PERPETUAL: SUNWAY | |
Size: | RM200 million (US$48.76 million) |
Arrangers: | Kenanga Investment Bank |
Lawyers: | Adnan Sundra & Low for the arrangers |
Rating: | Unrated |
Date closed: | 9th March 2018 |
Malaysian corporates dominated the issuance of non-bank perpetual Sukuk. These have proven useful tools for corporates to avoid equity dilution while bolstering their credit ratings and capital. This was the case for UMW Holding and Yinson TMC.
Sunway, a leading Malaysian property group, issued two tranches of perpetual Sukuk worth RM200 million each under a RM5 billion (US$1.22 billion) program. The Sukuk are hybrids using Wakalah and Ijarah. The net proceeds from the issuance of the Sukuk Wakalah are allocated for Shariah compliant working capital requirements and general corporate purposes of the issuer, and/or the issuer’s direct and indirect subsidiaries and including jointly controlled entities and associated companies. The perpetual Sukuk program marks Sunway Group’s first perpetual securities issuance for capital management in line with the issuer’s function as the investment holding company. It is also the group’s first Islamic medium-term note issuance. Unlike bank perpetuals, this deal features both a dividend stopper and a dividend pusher. Dividend stopper: until the perpetual Sukuk’s deferred/outstanding profit payments are made, the issuer shall not make any payments to any other share capital instruments ranking pari passu or junior to the perpetual Sukuk. Dividend pusher: payments on the perpetual Sukuk’s deferred/outstanding profit payments is mandatory if any payment is made on any other share capital instruments ranking pari passu or junior to the perpetual Sukuk. The perpetual Sukuk are structured where the Wakalah portfolio is comprised of Ijarah assets, commodity Murabahah investments as well as investment assets. The profit distribution may be deferred at the option of the issuer where the amounts deferred would be invested in additional leasable assets which would form part of the Ijarah assets which whereby the issuer will undertake to purchase on the subsequent periodic distribution date, if the issuer does not exercise further deferment. To cater for the situation where Ijarah assets are not available, deferment may also be exercised with investment assets which are income-generating. The structuring of the perpetual Sukuk program was complex as it involved multiple structuring concepts and various types of assets and in particular the methodology of the deferment, which is an essential part of the perpetual Sukuk, had to cater for the necessary Shariah transactional elements. The deal was the largest perpetual Sukuk deal in Malaysia for 2018. “We are pleased to be a part of the IFN Deals of the Year 2018 Awards and honored to be the winner under the Perpetual Sukuk category. In this highly competitive market, we continue to reaffirm our position as one of the leading players in the debt capital market and Islamic banking space supported by the strong collaborative efforts shown by the teams involved in this deal,” said Chay Wai Leong, the group managing director of Kenanga Investment Bank. Honorable mention: UMW Holdings and Yinson TMC |
Shortlisted for DOTY 2018 | |
SOCIAL IMPACT: HSBC AMANAH MALAYSIA | |
Size: | RM500 million (US$121.92 million) |
Arrangers: | HSBC Amanah Malaysia acted as the sole lead arranger as well as the sole SDG structuring advisor |
Bookrunners: | HSBC Amanah Malaysia, Maybank Investment Bank and RHB Islamic Bank |
Lawyers: | Shook Lin and Bok for the arranger |
Rating: | ‘AAA(s)’ by RAM Ratings |
Date closed: | 2nd October 2018 |
Date closed: | HSBC Amanah Malaysia |
The 2018 Social Impact nominations were highly diversified. The International Islamic Trade Finance Corporation drew direct connections to the social impact of many of their trade deals. Indonesia issued the first sovereign green Sukuk and has committed to allocating proceeds of its most recent Sukuk to green investing.
In the US, Roberts Mughal advised Mission Driven Finance, a Somali community group in San Diego, on a three-part program that raised capital in the forms of Musharakah, Qard Hasan and city grants. The deal demonstrates the efficacy of Islamic forms in a US charitable context. As we have noted, the Saudi Real Estate Refinance Company takes the country forward in a significant way to addressing its housing requirements for middle and low-income citizens. But HSBC Amanah Malaysia takes the prize with its landmark RM500 million Sustainable Development Goal (SDG) Islamic medium-term note based on the Islamic principle of Wakalah BI Al Istithmar. This Sukuk facility was issued based on the existing HSBC Group SDG Bond Framework (see https://www.hsbc.com/investors/fixed-income-investors/green-and-sustainability-bonds) and proceeds will be used to support projects contributing toward the UN SDGs such as: SDG 3 – Good Health and Well-Being SDG 4 – Quality Education SDG 6 – Clean Water and Sanitation SDG 7 – Affordable and Clean Energy SDG 9 – Industry, Innovation and Infrastructure SDG 11 – Sustainable Cities and Communities SDG 13 – Climate Action The issuance builds on the HSBC Group’s leading role in the market for sustainable finance and development. On top of that, this deal leveraged Bank Negara Malaysia’s recently launched value-based intermediation initiative, shifting the focus of the Islamic finance industry to integrate environmental and social tenets into banking activities. Honorable mention: Mission Driven Finance, Republic of Indonesia (through Perusahaan Penerbit SBSN Indonesia III) and Saudi Real Estate Refinance Co |
AFRICA: KINGDOM OF MOROCCO THROUGH A SPECIAL PURPOSE SECURITIZATION FUND (FT IMPERIUM) | |
Size: | MAD1 billion (US$104.36 million) |
Arranger: | Maghreb Titrisation |
Bookrunners: | Banque Centrale Populaire, BMCE Bank of Africa, Attijariwafa Bank, Media Finance, CDG Capital, Banque Marocaine pour le Commerce et l’Industrie and Crédit du Maroc |
Lawyers: | Gide Cuatrecasas Casablanca for the issuer and Clifford Chance for the arrangers |
Rating: | Unrated |
Date closed: | 17th January 2018 |
Shariah advisors: | Conseil supérieur des Ouléma (National Shariah Board) |
The International Islamic Trade Finance Corporation (ITFC) sponsored most of the nominations from Africa. Each of these brought capital and innovation to some of the continent’s most impoverished countries. A new feature came as the ITFC introduced the Wakalah-Murabahah process to the Republic of Gambia. The method is similar to that deployed in Uzbekistan: a credible player acts as the Wakil to originate deals and the ITFC completes the deals with a purchase from the supplier and onward sale to the obligor via the Wakil. The ITFC also offered its line of financing programs to Nigeria’s flagship Islamic bank, Jaiz Bank.
Morocco which made major strides to facilitate Islamic finance has now issued its benchmark domestic Sukuk. This is the first Sukuk issuance made in Morocco further to the amendment of the securitization law in 2013 which paved the way to the development of the Islamic finance market locally. The issuance was structured as a Sukuk Ijarah facility based on the usufruct granted over state-owned real estate assets. The benchmark Ijarah transaction required changes to national regulations relating to the transfer of real estate assets from the Kingdom to an SPV. Under local law, the SPV is ‘fonds de placements collectifs en titrisation’. Article 82 of the Règlement général de la comptabilité publique was adjusted for this purpose. Gide Cuatrecasa Casablanca, the counsel for the issuer, believes that this deal will enable the rapid development of the Moroccan Sukuk market in support of the national development plan. Honorable mention: Jaiz Bank and Republic of Gambia |
BAHRAIN: CBB INTERNATIONAL SUKUK COMPANY 7 | |
Size: | US$1 billion |
Bookrunners: | BNP Paribas, Citigroup Global Markets, Gulf International Bank, National Bank of Bahrain, Standard Chartered Bank |
Lawyers: | For the issuer: English law and US law: Dechert and Bahrani law: Zu’bi & Partners
For the arrangers: English law and US law: Allen & Overy and Bahraini law: Hassan Radhi & Associates |
Guarantor: | Kingdom of Bahrain’s Ministry of Finance |
Rating: | ‘B+/Stable’ (S&P Global Ratings)/‘BB-/Stable’ (Fitch Ratings) |
Date closed: | 28th March 2018 |
Shariah advisors: | Sharia supervisory board and committees of BNP Paribas, Citi Islamic Investment Bank, Gulf International Bank and Standard Chartered Bank |
2018 was a year of consolidation and adjustment in Bahrain. Submitted transactions were fewer than expected for a key Islamic finance hub. Al Dur Power and Water Company returned to the market for US$1.3 billion. Ahli United Bank (AUB), itself the subject of merger discussions with Kuwait Finance House, acquired a 7.3% stake in Saudi Arabian Islamic financier Bank Al Jazirah for US$173 million.
The return of the Kingdom of Bahrain to the global Sukuk market with a 7.5 year Reg S and 144A tranche Sukuk was a significant achievement. The transaction affirms the faith of the global markets in Bahrain’s future. The 144A tranche allowed the Sukuk to be sold to US institutional investors, thereby expanding the deal’s reach. The transaction combines Bahrain’s tested head lease/sublease (51%) with a Tawarruq wing (49%) to allow additional funding beyond the value of available assets. The Irish Stock Exchange-listed deal is the largest issuance ever by the Kingdom of Bahrain. Honorable mention: Al Dur Power & Water Company and AUB |
Shortlisted for DOTY 2018 | |
INDONESIA: REPUBLIC OF INDONESIA (THROUGH PERUSAHAAN PENERBIT SBSN INDONESIA III) | |
Size: | US$1.25 billion |
Arrangers and bookrunners: | Abu Dhabi Islamic Bank, CIMB Investment Bank, Citigroup Global Markets, Dubai Islamic Bank and HSBC |
Co-arrangers: | Bahana Sekuritas, Danareksa Sekuritas and Trimegah Sekuritas Indonesia |
Lawyers: | For the issuer: Clifford Chance and Assegaf Hamzah & Partners and for the arrangers: Norton Rose Fulbright (Asia) and AZP Legal Consultants |
Rating: | Issuer and obligor rating: ‘Baa3’ (Moody’s Investors Service)/ ‘BBB-’ (S&P)/‘BBB’ (Fitch Ratings) |
Date closed: | 1st March 2018 |
Shariah advisors: | Abu Dhabi Islamic Bank, CIMB Islamic Bank, the Shariah advisory board of Citi Islamic Investment Bank, the executive committee of the Fatwa and the Sharia supervisory board of Dubai Islamic Bank, the executive Shariah committee of HSBC Saudi Arabia and Dar Al Sharia |
Better regulatory frameworks and more players make Indonesia the field of Islamic finance dreams. Yet, 2018 submissions were light. Persero came back to the market. Mining firms Meares Soputan Mining, Tambang Tondano Nusajaya and Archi Indonesia accessed US$400 million in a Bank Syariah Mandiri deal. The Republic, however, came to the rescue. In its latest transaction, the Republic not only demonstrated the capacity of the Indonesian market, but its forward-thinking approach to both Islamic finance and sustainability. The Republic’s 2018 deal is committed to sustainable and green project development.
“As the world’s first sovereign green Sukuk issuance, we are delighted this deal has received recognition due to its groundbreaking nature. We hope the ethical principles of Islamic finance and the socially responsible approach of the green Sukuk will lead to more green Sukuk issuances in the future,” shares Gregory Man, a partner at Norton Rose Fulbright. Honorable mention: Meares Soputan Mining, Tambang Tondano Nusajaya and Archi Indonesia; and Perusahaan Listrik Negara (Persero) |
KUWAIT: KUWAIT INTERNATIONAL BANK | |
Obligor: | Kuwait International Bank |
Size: | US$250 million |
Arranger: | Standard Chartered Bank, First Abu Dhabi, Boubyan Bank, Kuwait Finance House and National Bank of Kuwait |
Lawyers: | Norton Rose Fulbright |
Rating: | Issuer and obligor rating: A+ (Fitch Ratings) |
Date closed: | 12th June 2018 |
Shariah advisors: | Not stated |
Kuwait remains a quietly active market. Kuwait Finance House has established, but not yet issued ,under its program. And, consistent with the prior years’ theme of technology company mergers, Omnix International was sold to a private Kuwaiti investor.
Kuwait International Bank has progressively grown its footprint. With a successful rebranding effort in 2018, the bank was able to come to the syndicated market for US dollar funding. The three-year term deal refinances an existing term financing, and helps to establish the bank’s credit profile on an international stage. “It’s fantastic to see continued industry recognition across a selection of the truly groundbreaking Islamic finance matters we have advised on, including this refinancing that supports Kuwait International Bank’s global profile. Congratulations to the whole team at Norton Rose Fulbright,” commented Mohammed Paracha, a partner and the head of Islamic finance for Middle East and Africa at Norton Rose Fulbright. Honorable mention: Omnix International |
Shortlisted for DOTY 2018 | |
MALAYSIA: HSBC AMANAH MALAYSIA | |
Size: | RM500 million (US$121.92 million) |
Arranger: | HSBC Amanah Malaysia acted as the sole lead arranger as well as the sole SDG structuring advisor |
Bookrunners: | HSBC Amanah Malaysia, Maybank Investment Bank and RHB Islamic Bank |
Lawyers: | Shook Lin and Bok for the arranger |
Rating: | ‘AAA(s)’ by RAM Ratings |
Date closed: | 2nd October 2018 |
Shariah advisors: | HSBC Amanah Malaysia |
Much is to be said for the creative structuring and process management involved in Malaysia Building Society (MBSB)’s acquisition of Asia Finance Bank. Yinson TMC stood out for its issuance of perpetual Mudarabah Sukuk. The deal stands out in comparison to Sunway in that it is more like banking perpetuals than corporate deals. HSBC Amanah Malaysia has raised a new flag in the field of sustainable investment by issuing securities linked to the group’s sustainable investment guidelines. HSBC is walking the walk in Malaysia’s value-based intermediation environment. Moreover, it is expanding the group approach to responsible and sustainable finance in Malaysia. This deal truly connects the spirit of Islamic finance to the actions.
“We are absolutely delighted to have won two prestigious IFN DOTY 2018 Awards, for Malaysia and Social Impact. The recognition conferred by the Awards ended 2018, Shook Lin & Bok’s centennial, on a high note,” said the firm. Honorable mention: Yinson TMC and MBSM |
OMAN: TILAL DEVELOPMENT CO | |
Size: | US$137 million |
Bookrunners: | Emirates NBD and Maisarah Islamic Banking |
Lawyers: | Trowers and Hamlins for the obligor, Maples and Calder for the issuer SPV and King & Spalding for the arrangers |
Rating: | ‘B1’ by Moody’s Investors Service |
Date closed: | 12th November 2018 |
Shariah advisors: | Amanie Advisors |
The Sultanate returned to market with a new Ijarah structure. And privately held Golden Group issued the first corporate Sukuk guaranteed by a private individual.
King & Spalding advised Emirates NBD and Maisarah Islamic Banking as the joint lead manager with regards to i) a tender and exchange offer in connection with the senior secured OMR50 million (US$129.59 million) trust certificates due 2018 listed on the Muscat Stock Market issued on behalf of Tilal Development Company, a leading Omani real estate developer and mall operator (Tilal) (Existing Sukuk), and ii) the issuance of senior unsecured US$137 million 6.5% trust certificates due 2023 on behalf of Tilal (New Sukuk) listed on Euronext Dublin’s Global Exchange Market of Euronext Dublin. The Islamic structure utilized was Ijarah (lease) where a portfolio of real estate owned by the obligor was used as the underlying asset. The transaction involved a complex tender and exchange offer, under which holders of the Existing Sukuk were given the option to receive the New Sukuk at a particular exchange ratio, cash by way of early redemption or a combination of both. The transaction also involved settlement and security release mechanics, given that, among other things, the real estate security package afforded to the holders of the Existing Sukuk were released and re-granted to holders of the New Sukuk. The New Sukuk are rated ‘B1’ by Moody’s. The transaction represents the first liability management exercises involving the issuance of US dollar-denominated securities in the Omani market and one of the first US dollar-denominated Sukuk issued by an Omani corporate. “We are very proud of this achievement. Congratulations to Tilal Development Company to make this brave move. We hope by this, more Omani companies will tap the international market on their fund raising activities mainly through the Islamic capital market space,” shared Mohsin Shaikh Sehu Mohamed, the head of investment banking and capital markets at Maisarah. Honorable mention: Oman Sovereign Sukuk Company and Golden Group Holding |
PAKISTAN: ENGRO POLYMER | |
Size: | US$35 million |
Arranger: | International Finance Corporation, World Bank Group |
Lawyers: | Mohsin Tayebaly & Co for the obligor and Winston & Strawn (English counsel); Mandviwalla & Zafar Legal Consultants (Pakistani counsel) for the arrangers |
Rating: | Unrated |
Date closed: | November 2018 |
Shariah advisors: | International Finance Corporation, World Bank Group |
Pakistan’s economic challenges brought increased engagement from multilateral financial institutions. Not only did the Islamic Republic raise syndicated funds with a partial World Bank guarantee, but various business obligors attracted support from the World Bank Group. The facility will be used by Engro Polymer & Chemicals (EPCL) to increase PVC production capacity by 100,000 tons per annum; enhance the production of the VCM (raw material for PVC) plant; and add a new product to its portfolio namely caustic soda flakes in Pakistan. EPCL is the sole producer of PVC resin in Pakistan and the increased capacity improves the nation’s domestic capacity to support the building industry.
Honorable mention: Islamic Republic of Pakistan’s US$700 million syndication |
TURKEY: KT SUKUK VARLIK KIRALAMA | |
Obligor: | Superonline Iletisim Hizmetleri (100 % subsidiary of Turkcell Group) |
Size: | TRY125 million (US$22.77 million) |
Arranger: | Kuveyt Turk Katilim Bankasi |
Lawyers: | Ayaz Law Firm for the issuer |
Rating: | None |
Date closed: | 22nd March 2018 |
Shariah advisors: | Shariah committee of Kuveyt Turk and ISFA Academy |
Kuveyt Turk completed the first corporate Sukuk issuance of TRY125 million for a maturity of 176 days. Superonline, the largest fiber internet provider acts as the fund user and obligor. The funds collected from the investors by KT Sukuk Varlik Kiralama were conveyed to Superonline through the investment agency or Wakalah. Under this arrangement, the revenues derived from the fiber internet packages are to be distributed to the certificate holders. This is the first-ever Sukuk transaction in the telecommunications market. The novel short-term deal attracted participation from personal pensions and portfolio management companies.
Honorable mention: Albaraka Turk Katilim Bankasi (as the obligor) (Albaraka Turk); Bereket One (as the trustee and Rab Al Maal) and Canakkale Otoyol ve Koprusu Insaat Yatirim ve Isletme |
UAE: NMC HEALTHCARE SUKUK | |
Size: | US$400 million |
Mandated lead arrangers and bookrunners: | Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank (ADIB), Citibank UAE, Dubai Islamic Bank (DIB), First Abu Dhabi Bank, Noor Bank, Standard Chartered Bank (UAE branch), HSBC, Bank ABC, Barclays, ENBD Capital |
Lawyers: | Allen & Overy and Maples & Calder for the issuer and Linklaters for the arrangers |
Rating: | ‘Ba1’ by Moody’s Investors Service and ‘BB+’ by S&P Global Ratings |
Date closed: | 14th November 2018 |
Shariah advisors: | Central Shariah committee of HSBC Bank Middle East, Shariah supervisory committee of Noor Bank, Shariah supervisory committee of Standard Chartered Bank and Dar Al Sharia |
The UAE was the top market for submissions. Deals included DP World’s latest issuance, ADIB’s restart of the UAE regulatory capital market and small innovators like DIB’s Musharakah funding for Souq Extra.
NMC Health is an Abu Dhabi-based healthcare company that is listed on the London Stock Exchange (part of the FTSE 100 Index) and is one of the top 10 healthcare operators globally. The company is owned by prominent business families mainly from the UAE and India (circa 55%) and the remaining portion is publicly listed. NMC’s operations encompass two key segments, namely healthcare (consisting of 188 owned/managed facilities in 17 countries) and distribution (which holds exclusive licenses to distribute global brands in the GCC region including Pfizer, Nivea and many others). NMC was the first global healthcare company to issue US dollar Sukuk. The Sukuk Wakalah are 34% linked to NMC’s real estate assets and 66% funded via Tawarruq. The heavy reliance on Tawarruq reflected NMC’s asset-light structure. Some of the unique features of the transaction include: an initial reserve account covering the costs of the assets and if there is an excess between the costs incurred and the amount in the reserve account, the issuer has to approve this excess and bill it to the lessee as part of the renewal of the lease agreement. If the lessee rejects the renewal, the early dissolution of the Sukuk will be triggered. Honorable mention: DP World, ADIB Capital Invest 2 and Souq Extra |
QATAR: AL RAYAN QATAR ETF | |
Size: | US$120 million |
Fund manager: | Al Rayan Investment |
Lawyers: | K&L Gates |
Rating: | Unrated |
Date closed: | 21st March 2018 |
Shariah advisors: | Masraf Al Rayan’s Shariah board |
Regional politics aside, Qatar’s domestic financial market was resilient in 2018. Many domestic banks repositioned their businesses and the focus continued on the World Cup preparations. Amid these activities, Qatar Islamic Bank returned to the market with an issuance under its program update. Qatar Aluminium Manufacturing Company (QAMCO) held an IPO for 49% of its shares.
Another marker of faith in the domestic economy was the March 2018 launch of the world’s largest Shariah compliant country exchange-traded fund (ETF). K&L Gates advised Al Rayan Investment on the transaction. The Al Rayan Qatar ETF trades as QATR QD on the Qatar Stock Exchange. The ETF tracks the QE Al Rayan Islamic Index. The underlying exposure is to a mixture of large and mid-cap listed companies with the following allocations: 30% to financial services, 28% to industrials, 18% to real estate and 11% to consumer goods. The ETF’s largest holdings are Masraf Al Rayan (15%), Industries Qatar (12%), Barwa Real Estate (10%) and Qatar Islamic Bank (8%). ETFs are not yet prominent in the GCC and MENA region. Shortly after the Al Rayan Qatar ETF was launched, K&L Gates advised on a conventional ETF’s launch in Qatar. This may bode well for the asset class to expand in the region. Amjad Hussain, a partner and the head of K&L Gates’ Doha practice, noted: “Having been awarded Best Law Firm in Asset Management and Funds by IFN earlier in the year for advising on the first two ETFs listed in Qatar, we are now delighted to receive Deal of the Year for Qatar for the same transaction. The Shariah compliant ETF that we advised on, managed by Al Rayan Investments, was the world’s largest single country Islamic ETF which was met by public acclaim across the region and wider afield. Our role included working with a number of stakeholders to overcome challenges within the legacy legal regime and create precedent in the local legal and regulatory market in this complicated and regulated area. We are extremely happy to have been selected to advise on such a prestigious transaction and to have played a part in developing this industry for the State of Qatar.” Honorable mention: Qatar Islamic Bank and QAMCO |
Shortlisted for DOTY 2018 | |
SAUDI ARABIA: SAUDI REAL ESTATE REFINANCE | |
Size: | SAR11 billion (US$2.93 billion) program with initial issuances totaling SAR250 million (US$66.62 million). |
Arrangers: | HSBC Saudi Arabia |
Lawyers: | Allen & Overy and Khoshaim & Associates for the arranger |
Rating: | Not stated |
Date closed: | December 2018 |
Date closed: | HSBC Saudi Arabia |
The Kingdom is proving to be a vibrant financing market. On the one hand, the Ministry of Finance returned to the market with a new issuance under its program. On the other hand, Alkhabeer REIT was oversubscribed in what many thought would be adverse circumstances for a real estate-related offering.
The Saudi Real Estate Refinance Co was only established in 2017. The Sukuk program marks the company’s formal engagement with the market. With the mortgage law in place, the Saudi Real Estate Refinance Co expands the capacity of domestic players to serve the housing market by providing liquidity through securitization. This is a milestone for the GCC as a whole in addressing the block’s housing requirements. |
Shortlisted for DOTY 2018 | |
UK: TOLKIEN FUNDING SUKUK NO.1 | |
Size: | GBP250 million (US$321.38 million) |
Arranger: | Standard Chartered Bank and Al Rayan Bank |
Lawyers: | Norton Rose Fulbright for the arranger and seller and Clifford Chance for Standard Chartered Bank |
Rating: | ‘AAA’ by S&P Global Ratings and ‘Aaa’ by Moody’s Investors Service |
Date closed: | February 2018 |
Shariah advisors: | Al Rayan Bank |
The UK always offers interesting cross-border real estate deals. Brexit may have cooled some activity. In addition, some investors are taking a time-out to assess changes to the UK’s real estate-related tax adjustments. Nonetheless, Qatari investors remained active as the Gulf State sought to build its relationship with the UK in the face of its regional challenges. Clyde & Co advised QIB UK on financing for properties in Greenwich and the Bank of London & The Middle East on a Midlands real estate deal. Perhaps these deals would have jumped to the fore if Al Rayan had not launched the first public securitization of Islamic home purchase plans. The 2018 deal brings out three important factors in support of the UK as a global Islamic finance center. The deal was bigger than Her Majesty’s Treasury 2014 benchmark Sukuk. Rated ‘AAA’, the deal serves as a proxy benchmark for the UK Islamic finance industry and validates the quality of the domestic UK home finance market.
“We are proud of the contribution our securitization team made to winning this year’s award, with its groundbreaking work on the Tolkien transaction. It is a breakthrough transaction in the UK residential mortgage-backed securities market and showcases the strength our securitization team has in bringing a novel transaction to market,” shared David Shearer, a partner at Norton Rose Fulbright. |
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DOTY Shortlist
This year, the finalists emerged from a ‘Clint Eastwoodian’ shootout. We had the very best with at least three finalists engaged in socially responsible and sustainable finance. These had to triumph over the good.
The International Islamic Trade Finance Corporation (IFTC) figured prominently once again. The ITFC is the thin edge of the spatula flipping closed markets into open markets. ITFC deals were widespread in Central Asia and Africa. Yet, the ITFC, like many others this year, was a case of well-tested tools. Every ITFC deal had outstanding merit. But there were the other do-gooders like: HSBC Amanah Malaysia, the Republic of Indonesia and the Saudi Real Estate Refinance Company (SRC). What the ITFC does in repeated small doses, these deals did in gallons.
Elsewhere, Tolkien Funding kept the Union Jack flying high. One might have thought that the 2014 UK sovereign Sukuk would be the foundation for a more active UK government and corporate market. This would be keeping in line with the UK’s role as an Islamic finance hub. Many issues arose to distract the UK from this role. Perhaps Brexit played its role in the UK becoming less engaged on some fronts. With Tolkien, Al Rayan Bank’s Islamic home purchase plans formed the basis of an investment grade transaction that created a shadow benchmark for the UK Islamic finance market.
The role of home finance in stabilizing and growing a national economy is behind the role of SRC and its debut issuance. As Tolkien demonstrates the attractiveness of Islamic home finance for investors in a global market, SRC offers the next step in Saudi Arabia’s support to the financial sector by increasing liquidity for the home finance market.
While SRC and Tolkien were focused on the housing market, HSBC Amanah Malaysia and the Republic of Indonesia raised the sustainable investing banner. With their 2018 Sukuk allocated for UN Sustainable Development Goals (HSBC Amanah) and green investing (Indonesia), the issuers were committed to raising money for good causes in measurable ways.
Perpetuals were prominent again in 2018. In the GCC and Turkey, perpetuals improved bank capital. Kuwait Finance House came to the market for the first time. Abu Dhabi Islamic Bank was the first to issue according to the new UAE capital regime. In Malaysia, corporates experimented with new forms. Sunway issued a Wakalah-Ijarah hybrid. UMW issued a Musharakah perpetual. And Yinson issued a Mudarabah perpetual. One can imagine that the high carbon connection of the Malaysian perpetuals is the ‘bad’ compared to the good ‘green’ of the Indonesian and HSBC Sukuk.
Then, there is the ugly. Dana Gas restructured three times and twice the restructuring was amicable but the third time was the curse. Dana Gas’s complaints aimed at investors centered on Shariah compliance. One would have imagined that this issue would have been put to bed long ago — the deals were first issued in 2007. With the UAE and English courts heading in opposite directions, 2018 saw a resolution that brings peace for the time being.
IFN Deal of the Year 2018: Shortlist
Tolkien Funding Sukuk No 1: The conversation about Sukuk has long been that they should be more asset-heavy, more like true securitizations. England’s Al Rayan Bank brings us the first public securitization of UK home finance plans based on diminishing Musharakah (co-ownership). Investors take the risk of the underlying performance of the home purchase plans and have no recourse to Al Rayan as the originator. Al Rayan plays the role of ‘seller servicer’. Tolkien represents a model to the wider Islamic home finance industry and its high credit rating also provides an updated benchmark for the GBP-denominated Islamic finance industry. Winner: Sukuk and the UK Runner-up: Most Innovative Nile Delta Sukuk: We can argue vociferously about Dana Gas’s tactics. There are strong opinions that the management’s approach was scandalous and not commensurate with the company’s actual financial position. But once you are in the muck and everyone else is with you, a solution is necessary. This new Sukuk issuance addresses the Shariah compliance complaint by replacing the Sukuk Mudarabah with Sukuk Ijarah. It addresses the financial capacity reality with a partial repayment of the original Sukuk and it brings the trouble out of the courts and back into the market. For less contentious problems in the future, the Nile Delta solution is a good role model. Winner: Restructuring Runner-up: Sukuk HSBC Amanah Malaysia: We have long argued that Islamic finance is about “doing well by doing good”. HSBC has put investor money where its mouth is. The HSBC group launched its US$1 billion SRI bond in 2017. Stuart Gulliver, HSBC’s group chief executive, said: “The launch recognizes our responsibility to help finance global sustainable development. Investors want more socially and environmentally responsible investment opportunities, and this bond helps to meet that demand. It also helps build a deeper and more liquid market to attract other issuers. This is just one mark of HSBC’s commitment to help economies and societies advance toward a sustainable future.” A member of the International Capital Market Association’s Executive Committee for the Green Bond Principles, HSBC has committed US$100 million to sustainable financing and investment by 2025. Well on their way to that goal, HSBC’s Malaysian affiliate has launched its own significant ringgit Sukuk allocated to sustainable investing. “This Sukuk is the world’s first-ever benchmark sustainable Sukuk issuance by a financial institution referencing the UN SDGs as use of proceeds. As such, it is a landmark in the ringgit and global Sukuk market,” said Stuart Milne, the group general manager and CEO of HSBC Bank Malaysia. The HSBC Amanah Sukuk “ … is in line with the newly developed value-based intermediation (VBI) initiative championed by Bank Negara Malaysia which seeks to shift the focus of the Islamic finance industry to integrate environmental and social tenets into banking activities,” added Arsalaan Ahmed, CEO of HSBC Amanah. Winner: Social Impact and Malaysia Saudi Real Estate Refinance Co: Historical studies of the financial markets have shown that home ownership is an important stabilizing factor in an economy. Moreover, investment securities linked to home financing arrangements are bellwethers of economic development. With a burgeoning younger generation and relatively low homeownership, the Kingdom of Saudi Arabia has progressively been improving the environment for homeownership. Established by the Public Investment Fund in 2017, the Saudi Real Estate Refinance Co seeks to promote the development of a housing finance market in the Kingdom. On the back of the mortgage law’s introduction in 2015, SRC promises to provide the means to develop the domestic market and to inspire neighboring markets with similar challenges. Winner: Real Estate, Saudi Arabia Republic of Indonesia (through Perusahaan Penerbit SBSN Indonesia III): One of the most important issuers in recent years is the Republic of Indonesia. Each issuance has represented progressive thinking, first from a market development perspective, and now from a social impact angle. What HSBC is doing in the banking market, Indonesia is doing in the sovereign market. One hopes that more sovereigns will look into how Sukuk proceeds may be applied to such green projects. In the case of hydrocarbon-based economies, these unique transactions are able to refocus the local economy from hydrocarbon-driven energy projects while, with some irony, allowing them to maximize on the sale of their hydrocarbons for export or diversion from energy to plastics and chemicals. Winner: Indonesia and Sovereign Runner-up: Social Impact |