1. Prepared by: Fatimah 1000411, Aida 1000080, Khairul 1000156, Nadzri 0900343 Cheah 1000164 BK 6503/5503 Sep – Dec 2010 Semester INCEIF, Kuala Lumpur 17 OCT 2010

2. OUTLINE OF PRESENTATION What is Sukuk Summary of ELITE Musyarakah Sukuk Shariah Parameters Aqad Financial Reporting & Legal Documentation Maqasid al-Shariah Conclusion

3. SUKUK : DEFINITION Literal Meaning Sukuk (Arabic: صكوك ‎, plural of صك Sakk) means "legal instrument, deed, check" Literal Meaning Sukuk (Arabic: صكوك ‎, plural of صك Sakk) means "legal instrument, deed, check" Technical Meaning Sukuk refer to securities / certificates / papers with the features of liquidity, tradability and “cash equivalence” Technical Meaning Sukuk refer to securities / certificates / papers with the features of liquidity, tradability and “cash equivalence” AAOIFI’s definition of Investment Sukuk – Standard 17(2): “Investment sukuk are certificates of equal value representing undivided shares in ownership of tangible assets, usufruct and services (in the ownership of) the assets of particular projects or special investment activity. AAOIFI’s definition of Investment Sukuk – Standard 17(2): “Investment sukuk are certificates of equal value representing undivided shares in ownership of tangible assets, usufruct and services (in the ownership of) the assets of particular projects or special investment activity. Malaysian Securities Commission’s “Guidelines on the Offering of Islamic Securities” in Appendix 1 (B) defines sukuk as “a document or certificate which represents the value of an asset”

4. SUKUKSales basedBBA, Murabahah, Salam, Istisna’Lease basedIjarah, Ijarah Muntahiyah bi TamlikPartnership basedMUSYARAKAH, MudarabahAgency basedWakalah Contract Structure

5. “A partnership arrangement between two parties or more to finance a business venture whereby all parties contribute capital either in the form of cash or in kind for the purpose of financing the business venture. Any profit derived from the venture will be distributed based on a pre-agreed profit sharing ratio, but a loss will be shared on the basis of equity participation.” Important Principles: (i)Capital & Profit are not guaranteed (ii)Profit distribution follow exactly capital invested or pre- agreed ratio (iii)Loss according to capital invested MUSYARAKAH : DEFINITION

6. Key Transaction IssuerSeafield Capital Bhd InstrumentRM 1.5 bil Musyarakah Sukuk Programme Ratings (by RAM Rating Services Bhd) AA2 Issuance date27 May 2009 Islamic contractMusyarakah Underlying asset / venture Investment in the Trust Asset, comprising the respective Trust Units of Concession Assets Lead arrangerCIMB Investment Bank Bhd Shariah adviserCIMB Shariah Islamic Committee Purpose of issueTo meet ELITE’s funding requirements TrusteeUniversal Trustee (Malaysia) Bhd

7. Sukuk Holders Seafield Capital (Issuer) Puncak Tulus (SPV 1) ELITE (Obligor) ELITE Owner of Consessionaire Sale of Beneficial Ownership Purchase undertaking deed Sale of beneficial ownership Sukuk Sukuk sale proceeds Sale price Sale undertaking deed

8. Aqad Agents of Contract Transaction 1 - Sale of Beneficial Ownership in the Concession Agreement between ELITE and Pucak Tulus (SPV). Transaction 2 - Subsequent sale of the Beneficial Ownership in the Concessionary Agreement between Puncak Tulus (SPV) to Seafield (Issuer). Transaction 3 - Sale of Sukuk between Seafield and Sukukholders. Musyarakah Contract is formed among the investors. Trustee Management Company and Beneficiaries (Sukuk Holders) Purchase Undertaking Deed between ELITE and Seafield (Issuer) Objectives of Contract Refinance ELITE’s existing borrowings Fund the fees, costs, expenses and other amounts payable in relation to the Sukuk program Remaining amount for general funding, capex and working cap of ELITE Sale: To transfer the ownerships in financial asset (in the form of trust units). Musyarakah: To share the profit derived from ELITE’s toll revenue and income under Concession Agreement. Trust Deed: To protect the rights and interest of the Beneficiaries. Purchase Undertaking: Promise to repurchase the Trust Units Subject matter Financial Asset (trust units), Beneficial Ownership in the Concession Assets, Debts. Offer and acceptance Offer and Acceptance are done in writing, Initial Public Offerings and other legal documentations.

9. Observations:  Sale Contracts: - Objective: Transfer of ownership. There is no transfer of legal ownership from ELITE to SPV1, SPV1 to Issuer and Issuer to Sukuk Holders. AAOIFI Rules On Sukuk No.21 - Subject Matter- Financial Asset/trust units ( To refinance BAIDS taken earlier worth RM 850 million).  Musyarakah contracts- - Objective: Profit/Loss Sharing - Participation in the equity. - But, there is no risk taking. The requirements of Top Up account, Purchase Undertaking, Capital and profit are secured. No real profit/loss sharing.  Purchase Undertaking - Promise to repurchase at Par Value ( The capital) - Is it valid? How does it affect Musyarakah Contract? - Is it enforceable in the court of law? Nevertheless, the Sukuk is valid per SAC’s Securities Commission Malaysia Guidelines.

10.  Purchase undertaking for capital protection – is it valid? ◦ Page 29 of PT & C, ELITE is obliged to buy Sukukholders’ interest at Exercise Price upon occurence of Maturity Date or early dissolution of Sukuk. ◦ AAOIFI in Nov 2007, raised concerns – ◦ purchase undertakings are allowed for ijarah, and not other contracts. ◦ liquidity facilities via loan from issuer also disallowed

11.  Financial reporting – aims to provide information transparency – to all parties involved in sukuk transaction.  ELITE verifies that: ◦ Trust units are reported as non current asset in the balance sheet of ELITE – complies with application of al bay principles  However, the legal and beneficial rights of the underlying asset (trust units) are only transferred to SPV1 and to issuer. AAOIFI Feb 2008 ruled that a sukuk is not Shariah compliant when the SPV fails to transfer ownership of asset to the holders.

12.  What is the asset? Unit trust.  Purpose – to re-finance BaIDS of RM 800 mil.  Ownership of underlying asset – in the form of security asset  Does it comply with the ownership requirements?  issuance of debt against debt (al kali bi al kale) is forbidden by fiqh  Implications for maqasid: ◦ Debt creation ◦ Limited recourse for sukuk holders

13. Manfa’ahMudarrah Thorough analysis need not be conducted Guarantee capital of another partner No risk in partnership Refinancing debt against debt Additional Working Capital  Securing of benefits (Manfa’ah); and  Repelling of Harm (Madarrah)

14.  The Musyarakah Sukuk is exercised to raise funds to refinance debt.  There are fiqh / aqad / maqasid implications ◦ Are musyarakah principles suitable for such an objective? ◦ Perhaps BBA or Inah type contracts are by nature more representative of the objective  At legal documentation and financial reporting levels, the following concerns were raised: ◦ Capital and return guaranteed but AAOIFI restricts purchase undertaking only to ijara ◦ Islamic law of contract stipulates that musyarakah is participatory financing for a genuine business venture. Is debt refinancing a valid business venture?  This sukuk can be better repositioned based on other bay contracts, e. g. BBA.

15. THANK YOU

16.  Musyarakah Principles ◦ Shirkat Ul-Milk – joint ownership of two or more persons in a particular property: i.Purchase equipment jointly ii.Inheritance ◦ Shirkah Ul-Aqd – partnership affected by a mutual contract (joint commercial enterprise) i.Shirkat Ul Amral – all partners invest some capital into a commercial enterprise ii.Shirkat Ul-A’mal – service based

17. BenefitsDisbenefits Added exposure due to credit enhancement Refinancing debt against debt Additional Working Capital  Securing of benefits (Manfa’ah); and  Repelling of Harm (Madarrah)

18. BenefitsDisbenefits Limited recourse Profit not Halal Risk free investment  Securing of benefits (Manfa’ah); and  Repelling of Harm (Madarrah)