market. Part of the funding for the acquisition of P&O, the Sukuk contributed to elevating DP World to the world’s 3rd largest ports operator. Innovative structural aspects included the ability for Sukuk holders to exchange their holdings for shares if DP World carries out an IPO within three years of the Sukuk issuance. As the tenor of the Sukuk is only two years, this required careful structuring, which involved the creation of a “look back” mechanism should DP World go to an IPO within the three-year period, but after the tenor of the Sukuk has expired. Important crossborder elements had to be addressed; including demonstrating to UK authorities that the acquirer of a UK listed company had certainty of funds. A Musharakah structure, the PCFC Sukuk tested a number of relationship elements that caused predictability of income to investors, a bonus mechanism for the DP World, and other complex creative features that helped the PCFC Sukuk serve DP World by drawing conventional and global investors into the Islamic structure. PCFC was an excellent example of cooperation between a leading Islamic bank and international bank showing that the Islamic market players are capable of providing cutting edge services in the complex and time focused global M&A market.
Honorable Mention: The first exchangeable Sukuk: Raffl esia (Khazanah), the fi rst Islamic REIT: Al-Aqar: a dynamic GCCMalaysian deal: Dubai Financial: and signifi cant tier two capital instruments for Abu Dhabi Islamic Bank and Sharjah Islamic Bank.
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Corporate Finance:
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Size:
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US$850 million
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Lead Arrangers:
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Lawyers:
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Rating:
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Unrated
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Date Closed:
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March
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Shariah Advisors:
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Cross Border: | Dubai Financial |
Size: | US$330 million Syndication Facility |
Lead Arranger: | Citigroup |
Lawyer: | Denton Wilde Sapte |
Rating: | Unrated |
Date Closed: | October |
Shariah Advisors: | Citi Islamic Investment Bank |
This transaction cements the growing co-operation between the GCC and Malaysia, turning the talk about harmonization into a business reality and allowing for greater synergy in Islamic fi nance. The transaction was a complex blend of bridge funding for Dubai Investment Group’s acquisition of 40% of BIMB, the founding Malaysian Islamic bank, and an important capital contribution to bank’s capital base and its capacity to grow its domestic business as well as to expand crossborder. The transaction embedded a US dollar Malaysian ringgit Shariah compliant swap. Some cross-border deals were more complex by their components, but Dubai Financial earns precedence for its successful merging of GCC interests with the Malaysian market in a direct investment in an established institution. This investment required a GCC entity to buy into a Malaysian entity with distinct operating methods; and the Malaysian institution to adapt to the GCC style in a way that does not disturb the bank’s effectiveness in the local market. But, despite similar home currency pegs to the dollar, the inbound investment was in US dollars and required a fi ve year Shariah compliant hedge, given the next investment in local currency.
Innovative:
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Rafflesia Capital (Khazanah Nasional)
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Size:
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US$750 million Exchangeable Sukuk
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Joint Managers:
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Lawyer:
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Rating:
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Unrated
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Date Closed:
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27th September
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Shariah Advisors:
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In a year of widespread innovation, Khazanah Nasional’s debut global Islamic bond wins over impressive competition. The deal represents the world’s fi rst Shariah compliant exchangeable bond based on the ownership concept of the underlying shares, whilst preserving a typical feature of an exchangeable bond. The transaction generated funds for Khazanah whilst creating an opportunity for investors to convert their bond units into shares of an underlying Khazanah controlled company – Telekom Malaysia. The deal creates unique business elements allowing investors to participate in a fl agship company, and prospectively to convert into that company’s shares, whilst having a direct obligation of Khazanah, yet preserving Khazanah’s capacity to buyout the position of the investors. This was not only a highly creative transaction in its own right, but it was the largest exchangeable instrument issued in Asia in 2006. Given the diverse universe of governmentlinked entities in the Islamic world, this deal established a useful role model for both funding, and government-linked entity risk and portfolio management.
Honorable Mention: The PCFC Sukuk, Dubai Financial, and Abu Dhabi Investment House structured trade Mudarabah by Abu Dhabi Commercial Bank all represented signifi cant and important innovations in the field. |
Equity:
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Abu Dhabi Islamic Bank |
Size: | US$ 5 billion with US$800 million issued Sukuk program |
Lead Manager: | HSBC Amanah |
Lawyers: | Allen & Overy, Maples and Calder and Norton Rose |
Rating: | A2 Moody’s and A Fitch |
Date Closed: | December |
Shariah Advisors: | HSBC Amanah and Abu Dhabi Islamic Bank |
Traditional banks have long supplemented their tier one capital with tier two issuances via trust certifi cates. Recent experimentation with Musharakah forms has allowed the development of this Islamic equity model in a manner that is consistent with western-style trust certifi cate programs. The Abu Dhabi Islamic Bank Sukuk Program for US$5 billion of trust certifi cates issued the fi rst US$800 million in December 2006. The second program launched by an Islamic fi nancial institution, this program is the largest in scope and the fi rst program to be listed on the London Stock Exchange with investment grade rated certifi cates. The deal has built-in fl exibility to allow redrawing on a periodic basis over the life of the transaction up to the maximum volume of certifi cates authorized. The scope and structure of this issuance allows for a signifi cant growth of the Islamic market by increasing the capital access of Islamic banks.
Honorable Mention: The Albaraka IPO and the Sharjah Islamic Bank trust certifi cates also were top drawer equity transactions.
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Nakheel Development
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Size:
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Arrangers:
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Lawyers:
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Rating:
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Unrated
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Date Closed:
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December
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Shariah Advisors:
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Not only is Nakheel an excellent example of a structured Ijarah transaction, it is the largest ever Sukuk issuance to date. Proceeds are being used to fund Nakheel’s landmark real estate projects throughout the UAE. But the Nakheel Sukuk builds on the PCFC Sukuk convertibility model. The Sukuk permits investors to have the option of taking part in any Nakheel IPO, acquiring shares at a preferential price, and allowing investors the option to hold onto the bond. This is an evolutionary step beyond the PCFC Sukuk model. The largest ever Sukuk issuance, and one of the ten largest convertible bond issuances ever globally, Nakheel demonstrates the relative attraction of GCC assets and GCC government-linked companies to global investors, including investment in the GCC real estate sector. The underlying leasehold estate structure gives investors a secure means of participating in Nakheel’s core business whilst achieving a predictable, attractive current income.
(Also the winner of: Real Estate Deal of the Year)
Honorable Mention: Were the Nakheel Sukuk not so fi lled with unique features appended to the lease relationship, a classic aircraft lease deal like Etihad Airways would have stood out.
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I-REIT: | Al-Aqar KPJ REIT |
Size: | RM179.25million (US$48.72 million) |
Total Market Capital: | RM333.2 million (US$90.57 million) |
Managing Underwriter: | AmImvestment Bank |
Lawyer: | Abdul Raman Saad |
Rating: | Unrated |
Issuance Date: | July |
Issuance Date: | August |
Shariah Advisors: | Hadi Noohdin Gadot, Hj Md Hashim b. Hj Md Yahya, and Prof. Madya Dr. Ab. Halim Muhammad and complies with Securities Commission Islamic REIT standards |
KNM Capital
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Size:
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RM300 million (US$81.20 million)
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Lead Manager:
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Aseambankers and AmImvestment Bank
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Lawyer:
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Rating:
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MARC-1ID, A+ ID
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Date Closed:
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October
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Shariah Advisors:
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KNM’s transaction is the fi rst of its kind where a combination of Murabahah and Mudharabah principles were used to facilitate an Islamic Commercial Papers/Medium Term Notes program. The ICP of up to RM150 million (US$40.56 million) issued under the ICP/MTN program are underwritten whilst the MTN are not. This seven-year deal was structured to allow a shelf structure whereby the subsequent tranches are issued without a new prospectus. The proceeds raised from the issuance of the ICP/MTN may be applied by KNMC, KNM’s funding entity, to KNM and/or its other subsidiaries for the redemption of existing facilities, to make new industrial investments in China, to make new capital investments, and for general KNM working capital. This transaction applies a blend of the older Malaysian innovations and the latest developments from the Malaysian Islamic bond market.
Honorable Mention: Aabar was an excellent runner up serving for the corporate expansion of Aabar Petroleum in the ASEAN region.
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Size:
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US$270 million Sukuk
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Lead Manager
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Lawyers:
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Rating:
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Unrated
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Date Closed:
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August
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Shariah Advisors:
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The QREIC Sukuk was the fi rst corporate Sukuk in Qatar and the fi rst transaction to be issued by a special purpose vehicle (SPV) domiciled in the Qatar Financial Centre. Unlike the Qatar Global Sukuk, the QREIC issuance benefi ted from the drafting of specifi c regulations/exemptions (including a tax letter) to ensure that the SPV had a similar status to issuers located in other offshore jurisdictions. This creates a replicable role model for the Qatar market that meets international standards. In addition to using a procurement agreement to appoint QREIC to construct the project (which is a relatively new concept in Islamic fi nance), a second purchase undertaking was required in respect of the forward lease agreement, enabling the lessor to sell the leased assets to the lessee on a continuing event of default.. Whilst purchase undertakings in respect of the Musharakah are more common, the concept of a ‘lease’ purchase undertaking (and any second purchase undertaking) is novel development in this declining Musharakah transaction. The Musharakah is structured to fund in stages, refl ecting the needs of the underlying obligor QREIC to fund according to its project needs. The fi rst 10-year issuance in the GCC, the deal enjoys a high degree of security given the control of the properties by the Musharakah. This issuance is a signifi cant development in the opening of the Qatar market for domestic corporate issuances as well as signaling the formal opening of the Qatar Financial Centre for domestic and global Sukuk. (Also the winner of: Deal of the Year in Qatar)
Honorable Mention: East Cameron Gas Company represents a very strong competitor, but covers other unique territory for which it is acknowledged below.
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Murabahah: | Mobile Telecommunications Company International (MTC) |
Size: | US$1.2 billion Syndicated Murabahah Facility |
Lead Arrangers: | ABC Islamic Bank, Arab Bank, Calyon, Gulf International Bank, Kuwait Finance House and National Bank of Abu Dhabi |
Lawyers: | Clifford Chance and Norton Rose |
Rating: | Unrated |
Date: | December |
Shariah Advisors: | Kuwait Finance House |
IPO:
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Albaraka Banking Group
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Size:
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US$572 million
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Lead Arranger:
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Lawyers:
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Norton Rose and various domestic counsel in more than ten countries.
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Rating:
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Unrated
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Date:
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September
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Shariah Advisors:
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Once of the founders of the modern Islamic banking movement, the Albaraka Banking Group (ABG) was traditionally a closely held entity with a broad mandate in many Islamic countries. The 2006 private placement of US$450 million and IPO of US$572 million represent both the fi rst true opportunity for the broad Muslim public to participate in the success of this important market participant, and the fi rst dual listing of shares on the Bahrain Stock Exchange and the Dubai International Financial Exchange.
Project Finance:
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Al Waha Petrochemicals Project
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Size:
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$1 billion wholly-Islamically fi nanced project
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Lead Arrangers:
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Lawyers:
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Clifford Chance (Sponsors) and Norton Rose (Banks)
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Rating:
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Unrated
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Date:
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November
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Shariah Advisors:
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Honorable Mention: Aabar was an excellent runner up serving for the corporate expansion of Aabar Petroleum in the ASEAN region.
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Real Estate:
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Nakheel Development
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Size:
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Arrangers:
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Lawyers:
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Rating:
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Unrated
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Date:
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December
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Shariah Advisors:
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There were many entries for this category, but, the sheer scale of Nakheel demonstrates that investors voted with the dollars in the Nakheel company, its UAE real estate vision and its expansion plans. There is an old saying, “money talks, you know what walks.” Nakheel is the best real estate deal.
Sovereign:
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Rafflesia Capital (Khazanah Nasional)
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Size:
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US$750 million Exchangeable Sukuk
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Joint Managers:
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Lawyers:
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Rating:
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Unrated
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Date Closed:
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27th September
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Shariah Advisors:
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There were no true Sovereign issuances in the submissions for this competition, but there were many government-linked entries, including the various Dubai transactions and the Malaysian secondary market buyer of mortgages Cagamas. But Khazanah Nasional, with its unique structure and breadth of investor appeal into North Asia through the ASEAN region into the GCC and Europe makes this the strongest sovereign linked deal of the competition. The transaction is also a tribute to the leadership of the issuers’ management team in defi ning creative alternatives to managing the capital structures and exit strategies of the constituent companies controlled by Khazanah.
Structured Finance:
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East Cameron Gas Company (ECP)
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Size:
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US$165.67
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Lead Managers:
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BSEC S.A. and Merrill Lynch
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Lawyers:
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Rating:
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CCC+ Standard & Poor’s
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Date:
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July
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Shariah Advisors:
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Sh. Nizam Yaquby and Sh. Yusuf DeLorenzo
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This structured deal has everything: a formerly bankrupt obligor, a complicated capital structure to replace, a participation in oil and gas production and the fi rst approval of a traditional hedge for gas prices. It is also the fi rst signifi cant US Sukuk to be issued globally, and to be heavily acquired in the US market. East Cameron is a tribute to the structuring skills of BSEC S.A. and its ability to partner with a global brand to produce a highly structured deal with attractive outcomes for the obligor and the investors.
Size:
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US$800 million Sukuk
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Lead Managers:
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Lawyers:
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Al-Jadaan, Clifford Chance and Torki Al-Shabaiki in association with Baker & McKenzie (local)
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Rating:
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Unrated
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Date:
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July
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Shariah Advisors:
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This was the fi rst ever Sukuk in Saudi Arabia, and has set the benchmark for subsequent Sukuk issuances. SABIC, despite many really good entries, stands out as the deal that opens Saudi Arabia, the largest GCC country. Prior to SABIC’s Sukuk issuance, there were no public non-equity capital market issuances by any issuer other than the Central Bank Saudi Arabian Monetary Agency (SAMA). SABIC’s decision to issue Sukuk instead of borrowing conventionally related to a desire to diversify fi nancial sources, deepen the Saudi Arabian market and promote Islamic fi nance in the Kingdom. As the fi rst tradable public issuance of Sukuk in Saudi Arabia, the SABIC deal has defi ned the challenges to forming an effi cient market, as well for the opportunities of issuing Islamic securities for Saudi Arabian corporates.
Trade Finance:
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Size:
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US$200 million Murabahah Syndication
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Lead Manager:
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Lawyer:
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Rating:
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Unrated
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Date:
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January
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Shariah Advisors:
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Pertamina (Persero), the state-owned oil company, is the first Indonesian company to tap the overseas Islamic fi nance investor base. Its second syndication attracted participation from several existing banks in the fi rst syndication as well as new participants, representing both Islamic and conventional banks. Competitively priced, the fi nancing for oil imports during a period of high oil prices eased the cash fl ow burdens of the buyer, and further reinforced interest from the offshore Islamic investor base in Indonesia.
Bahrain:
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Albaraka Banking Group
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Size:
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US$572 million
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Lead Arranger:
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Lawyers:
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Norton Rose and various domestic counsel in more than ten countries.
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Rating:
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Unrated
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Date:
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September
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Shariah Advisors:
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Bahrain is truly one of the most import centres for Islamic banking. The Albaraka Banking Group IPO stands out by increasing our opportunities to participate in this market through acquisition of listed shares.
Indonesia:
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Size:
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US$200 million Murabahah Syndication
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Lead Manager:
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Lawyer:
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Rating:
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Unrated
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Date:
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January
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Shariah Advisors:
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The Indonesian market is newly opening to Islamic fi nance. The credit worthy state oil company could easily borrow conventionally or issue traditional bonds. But, Pertamina lent credibility to the Islamic market and its tools by choosing to purchase oil by using syndicated Islamic sales transactions. In 2007, Indonesia expects to tap the global Sukuk market with a debut offering. Certainly, Pertamina helped the cause by demonstrating capabilities and effi ciency of Islamic banking syndicates, and leading structurers of Islamic deals like HSBC Amanah.
Kuwait:
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Mobile Telecommunications Company International (MTC)
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Size:
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US$1.2 billion Syndicated Murabahah Facility
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Lead Arrangers:
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Lawyers:
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Rating:
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Unrated
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Date:
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December
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Shariah Advisors:
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Malaysia:
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Rafflesia Capital (Khazanah Nasional)
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Size:
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US$750 million Exchangeable Sukuk
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Joint Managers:
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Lawyers:
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Rating:
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Unrated
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Date Closed:
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27th September
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Shariah Advisors:
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The maturity of the Malaysian market means that the depth and variety of deals truly makes it a diffi cult one in which to determine the best and brightest deal in 2006. Raffl esia and Al-Aqar stood out above the rest. But, Al-Aqar is a fulfi llment of the long awaited promise of an Islamic REIT, and a top deal at that. After close consideration, Khazanah’s innovation, exchangeable feature, and wide distribution propel it to the top spot.
Oman:
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Sohar Aluminum
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Size:
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US$260 million Islamic Tranche of US$1 billion project fi nancing
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Lead Manager:
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Lawyer:
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Date:
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November
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Rating:
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Unrated
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Shariah Advisors:
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Citi Islamic Investment Bank
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Pakistan:
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Size:
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PKR1.1 billion (US$16.63 million) Sukuk
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Lead Manager:
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Lawyer:
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Date:
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June
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Rating:
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Unrated
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Shariah Advisors:
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Honorable Mention: Tuwairqi, WAPDA
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Qatar:
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Size:
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US$270 million Sukuk
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Lead Managers:
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Lawayers:
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Rating:
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Unrated
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Date:
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August
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Shariah Advisors:
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The Qatar Real Estate Investment Company (QREIC) Sukuk represents the debut of both the corporate sector in Qatar and the Qatar Financial Centre. These developments are welcome and the market looks forward to progressive expansion of these two developments as the Qatari corporate and hydrocarbon markets expand, and enjoy cross border investment from multi-nationals and GCC business partners.
Saudi Arabia:
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Size:
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US$800 million Sukuk
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Lead Managers:
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Lawyers:
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Clifford Chance, Torki Al-Shabaiki in association with Baker & McKenzie (local) and Al-Jadaan Law Firm
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Rating:
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Unrated
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Date:
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July
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Shariah Advisors:
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This was a particularly tough decision given the important project fi nance deals executed in Saudi Arabia, and the innovation achieved with Al Waha. However, the signifi cant contribution represented in generating the first domestic traded Sukuk, causes SABIC to seize the honor. The SABIC Sukuk demonstrated how the new Capital Market Authority (CMA) regulations may be used for the structuring and issuance of Islamic instruments. It also highlights the strong domestic demand for Islamic income oriented instruments. SABIC has paved the way for Sukuk and other publicly issued asset oriented securities to become mainstream tools of corporate fi nance in Saudi Arabia. Such a development bodes well for the expansion of the domestic economy.
South Africa:
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Absa
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Size:
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Rand 100 million (US$13.9 million) Murabahah Equity
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Lead Managers:
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Date:
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December
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Rating:
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Unrated
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Shariah Advisors:
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Moulana Shoayb Joosub
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Turkey:
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Size:
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US$41.5 million Syndicated Murabahah
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Lead Manager:
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Lawyer:
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Date:
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September
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Rating:
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Unrated
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Shariah Advisors:
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Citi Islamic Investment Bank
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UAE:
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Size:
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US$3.5 billion Sukuk
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Arrangers:
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Lawyers:
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Rating:
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Unrated
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Date Closed:
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23rd January
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Shariah Advisors:
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The UAE with its growing issuances of government linked entities provides one of the most challenging markets in which to make a decision. But, the creative structuring of the Ports, Customs & Free Zone Corporation (PCFC) Sukuk and fi tting this deal into the modern global M&A framework has to give PCFC Sukuk the lead. With Abu Dhabi and Sharjah based entities joining the fray, one can imagine that the 2007 UAE deal of the year will be even more diffi cult to select!
USA:
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East Cameron Gas Company (ECP)
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Size:
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US$165.67
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Lead Managers:
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BSEC S.A. and Merrill Lynch
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Lawyers:
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Rating:
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CCC+ Standard & Poor’s
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Date:
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July
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Shariah Advisors:
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Sh. Nizam Yaquby and Sh. Yusuf DeLorenzo
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BEMO Securitization, without any branches, was able to rely upon business relationships to originate a niche US market transaction. It then co-operated with Merrill Lynch to refi ne the structure and achieve a global distribution for the complex transaction. Not only was the transaction a landmark for the service rendered to a niche US corporate, but for its successful distribution to US investors. The East Cameron Gas Company (ECP) deal demonstrates that the US regulatory framework works for the issuance of Sukuk, domestically and cross border: A fact that should open the way for more Sukuk from both traditional American companies as well as the nascent Islamic banking industry in the US.
(Also the winner of: Structured Finance Deal of the Year)