1. 1

2. 2 Sukuk (Islamic Bond) Hamad Rasool Director : First WAPDA Sukuk Co. Director: First Credit Investment Bank. Director: WAPDA Finance

3. 3 Defination Sukuk is the Arabic name for a financial certificate, Islamic alternative to conventional bonds, Sukuk is a Trust certificate in which investor returns are derived from legal or beneficial ownership of assets.Arabiccertificate

4. 4 Introduction

5. 5 Growing Sukuk Liquidity Management of Islamic Banking. Islamic financial institutions are seeking to diversify their portfolio and increase their portfolio size of tradable instruments with fixed income profile The industry requires Sukuk funds for retail distribution Sukuk a Money Market instrument. Islamic Inter-Bank or Short term Islamic Finance market can be developed through sukuks The underlying assets are purely used as a means of transacting and do not constitute a Transaction specific pool of security

6. 6 Growing Sukuk Sukuk are usually issued through special purpose vehicle (‘SPV’) In Pakistan a Limited Liability Company has acted as the issuer and is registered with and regulated by SECP It is estimated that by 2006, close to US$ 25 billion of Sukuk would be outstanding and by 2008,approximately US$ 50 billion Sukuk will be outstanding. Bahrain Issues near about 24 Sukuk in a year Short and long term 5 – 10 Years Periods There are 77 Sukuk has been issued with the volume of USD 17,977.11 Millions

7. 7 Advantage of Sukuk Issuance Diversify funding source Create and enhance profile in international market Pricing benchmark Secondary liquidity Sizeable financing. Ease of clearing and settlement

8. 8 Advantage of Sukuk Investor Diversify Investment Provides Leveraging Capabilities Secondary Market Liquidity Ease of clearing and Settlement Investment available to Institutional and Retail investors Allows for many computation of Risk –Credit /Mkt. /Duration etc

9. 9 Issuance of Sukuk- Factor to be considered Identify investors Rating – by a Credit Rating Agency Underlying Assets Secondary Market Considerations Applicable laws – SECP rules Cost to the Issuers Drafting of Legal Documents Regularity Frame work

10. 10 Parties Involved Originator : Initial Owner SPV : Set up for Special Purpose Investors:Subscribers. Servicer:Servicer the assets. Receiving and Paying Agent : Banks Credit Enhancement provider : hedges, Guarantees, Takaful etc

11. 11 Parties Involved Merchant Banker : Credit Rating Agency: Legal & Tax Counsel: Auditor

12. 12 Challenges of Market Limited number of issuance that constrains active trading of these instruments in the secondary market Buy and Hold Strategy by major investors of sukuks Limited quality assets available for Ijarah securitization Limited Corporate Focus - Changing

13. 13 Ideal models for structuring of Sukuk Especially focused on Construction Industry.

14. 14 Sukuk Structure Sukuk Structuring may based on following modes Mudarabah (Trust Financing/Trust Investment) Murabahah (Sale And Purchase) Musharaka (Partnership, Project Financing Participation) Istishna (Purchase by Order or Manufacture) Salam (In-front Payment Sale) Ijarah (Operating Lease Concept)

15. 15 Sukuk Al-Ijara based Model

16. 16 Sukuk al Istismar (51% Ijarah structuring)

17. 17 Global Sukuk Issues

18. 18 Global Sukuk Cumulative Issuance

19. 19 Global Sukuk Issuance

20. 20 Sukuk Issuing in Construction Industry NameCountryVolumDateTenor EmaarUAE $65 mJuly 20045 years Amlak UAE$200 mJuly 20055 years UEM BuildersMalasiya$82 m Jan-20067 years AldarBehrain$100 mOct – 20055 years Com. RE Kuwait$100 m May 20055 years Motorway Pak$600 m Jan-20055 years WAPDA, Penang Port and bridge, Sanctuary Building-U k, Sukuk, Zam Zam tower KSA etc also has been issued sukuk related to construction Industry list attached for further consideration)

21. 21 CASE STUDIES Case study of Sukuk Relatively with Construction industry. WAPDA Sukuk for upraising Mangla Dam Motorway Sukuk

22. 22 WAPDA Sukuk WAPDA’s financing requirement: PKR 8,000 million to (partially) fund the Mangla Dam Raising Project Key objectives for WAPDA were: To raise financing in a cost efficient manner Strengthen its presence in the local financial markets Diversify and cultivate WAPDA’s investor base Undertake a landmark transaction which will catalyze the promotion of Islamic Financial instruments and lead the way for other public sector entities

23. 23 Transaction Structure

24. 24 Transaction Structure

25. 25 Offering Summery

26. 26 Motorway Sukuk

27. 27 Glossary