1. STRUCTURE OF CORPORATE SUKUK CASE OF INDONESIA Bandar Seri Begawan, 30 th Nov – 4 th Dec 2015

2. 2 The Structure of Corporate Sukuks Case of Indonesia

3. Agenda 3 I.Basic Fiqh-Structures of Sukuks II.Types of Corporate Sukuks III.Asset-Backed and Asset-Based Sukuks

4. 4 Basic Sukuk Fiqh-Structure Sukuk Fiqh-Structure with WAKIL Sukuk Fiqh-Structure with SPV-Entity (Special Purpose Vehicle) Sukuk Fiqh-Structures

5. 5 1.Owner Issues Sukuk and leases Asset to Investor 2.Investor gives Liquidity 1.Owner Issues Sukuk and leases Asset to Investor 2.Investor gives Liquidity 3. Sublease 4. Rental Fee Issuer is Owner of Existing Asset Basic Fiqh-Structures of Sukuks

6. 6 4. Rental Fee Issuer is Owner of Existing Asset 3. Instructs Owner as Wakil 4. Sublease 3. Sublease 5. Rental Fee 1.Owner Issues Sukuk and leases Asset to investor 2.Investor gives Liquidity 1.Owner Issues Sukuk and leases Asset to investor 2.Investor gives Liquidity Basic Fiqh-Structures of Sukuks

7. 7 4. Rental Fee Existing Asset ISSUER SPV (Special Purpose Vehicle) ISSUER SPV (Special Purpose Vehicle) 3. SPV Issue Sukuk 4. Investor instruct SPV 3. SPV Issue Sukuk 4. Investor instruct SPV 5. Sublease 3. Sublease 6. Rental Fee 1.SPV buys Asset 2.Owner leases Rights over Usufructs of Asset to SPV 1.SPV buys Asset 2.Owner leases Rights over Usufructs of Asset to SPV 1.Owner Issues Sukuk and leases asset to investor 2.Investor gives Liquidity 1.Owner Issues Sukuk and leases asset to investor 2.Investor gives Liquidity Basic Fiqh-Structures of Sukuks

8. 8 3/1 Ijarah Certificates, Ownership in Leased Assets3/2 Ijarah Certificates, Ownership of Usufructs3/3 Salam Certificates3/4 Istishna‘ Certificates3/5 Murabaha Certificates3/6 Musharaka Certificates3/8 Musaqa (irrigation) Certificates3/7 Muzara‘a (sharecropping) Certificate3/9 Mugharasa (agricultural) Certificates Overview of Different Types of Corporate Sukuks

9. 9 Ijarah Sukuks of Ownership in Leased Asset or Tangible Asset

10. 10 Ijarah Object 3/1 Sukuk-Ijarah: Tangible Asset and Issuer is Owner and Act as Wakil

11. 11 Ijarah Object 3/1 Sukuk-Ijarah: Tangible Asset and Issuer is Lessee

12. 3/1 Ijarah Certificates, Ownership in Leased Assets3/2 Ijarah Certificates, Ownership of Usufructs3/3 Salam Certificates3/4 Istishna‘ Certificates3/5 Murabaha Certificates3/6 Musharaka Certificates3/8 Musaqa (irrigation) Certificates3/7 Muzara‘a (sharecropping) Certificate3/9 Mugharasa (agricultural) Certificates 12 Overview of Different Types of Corporate Sukuks

13. 13 There are 4 types of Usufructs Certificates, differing by the underlying object: Owner of Existing Asset Owner of Usufruct of Existing Asset (Lessee) 3/2 Ijarah Sukuks of Usufructs of Assets

14. 14 Ijarah Object 3/2/1/1 Sukuk-Ijarah: Usufructs of Existing Asset is Owned by Issuer (act as Wakil)

15. 15 No. Name of Sukuk Name of Publisher Managing Underwriter 1. Sukuk Ijarah PLN V Tahun 2010 PT PLN (Persero)  PT Danareksa Sekuritas  PT Mandiri Sekuritas  PT Trimegah Securities Tbk 2. Sukuk Ijarah Berlian Laju Tanker Tahun 2007 PT Berlian Laju tanker Tbk.  PT Danatama Makmur  PT Andalan Artha Advisindo Sekuritas  PT HSBC Securities Indonesia 3. Sukuk Ijarah Indosat IV Tahun 2009 PT Indosat Tbk.  PT Danareksa Sekuritas  DBS Vickers Securities  PT Mandiri Sekuritas 4. Sukuk Ijarah Metrodata Electronics I Tahun 2008 PT Metrodata Electronics  PT Andalan Artha Advisindo Sekuritas Case Indonesia: Issuers Use 3/2/1/1 Sukuk-Ijarah: Issuer is Owner of Usufruct

16. 16 Ijarah Object 3/2/1/2 Sukuk-Ijarah: Issuer is Lessee of Usufruct

17. 17 No.Name of SukukName of Publisher Managing Underwriter 1. OS Ijarah I Matahari Putra Prima Tahun 2004 PT Matahari Putra Prima Tbk.  PT Mandiri Sekuritas  PT Deutsche Securities Indonesia 2. Sukuk Ijarah Matahari Putra Prima II Tahun 2009 PT Matahari Putra Prima Tbk.  PT HSBC Securities Indonesia  PT IndoPremier Securities  PT Ciptadana Securities (Terafiliasi) Case Indonesia: Issuers Use 3/2/1/2 Sukuk-Ijarah: Usufruct of Existing Asset is Leased by Issuer (act as Wakil)

18. 18 Ijarah Object 3/2/2 Sukuk-Ijarah: Usufruct of Future Asset is Owned by Issuer (act as Waki)

19. 19 No.Name of Sukuk Name of Publisher Managing Underwriter 1. Obligasi Syariah Ijarah Indorent I Tahun 2004 PT CSM Corporatama  PT Indopremier Securities Case Indonesia: Issuers Use 3/2/2 Sukuk-Ijarah: Usufruct of Future Asset is Owned by Issuer (act as Waki)

20. 20 Ijarah Object 3/2/3 Sukuk-Ijarah: Service of Specified Party Leased by Issuer (act as Wakil)

21. 21 No.Name of Sukuk Name of Publisher Managing Underwriter 1. Sukuk Ijarah Salim Ivomas Pratama I Tahun 2009 PT Salim Ivomas Pratama  PT Danatama Securities  PT Makinta Sekuritas 2. Sukuk Ijarah Pupuk Kaltim I Tahun 2009 PT Pupuk Kalimantan Timur (Persero)  PT Danareksa Sekuritas Case Indonesia: Issuers Use 3/2/3 Sukuk-Ijarah: Service of Specified Party Leased by Issuer (Wakil)

22. 22 Ijarah Object 3/2/3 Sukuk-Ijarah: Service of Specified Party is Owned by Issuer (act as Wakil)

23. 23 No.Name of Sukuk Name of Publisher Managing Underwriter 1. Sukuk Ijarah Aneka Gas Industri I Tahun 2008 PT Aneka Gas Industri  PT Andalan Artha Advisindo Sekuritas Case Indonesia: Issuers Use 3/2/3 Sukuk-Ijarah: Service of Specified Party is Owned by Issuer (act as Wakil)

24. 24 Ijarah Object 3/2/4 Sukuk-Ijarah: Future Service Leased by Issuer (act as Wakil)

25. 3/1 Ijarah Certificates, Ownership in Leased Assets3/2 Ijarah Certificates, Ownership of Usufructs3/3 Salam Certificates3/4 Istishna‘ Certificates3/5 Murabaha Certificates3/6 Musharaka Certificates3/8 Musaqa (irrigation) Certificates3/7 Muzara‘a (sharecropping) Certificate3/9 Mugharasa (agricultural) Certificates 25 Overview of Different Types of Corporate Sukuks

26. These are certificates of equal value issued with the aim of using the mobilised funds for establishing a new project, developing an existing project or financing a business activity on the basis of any of partnership contracts so that the certificate holders become the owners of the project or the assets of the activity as per their respective shares, with the musharaka certificates being managed on the basis of participation or mudaraba or an investment agency. 26 There are 3 types of Musharaka Certificates: 3/6 Musharaka Certificates Joint Venture, Profit and Loss Sharing

27. 27 1 2 3 4 5 6 Fatwa Dewan Syariah Nasional No. 15/DSN- MUI/IX/2000 “Incrome distribution Principles for Islamic Financial Institutions” 3/6/2 Mudaraba Sukuk

28. 28 1 Activity Revenue 3/6/2 Sukuk-Mudaraba: Total Sharia Compliant Gross-Profit

29. 29 No.Name of Sukuk Name of Publisher Managing Underwriter 1. Sukuk Mudharabah I Mayora Indah Tahun 2008 PT Mayora Indah Tbk.PT Danareksa Sekuritas 1 3/6/2 Sukuk-Mudaraba: Total Sharia Compliant Gross-Profit

30. 30 2 Revenue Activity 3/6/2 Sukuk-Mudaraba: Total Sharia Compliant Revenue

31. 31 No.Name of Sukuk Name of Publisher Managing Underwriter 1. Obligasi Syariah Mudharabah Ciliandra Perkasa Tahun 2003 PT Ciliandra Perkasa PT Indopremier Securities Period of calculation of income that has been distributed is obtained during a quarterly basis. Portion (ratio) for the results to investors is a single ratio, i.e. 17.70% of the value of sales contracts in a single calculation period (quarterly) business activities by the subsidiary. Income that has been distributed rather than direct the Company's income, but income from subsidiaries. 2 3/6/2 Sukuk-Mudaraba: Total Sharia Compliant Revenue

32. 32 3 Activity Revenue 3/6/2 Sukuk-Mudaraba: Sharia Unit using Gross Profit Sharing

33. 33 Activity Revenue 4 3/6/2 Sukuk-Mudaraba: Sharia Unit using Revenue Sharing

34. 34 No.Name of Sukuk Name of Publisher Managing Underwriter 1. Sukuk Mudharabah I Bank Nagari Tahun 2010 PT Bank Pembangunan Daerah Sumatera Barat  PT Trimegah Securities Tbk.  PT Andalan Artha Advisindo Sekuritas 2. Obligasi Syariah Mudharabah Bank Bukopin Tahun 2003 PT Bank BukopinPT Andalan Artha Advisindo Sekuritas 4 3/6/2 Sukuk-Mudaraba: Sharia Unit using Revenue Sharing

35. 35 Activity Revenue 5 3/6/2 Sukuk-Mudaraba: Gross Profit from Specific Project

36. 36 No. Name of Sukuk Name of Publisher Managing Underwriter Notes 1. Obligasi Syariah Mudhara bah PTPN VII Tahun 2004 PT Perkebunan Negara VII (Persero)  PT Andalan Artha Advisindo Sek.  PT Mandiri Sekuritas (afiliasi) Portion (ratio) for the results to be multi Investors ratio (decreased), namely 2.64% and 3.61% in unity ca. 2.01% and 2.97% the fifth year of sales revenue minus the costs of commodities; Calculation and the magnitude of the percentage of the profit sharing ratio based /refers to the sales revenue is used as underlying commodity in the issuance of sukuk. 5 3/6/2 Sukuk-Mudaraba: Gross Profit from Specific Project

37. 37 Activity Revenue 6 3/6/2 Sukuk-Mudaraba: Revenue from Specific Project

38. 38 No.Name of SukukName of PublisherManaging Underwriter 1 Obligasi Syariah Mudharabah Bank Syariah Mandiri Tahun 2003 PT Bank Syariah Mandiri  PT Andalan Artha Advisindo Sekuritas  PT Mandiri Sekuritas (afiliasi) 2 Sukuk Subordinasi Mudharabah Bank Muamalat Tahun 2008 PT Bank Syariah Muamalat Indonesia Tbk.  PT Andalan Artha Advisindo Sekuritas  PT Bahana Securities  PT CIMB-GK Securities Indonesia  PT Danareksa Sekuritas 3 Sukuk Mudharabah Bank Sulselbar I Tahun 2011 PT BPD Sulawesi Barat  PT Danareksa Sekuritas  PT Andalan Artha Advisindo Sekuritas 6 3/6/2 Sukuk-Mudaraba: Revenue from Specific Project

39. Sukuk Transactions Assets are sold from the obligor to the issuer SPV (True Sale) Legal title is transferred to the Sukuk holders Collateralized Asset 39 Ownership is with no rights of a title of the asset (beneficial ownership) Asset stays on originators balance sheet Asset is not collateralized Asset-Backed and Asset-Based Sukuks

40. 40 CharacteristicAsset-BackedAsset-Based Asset Benefits Owned by Sukuk holders (Legal title to the asset) No claw-back of assets by originator Beneficial ownership Can remain on the books of obligator No detailed due diligence required Risks No recourse for unpaid investments Asset value for realization only upon returning or default Asset transfer time intensive Detailed due diligence required No direct recourse to underlying assets Unsecured (unless there is a security interest) Restrictions of disposal of assets rights prompt sharia concerns Credit Quality Benefits Credit-rating based on performance of assets Preferential position over assets to unsecured creditors Enjoy upside of revenue or realization of underlying asset Credit-rating based on the corporate credit of the originator Holder only have credit risk of obligator True market value of asset is irrelevant Risks Holder bears asset, market and credit risks Losses due to impairment of asset value No upside-benefits once liabilities are paid off Pure debt instrument No difference to any unsecured debt creditors Overall Preferred from sharia perspective For detailed version see appendix. Source: Sukuk Report 2011, International Islamic Financial Market, 2nd Edition Overview about the Characteristics of Asset-Backed and Asset-Based Sukuk Transactions

41. 41 Appendix

42. 42 Definitions of different Types of Investment Sukuks

43. These are certificates of equal value issued either by the owner of a leased asset or a tangible asset to be leased by promise, or they are issued by a financial intermediary acting on behalf of the owner with the aim of selling the asset and recovering its value through subscription so that the holders of the certificates become owner of the assets. 43 3/1 Certificates of Ownership in Leased Assets

44. There are two types: 3/2/1/1 Certificates of equal value issued by the owner of an existing asset either on his own or through a financial intermediary, with the aim of leasing the asset and receiving the rental from the revenue of subscription so that the usufruct of the assets passes into the ownership of the holders of the certificates. 3/2/1/2 Certificates of equal value issued by the owner of the usufruct of an existing asset (lessee), either on his own or through a financial intermediary, with the aim of subleasing the usufruct and receiving the rental from the revenue of the subscription so that the holders of the certificates become owners of the usufruct asset. 44 3/2/1 Certificates of ownership of Usufructs of Existing Assets

45. These are certificates of equal value issued for the purpose of leasing out tangible future assets and for collecting the rental from the subscription revenue so that the usufruct of the described future asset passes into the ownership of the holders of the certificate. 45 3/2/2 Certificates of Ownership of Usufructs of Described Future Assets

46. These are certificates of equal value issued for the purpose of providing services through a specified provider (such as educational benefits in a nominated univesity) and obtaining the service charges in the form of a subscription income so that the holders of the certificates become owners of these services. 46 3/2/3 Certificates of Ownership of Service of a Specified Party

47. 47 These are certificates of equal value issued for the purpose of providing future services through described provider (such as educational benefits from an university without naming the educational institution) and obtaining the fee in the form of subscription income so that the holders of the certificates become owners of the services. 3/2/4 Certificates of Ownership of Service of a Described Future Service

48. These are certificates of equal value issued for the purpose of mobilising salam capital so that the goods to be delivered on the basis of salam come to be owned by the certificate holders. 48 3/3 Salam Certificates

49. These are certificates of equal value issued with the aim of mobilising funds to be employed for the production of goods so that the goods produced come to be owned by the certificate holders. 49 3/4 Istisna’ Certificates

50. These are certificates of equal value issued for the purpose of financing the purchase of goods through murabaha so that the certificate holders become the owners of the Murabaha commodity 50 3/5 Murabaha Certificates Trust Financing, Profit Sharing

51. These are certificates of equal value issued with the aim of using the mobilised funds for establishing a new project, developing an existing project or financing a business activity on the basis of any of partnership contracts so that the certificate holders become the owners of the project or the assets of the activity as per their respective shares, with the musharaka certificates being managed on the basis of participation or mudaraba or an investment agency. 51 There are 3 types of Musharaka Certificates: 3/6 Musharaka Certificates Joint Venture, Profit and Loss Sharing

52. 3/6/1 Participation certificates: These are certificates representing projects or activities managed on the basis of Musharaka by appointing one of the partners or another person to manage the operation. 3/6/2 Mudaraba Sukuk: These certificates that represent projects or activities managed on the basis of Mudaraba by appointing one of the partners or a another person person as the mudarib for the management of the operation. 3/6/3 Investment Agency Sukuk: These are certificates that represent projects or activities managed on the basis of an investment agency by appointing an agent to manage the operation on behalf of the certificate holders. 52 3/6 Musharaka Certificates Joint Venture, Profit and Loss Sharing

53. These are certificates of equal value issued for the purpose of using the funds mobilised through subscription for financing a project on the basis of Muzara’a so that the certificate holders become entitled to a share in the crop according to the terms of the agreement. 53 3/7 Muzara’a (Sharecropping) Certificates

54. These are certificates of equal value issued for the purpose of employing the funds mobilised through subscription for the irrigation of fruit bearing trees, spending on them and caring for them on the basis of a Musaqa contract so that the certificate holders become entitled to a share in the crop as per agreement. 54 3/8 Musaqa (Irrigation) Certificates

55. These are certificates of equal value issued on the basis of a Mugharasa contract for the purpose of employing the funds for planting trees and undertaking the work and expenses required by such plantation so that the certificate holders become entitled to a share in the land and the plantation. 55 3/9 Mugharasa (Agricultural) Certificates

56. 56 Sukuk-TypeBenefits Asset-Backed Asset owned by Sukuk holders Sukuk holders can enjoy a share in the upside of any revenue and realization from the underlying asset Recourse to the Sukuk assets Preferential position of Sukuk holders over the assets compare to unsecure creditors Sukuk credit rating based on the performance of those pool of assets, not the corporate credit-worthiness of the originator Assets ring-fenced from originator‘s financial plight; no claw-back of the assets For banks, capital adequacy requirements reduced following the true sale of the assets Preferred over asset-based from a sharia perspective Asset-Based Sukuk holders have recourse to the originator via a purchase undertaking or the issuer via a guarantee, not restricted to the asset value Take on only credit risk of obligor Obligor can raise unsecured funding without tying up assets No legal or financial due diligence required on asset transfer Assets can remain on the books of the obligor Purchase undertaking takes away risk of loss to sukuk holders Sukuk credit rating based on the corporate credit of the originator, not the performance of the underlying pool of assets Sukuk holders effectively enjoy guaranteed capital and periodic returns, depending on credit risk of obligor/originator True market value of the underlying assets is irrelevant for sukuk holders. Source: Sukuk Report 2011, International Islamic Financial Market, 2nd Edition Asset-Backed and Asset-Based Sukuk: Benefits

57. 57 Sukuk-TypeRisks Asset-Backed Can only look to asset value for realization upon returning the capital or upon default No recourse to the riginator for unpaid investments if assets insufficient to meet realization on sale Sukuk holders will bear any losses due to impairment of the asset values Detailed legal and financial due diligence required on te asset transfer from obligor Issuers must be ready to part with their assets Requires compliance with true sale, bankruptcy remoteness and enforceability securitization rules Asset transfer may require lengthy registration Regulatory framework for true sales not permitted in all juristications Insolvency and bankruptcy laws not developed in many juristications Asset-Based Sukuk holders are simply unsecured (unless there is a security interest in the assets) Sukuk holders do not have direct recourse to the underlying assets Even if the assets are secured, Sukuk holders can not benefit from any upside in the sale of the assets once liabilities paid off Restrictions on the right of disposal of the assets, prompt Sharia concerns Purchase Undertaking effectively turns sukuk into a pure debt instrument Purchase Undertaking ranks parri passu with other unsecured creditors on theoriginator‘s unsecured obligations Sukuk holders are no different from any unsecured creditors of the originator Any security granted by obligor to the issuer not necessarily related to the underlying assets Source: Sukuk Report 2011, International Islamic Financial Market, 2nd Edition Asset-Backed and Asset-Based Sukuk: Negatives