Analysis of Sukuk Market

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Analysis of the Sukuk Market
Dubai, April 25, 2007

Overview

Introduction What is a Sukuk?
Types of Sukuk

Composition of the Sukuk Market Breakdown of the Sukuk Market Expected Growth of the Sukuk Market

Introduction
1974 beginning of the first Islamic Financial Institution by the creation of the inter-governmental Islamic Development Bank (IDB) 2001 first GCC Sukuk issuance • Bahrain Monetary Agency USD100 Million 2002 World’s first Islamic global bond issue • Federation of Malaysia USD600 Million

What is a Sukuk?
A Sukuk is an Islamic Bond compliant with Shariah law, which pays a return based on tangible assets in lieu of an interest rate. Similarity with Conventional Bonds : Bonds contractually obligate the issuer to pay specific interest and principal to the bondholders meanwhile Sukuk holders are entitled to share in the proceeds of the realization of the Sukuk assets.

Types of Sukuk
14 Eligible Asset Classes according to AAOIFI are: • SUKUK AL-IJARAH • SUKUK IJARAH MOWSUFA BITHIMA • SUKUK MANFAA IJARAH • SUKUK MANFAA IJARAH MOWSUFA BITHIMA • SUKUK MILKIYAT AL-KHADAMAT • SUKUK AL-SALAM • SUKUK AL-ISTISNA’A • SUKUK AL-MURABAHA • SUKUK AL-MUSHARAKA • SUKUK AL-MUDARABA • SUKUK AL-WAKALA • SUKUK AL-MUZRA’A • SUKUK AL-MUSAQA • SUKUK AL-MUQARASA

Composition of the Sukuk Market
Actual Size of the Market ~ USD 53 Billion Syndicated loans vs Conventional Sukuk: • Banks vs Capital Markets • Different client base • Cheaper for issuer but not for investor Malaysia vs GCC Sukuk: • Bay’ Al Dayn • Underlying assets Convertible vs Plain Vanilla: • USD 2 Billion+ and USD 50-500 Million

Composition of the Sukuk Market
Most popular types of Sukuk are: • Ijarah: Sukuk that represent ownership of equal shares in a rented real estate or the usufruct of the real estate giving owners the right to own the real estate and receive the rent. 79 issues since 2001 / USD16.22 Billion • Musharaka: Investment Sukuk that represent ownership of Musharaka equity and are used for mobilizing the fund for establishing a new project or developing an existing one or financing a business activity on the basis of partnership contracts. 24 issues since 2005 / USD 9.54 Billion

Composition of the Sukuk Market
• Mudaraba: Investment Sukuk that represent ownership of units of equal value in the Mudaraba equity and are registered in the names of holders on the basis of undivided ownership of shares in the Mudaraba equity and its returns according to the percentage of ownership share. 5 issues since 2003 / USD 3.41 Billion • Murabaha: The issuer of the certificate is the seller of the Murabaha commodity while the subscribers are the buyers of that commodity, and the realized funds are the purchasing cost of the commodity. The negotiability of these Sukuk at the secondary market is not allowed by Shariah. 34 issues since 2001 / USD 2.60 Billion

Composition of the Sukuk Market
• Istisna’a: Certificates that carry equal value and are issued with the aim of mobilizing the funds required for producing products that are owned by the certificate holders. 6 issues since 2005 / USD 875 Million

Composition of the Sukuk Market
Size of Issues Since 2000
MUSHARAKA

10,170 2,598 3,414 875 16,216
0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000

MURABAHA

MUDARABA

ISTISNA'A

IJARAH

USD MILLION
Source: Zawya, Sukuk monitor, Apr ‘07

Composition of the Sukuk Market
Sukuk Issues: Global Vs GCC
30,000 25,000 USD Million 20,000 15,000 10,000 5,000 0 2005 Year Source: Zawya, IFIS, Apr ‘07

26,797

12,065

10,687

2,562

2006

GCC SUKUK

GLOBAL

Breakdown of the Sukuk Market
Sovereign Sukuk: • Qatar 10 – USD 700 Million • Pakistan 10 – USD 600 Million • Malaysia 07 – USD 600 Million Next Sovereign Sukuk: • Japan: “The Japan Bank of International Cooperation” Ijarah Sukuk, 2007: USD 200-300 Million • Indonesia: USD 500 Million • Germany • Pakistan • Saudi Arabian Monetary Agency • U.K...
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