1 / 42

Islamic Finance and Sukuk Market Review

Islamic Finance and Sukuk Market Review. December 2008. Principles of Islamic Finance. Islamic finance is an ethical and equitable mode of finance which derives its principles from the Quran (the Holy Book) and the Sunnah (the traditions of the Prophet Muhammad)

salvador-henson
Download Presentation

Islamic Finance and Sukuk Market Review

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Islamic Finance and Sukuk Market Review December 2008

  2. Principles of Islamic Finance

  3. Islamic finance is an ethical and equitable mode of finance which derives its principles from the Quran (the Holy Book) and the Sunnah (the traditions of the Prophet Muhammad) While Shariah law prohibits interest, this does not mean that capital is costless in an Islamic system Islam recognizes capital as a factor of production but it does not allow the factor to make a prior or predetermined claim on the productive surplus in the form of interest Profit-sharing is the method recommended by Islam In Islam, the owner of capital can legitimately share the profits made by the entrepreneur What makes profit sharing permissible in Islam, as opposed to interest, is that in the case of the former it is only the profit-sharing ratio, not the rate of return itself, that is predetermined Principles of Islamic finance Profit-sharing methodology drives Islamic finance solutions

  4. Any predetermined payment over and above the amount of principal is prohibited The investor must share in the profits or losses arising out of the enterprise or commercial activity for which the capital was provided As defined in the Shariah, Islamic finance is based on the belief that the provider of capital and the user of capital should equally share the risk of business ventures Islamic finance is fundamentally based on assets Money is only a medium of exchange, a way of defining the value of asset; it has no value in itself, and therefore should not be allowed to give rise to more money, via fixed interest payments, simply by being put in a bank or lent to someone else Gharar (Uncertainty, Risk or Speculation) is also prohibited This term denotes a contract between two parties where one may be exploited This includes misdescription or ignorance of goods, or their price; encompasses a sale of goods which the seller is not in a position to deliver; and/or the making of a contract which is conditional upon an unknown event Investments should only support practices or products that are not forbidden or discouraged by Islam (Alcohol, Armaments, Tobacco) Principles of Islamic finance (cont) Compliance with Islamic principles

  5. Industry evolution: growth over the last 30 years The Islamic finance industry has grown rapidly over the past ten years • Islamic finance has followed in the wake of innovations in the global financial services industry • A natural progression of the Islamic finance industry • Competitive retail landscape • Increasingly sophisticated corporate banking products • Innovative capital market solutions

  6. Major instruments in Islamic finance Islamic finance encompasses a wide range of products comparable to traditional banking products – from current accounts and home financing to syndicated finance and capital markets – which have been adapted to comply with Sharia requirements Sukuk—representing certificates of ownership— straddle a majority of Islamic finance structures

  7. Sukuk – An Overview

  8. Sukuk – an overview Sukuk is a Shariah compliant capital market instrument By nature, it is analogous to conventional asset backed securities (with several exceptions) Business activities/assets that would be used as underlying assets backing the Sukuk would need to be Shariah-compliant. The proceeds of the Sukuk must be used for Shariah-compliant purposes only Government of Bahrain (2001), Government of Malaysia (2002), State of Qatar (2003), Department of Civil Aviation, Dubai (2004), Government of Pakistan (2005), Government of Brunei (2006) and Ras Al Khaimah Investment Authority (2007) Can be structured as a Regulation S and Rule 144A transaction and rated by an international rating agency Sukuk can be issued under various structures The most widely used one is Sukuk Al-Ijara, a lease based instrument The primary subscriber can resell the Sukuk in the secondary market; the secondary market buyer will be the new pro-rata beneficial owner of the underlying assets Sukuk vs. Conventional Bond

  9. Summary of Sukuk Structures

  10. Sukuk Ijara with tangible assets Most widely used structure and accepted Sukuk structure Islamic lease-based securities, similar to Equipment Trust Certificates and Unit Trusts Tradable in secondary market Main Documentation: Purchase Agreement Lease Agreement Service Agency Agreement Purchase Undertaking Sale Undertaking Declaration of Trust

  11. Sukuk Ijara with tangible assets and Istisna’ contracts Allows Issuer to execute a Sukuk Ijara even if there is a lack of tangible assets to achieve benchmark sized financing Accepted by Shariah Main Documentation: Purchase Agreement Lease Agreement Istisna Agreement Service Agency Agreement Purchase Undertaking Sale Undertaking Declaration of Trust

  12. Sukuk Market and GCC Market Overview

  13. Saudi Arabia UAE Qatar Bahrain Kuwait Pakistan Indonesia Europe/USA AED SAR USD & EUR Other Local Currency Volume & Number 2004* 2006 2008 (YTD) Summary 0-3 4-5 6-10 >10 -44% • The UAE and Saudi Arabia remain the largest Sukuk markets by volume issued • In 2008 the c. US$5bn Sukuk were issued out of the UAE through 8 issues (US$1.6bn through 2 for Saudi Arabia) • Indonesia led the largest number of issuances in 2008 with 9 Sukuk (note all domestic) Country • A shift to local currency issuances—in the wake of a weak dollar—is the evident trend from 2006 into 2008 • In 2008 USD/EUR issuances only comprised 9% of the total; compared to 75% of the total issuances in 2004 • The revaluation story attracted significant hedge fund activity in the region Currency • 5-year tenor remains sweet spot for Sukuk issuers 38% 62% Tenor Rest of World Malaysia Sukuk market: trends and themes Due to the global credit crisis volume has fallen dramatically In 2008(YTD) c. US$7.8 billion has been issued, compared to c. US$13.8 in 2007 Malaysia vs. ROW • Source: Dealogic, HSBC Amanah Analysis; • Country, currency, tenor analysis is based on domestic and international issuances excluding Malaysia (19 November 2008)

  14. Britain begins bank nationalization with GPB37bn injection (RBS, Lloyds & HBOS) U.S. Fed takes over Freddie & Fanny UAE offers US$13.6bn to domestic banks; guaranteees deposits and interbank lending Saudi injects additional funds into the banking sectors following US$3bn in October Saudi cuts repo rates and reduces reserve requirements Merrill sold to Bank of America; Lehman files for Chp. 11; and AIG recieves US$85bn Crisis spreads to Europe Iceland nationalized banks; seeks US$6bn from IMF Kuwait guarantees all local deposits; suspends trading of Gulf Bank Qatari government begins purchasing equity stakes in local banks MoF adds US$19bn injection Amlak and Tamweel merge under a government owned entity Abu Dhabi Qatar EIBOR vs. LIBOR EIBOR HSBC/DIFX Sukuk/Bond Index (Libor Spread) MSCI GCC Index LIBOR GCC market developments The GCC has not been ensconced from the global credit crisis Like many emerging markets, the worst may be yet to come CDS Spreads (5yr) *Source: Bloomberg; HSBC Analysis

  15. 3 Year Performance Dubai Kuwait Saudi Arabia Regional equity performance Regional equity markets have been hammered over the past few months The real estate sector—most significantly in Dubai—has lead the dive *Source: Bloomberg

  16. +950 +1000 +900 +740 +725 +800 +710 +690 +650 +700 +600 +445 +500 +370 +360 +325 +325 +400 +285 +300 +215 +210 +195 +150 +200 Govt +100 Current + Year Ago ABC NCB TAQA ADCB Dubai Samba Bahrain RasGas Bank Mashreq Group Bank Dubai Emirates Emirates DP World Qatar Gov Holdings Saudi Gov Gov Abu Dhabi GCC market update: pricing environment Regional CDS spreads have widened significantly over the past month In particular Dubai sovereign and sovereign-linked CDS spreads have widened by c.200bps over the past month Credit spreads on debt from all sectors have increased dramatically as witnessed by the HSBC/DIFX Indexes Regional CDS Spreads* +950 +1000 +900 +740 +725 +800 +710 +690 +650 +700 +600 +445 +500 +370 +360 +325 +325 +400 +285 +300 +215 +210 +195 +150 +200 +100 + ABC Bahrain Gov NCB TAQA ADCB Abu Dhabi Gov Samba Dubai Gov RasGas Bank Mashreq Group Qatar Gov Bank Dubai Saudi Gov Emirates Emirates DP World Holdings HSBC-DIFX Indexes *Source: Bloomberg; HSBC Analysis (17 November 2008)

  17. Kuwait Saudi Arabia Qatar UAE Timing 29th October 2008 12th October, 24 November 2008 13th October 2008 12th October, 24 November 2008 Details • The Kuwaiti government has approved a bill to guarantee bank deposits and will seek parliamentary approval for this shortly. • Saudi Arabia has committed that it would make up to SR 150bn (USD 40bn) available to its banks, if required. • Saudi Arabia cut its repo rate by one percent and reduced cash reserve requirements by 3% to boost liquidity • Qatar launched a US$5.3 billion plan to buy bank shares. • In the plan, the Qatar Investment Authority, the state’s sovereign wealth fund, will buy between 10-20% of banks’ listed capital on the Doha exchange. • Announced that it will guarantee retails deposits in local banks and inter-bank lending among all banks operating in the country. Further on the 14th of October, Sheikh Mohammed ordered AED 70bn to the Ministry of Finance to inject further liquidity to banks. • The UAE has previously injected AED50bn of liquidity for interbank lending • UAE forms Emirates Development Bank out of two largest lenders Considerations • Further to the announcement of Kuwaiti government support for local deposits, the Government has also announced that it will take an equity stake in Gulf Bank KSC, the second largest lender in Kuwait by assets. • The steps announced were designed as preventative measures against the current financial turmoil and to maintain confidence in the financial markets • The steps announced were designed as preventative measures against the current financial turmoil and to maintain confidence in the financial markets. GCC government support

  18. Key Islamic Investors Growing Islamic Investors Islamic finance investor base Islamic Assets: Global Distribution Islamic Issuers Islamic Investors More than two thirds of Islamic funds are from the Middle East *Source: Bloomberg; HSBC Analysis (17 November 2008)

  19. Typical geographical and investor type distribution Comments Corporate Jumbos (144a) • Many corporate borrowers take advantage of the 144a market to target the U.S. institutional investors base in global jumbo transactions Senior Financial (RegS only) • Historically distributed into local as well as European banks and funds • Last primary market bonds were placed at the beginning of 2007 LT2 Financial(RegS only) • Trades at significant premium to senior presently (250bps to 400+bps) • Any new issue would require strong local sponsorship to gain traction with the global investor base and would probably only follow after a successful senior issuance out of the region Sukuks • Predominately driven by and distributed into the local Islamic accounts with some additional follow-on demand from Asian and European Islamic funds Local Currency • Started as hedge fund driven bet on a possible de-pegging of the local currency from the US$ • Has then been further taken up by local accounts but demand for this product has started to dry up Middle East investors by products

  20. HSBC Islamic Finance Credentials

  21. Bank USD $ m Issues Mkt Shr 1 HSBC 1,389.37 3 34.1% 2 Calyon 666.58 1 16.4% 3 RBS 601.85 4 14.8% 4 Barclays Capital 500.00 2 12.3% 5 Ntnl Bk of Abu Dhabi 500.00 2 12.3%H Bank USD $ m Issues Mkt Shr 1 HSBC 3,842.36 7 15.8% 2 Barclays Capital 2,824.68 8 11.7% 3 JP Morgan 2,076.73 3 8.6% 4 Dubai Islamic Bank 1,800.78 7 7.4% 5 Deutsche Bank AG 1,653.78 4 6.8% September 2008 September 2008 September 2008 July 2007 July 2007 November 2007 November 2007 August 2008 August 2008 December 2006 Saudi Bin Ladin Group Saudi Electricity Company Saudi Electricity Company Ras Ras Al Al Khaimah Khaimah Investment Investment Saudi Basic Industries Co Saudi Basic Industries Co Abu Dhabi Islamic Bank Authority Authority US$800 million US$800 million Sukuk Sukuk US$325 million US$325 million Sukuk Sukuk SAR 5 billion SAR 5 billion Sukuk Sukuk SAR 5 billion SAR 5 billion Sukuk Sukuk SAR 1 billion SAR 1 billion SAR 1 billion Sukuk Sukuk Sukuk Sole Lead Manager and Sole Lead Manager and Sole Lead Manager and Joint Bookrunner Joint Bookrunner Sole Bookrunner Sole Bookrunner Joint Bookrunner Joint Bookrunner Sole Bookrunner Bookrunner Bookrunner Bookrunner MENA Region Domestic Bonds 2008 YTD GCC Sukuk Issuance 2007– 2008 YTD HSBC Amanah: a powerhouse in Islamic capital markets HSBC has been the clear and consistent number one lead manager of GCC bond issuances each year since 2003, both by number and volume of new issues HSBC will bring unparalleled experience and market intelligence to the lead management of Sukuk/ Bond issuance HSBC has developed the most comprehensive investor coverage and knowledge inside and outside the Middle East for regional Sukuk/ Bond issuance Source: Bloomberg, 15th Oct, 2008 Source: Bloomberg, 15th Oct, 2008 Selected GCC Sukuk issues Selected Awards

  22. US$225m Sukuk Sharjah Islamic Bank Sole Bookrunner SAR 5bn Sukuk Saudi Electricity Company Sole Bookrunner SAR 8bn Sukuk Saudi Basic Industries Co. Joint Bookrunner US$300m Sukuk Qatar Real Estate Investment Co. Sole Bookrunner SAR 5bn Sukuk Saudi Basic Industries Co. Joint Bookrunner US$1,000m Sukuk Department of Civil Aviation Dubai Joint Bookrunner US$200m Sukuk Gulf Finance House Joint Bookrunner US$325m Sukuk Ras Al Khaimah Investment Authority Joint Bookrunner SAR 3bn Saudi Basic Industries Co. Sole Bookrunner US$200m National Central Cooling (TABREED) Joint Bookrunner & Global Coordinator US$200m Sukuk Amlak Finance Sole Bookrunner US$500m Sukuk Islamic Development Bank Joint Bookrunner US$550m Sukuk Emirates Joint Bookrunner US$700m State of Qatar Sole Bookrunner US$800m Sukuk Abu Dhabi Islamic Bank Sole Bookrunner 2004 2006 2006 July 2007 July 2007 2006 2006 2005 2006 July 2007 August 2007 2005 2005 August 2008 November 2007 HSBC Amanah GCC Sukuk credentials The HSBC Amanah Sukuk team, based in Dubai and Riyadh, has been active since 2000 and has been the clear leader in the Sukuk market—in terms of deal size, issuances, and innovation—ever since

  23. US$ Global Islamic Bonds 2002 to 2007 Bank Bank Bank USD $ m USD $ m USD $ m Issues Issues Issues Mkt Shr Mkt Mkt Shr Shr 1 HSBC 1 1 HSBC HSBC 7,723 7,723 7,723 19 19 19 21 21 21 2 Barclays Capital 2 2 Barclays Capital Barclays Capital 5,989 5,989 5,989 8 16.3 8 8 16.3 16.3 3 Dubai 3 3 Dubai Dubai Islamic Islamic Islamic Bank Bank Bank 5,207 5,207 5,207 10 14.1 10 10 14.1 14.1 4 Deutsche Bank 4 4 Deutsche Bank Deutsche Bank 2,655 2,655 2,655 8 7.2 8 8 7.2 7.2 5 JP Morgan 5 5 JP Morgan JP Morgan 2,183 2,183 2,183 4 5.9 4 4 5.9 5.9 th Source: Bloomberg, 15 Source: Bloomberg, 15 Oct, 2008 State of Qatar Sukuk – 2003 • Best Sovereign Deal Middle East and Africa Euroweek Government of Malaysia – 2002 • Best Asian Sovereign Bond Euromoney • Deal of the YearInstitutional Investor • Most Innovative Capital Markets Transaction FinanceAsia • Most Innovative Bond Deal FinanceAsia Malayan Banking Berhad (Maybank) – 2007 • Best Sukuk Deal Euromoney 2008 • Malaysia Deal of the Year Islamic Finance News 2007 US$600m Government of Malaysia Sole Bookrunner US$600m Sukuk Islamic Republic of Pakistan Joint Bookrunner US$300m Sukuk Malayan Banking Berhard JLM & Bookrunner US$750m Sukuk Khazanah Nasional Berhard Joint Bookrunner BN$500m Sukuk Government of Brunei Sole Advisor Ras Al Khaimah Investment Authority – 2007 • Best Sovereign Deal Islamic Finance News 2007 2007 2006 August 2007 2003 2005 Khazanah Nasional Berhad Sukuk – 2006 • Best Sukuk Deal Euromoney 2007 • Sovereign Deal of the Year Islamic Finance News 2006 • Malaysia Deal of the Year Islamic Finance News 2007 Gulf Finance House – 2007 • Bahrain Deal of the Year Islamic Finance News 2007 Alaqaria Sukuk – 2007 • Qatar Deal of the Year Islamic Finance News 2007 • Qatar Deal of the Year The Banker 2008 SABIC Sukuk – 2006 • Sukuk Deal of the Year Islamic Finance News 2006 • Saudi Arabian Deal of the Year Islamic Finance News 2006 • Most Innovative Capital Markets Transaction & Most Innovative Bond Deal Finance Asia HSBC Amanah non-GCC Sukuk issues and notable awards Excluding regional Malaysian Ringgit denominated issuances, HSBC Amanah continues to be the leader by every measure of Sukuk underwriting since 2002

  24. Government of Malaysia, 2002 - First Islamic Sovereign Global Bond State of Qatar, 2003 – First Islamic Sovereign Eurobond from the Middle East The Islamic Republic of Pakistan, 2005 - First Global Islamic Bond Issue by the issuer Government of Brunei, 2006 - First Capital Market Initiative in the Kingdom Khazanah Exchangeable Sukuk, 2006 - First Shariah-compliant Exchangeable Bond Tabreed, 2006 – First internationally rated GCC corporate Sukuk Sharjah Islamic Bank, 2006 – First rated Commercial Bank Sukuk from Middle East Maybank, 2007 – First ever Subordinated Tier 2 Sukuk Qatar Real Estate Inv. Co., 2007 - First rated Sukuk for a Qatari corporate Department of Civil Aviation, Dubai, 2004 – Largest Islamic Sovereign Global Bond Leading the way in innovative transactions HSBC has set the standard in the Islamic finance space, executing a wide range of “firsts” in the market

  25. Selected Sukuk Deal Summaries

  26. Saudi Binladin Group – SAR 1bn Sukuk Transaction overview On 1 September 2008, Purple Island Corporation launched a 5-year SAR1,004 million Sukuk guaranteed by Saudi Binladin Group (“SBG”) The deal was a successful issuance despite being unrated and issued during the slow summer period HSBC is the sole manager / bookrunner for this offering Breakdown by geography Issuer: Purple Island Corporation (SPV registered in the BVI and owned by certain members of the Binladin Group owners Rating: Not rated Guarantor: SBG Maturity: 1 September 2013 Issue Amount: SAR 1,004 million (equivalent USD200 million) Profit: 7% fixed Listing: Riyadh Sole Manager/ Bookrunner: HSBC Transaction highlights Breakdown by investors • The Sukuk Mudaraba was SBG’s debut Sukuk issuance into the Saudi debt capital markets • The transaction opened up to new investor base for SBG • First ever: unrated Sukuk of its size to be successfully distributed entirely within the Kingdom; Sukuk issued through an offshore vehicle which is registered, cleared and settled through Tadawul (also a first for the Kingdom); and Sukuk relating to Makkah developments • The Sukuk will enhance Saudi Binladin’s position in this sector and complete one of the first boutique hotels in Makkah

  27. SABIC – SAR 5bn Sukuk al-Istithmar On 26 May 2008, SABIC issued a SAR 5 billion Sukuk, targeted at Saudi and GCC investors This is the first rated Sukuk in the Kingdom, and rated level to issuer rating. It was also the first public Sukuk in Saudi Arabia to allow investors to subscribe with as little as a minimum of SAR10,000 Notwithstanding continuing market volatility and tightening liquidity, the issue attracted substantial demand, resulting in an order book of more than 50 accounts nearly 1.3x the ceiling established by the Saudi regulator Transaction overview Breakdown by geography Issuer: Saudi Basic Industries Corporation (“SABIC”) Rating: A+ [S&P] Issue Date: 26 May 2008 Maturity: 15 May 2028 (first Put: 15 May 2013) Issue Amount: SAR 5 billion (equivalent USD1.3 billion) Profit: 3m SAR Sibor + 48 bps Listing: London and Dubai Joint Lead Manager HSBC Joint Bookrunner: HSBC Transaction highlights Breakdown by investors • This transaction further consolidates HSBC’s position as the number one lead manager of Saudi Arabian Sukuk issuance. HSBC has again demonstrated its dominance in the Saudi capital market by Lead Managing, Structuring and Bookbuilding the fourth Saudi Arabian Sukuk – SABIC’s third Sukuk issuance in less than two years • HSBC’s input and assistance allowed the Sukuk to become the first in Saudi Arabia to be rated at the time of issuance • After opening up the SAR Sukuk market in 2006, HSBC has led ALL SAR public Sukuk issuances, aggregating SAR 21bn in size • Final distribution again achieved investor diversification, with banks comprising only 32% of the issue. Retail investors comprised more that half of the total in terms of number, and HSBC attracted new/first-time investors

  28. RAKIA – US$325m Investment Sukuk On 26 November 2007, Ras Al Khaimah Investment Authority (“RAKIA”) priced and launched a 5 year US$325m Sukuk The deal was a successful US$ denominated issuance during a volatile market conditions HSBC was a joint lead manager/bookrunner for this offering The transaction reinforces HSBC’s leading position in Islamic capital markets and also HSBC’s position as the number one lead manager of Middle East bond issuance Transaction overview Breakdown by geography Issuer: RAKIA Sukuk Company Limited Obligor: The Ras Al Khaimah Investment Authority Rating: Unrated Guarantor: Government of Ras Al Khaimah Maturity: 5 December 2012 Issue Amount: US$325 Profit: 3m US$ Libor + 150 bps Listing: London and Dubai Joint Lead Manager HSBC Joint Bookrunner: HSBC Transaction highlights Breakdown by investors • The deal was successfully closed despite difficult and volatile market conditions. At the time of closing, another transaction in the market for a Dubai government linked entity was aborted due to poor demand from investors • The transaction was over-subscribed beyond the issue size of US$325m with 27 accounts participating in the issue • Final distribution achieved investor diversification, with banks comprising 53% of the issue while corporates, private banks and fund managers made up the remaining 47% • HSBC played a crucial role in the successful closing of the transaction by generating almost two-thirds of the order book

  29. SABIC – SAR8bn Sukuk al-Istithmar On 6 August 2007, SABIC issued a SAR 8bn Sukuk, targeted at Saudi and GCC investors. HSBC was a joint lead manager/bookrunner and sole regional coordinator for this landmark offering This is the largest-ever Sukuk/bond issued by a Saudi entity and the largest non-equity linked Sukuk in the region by a publicly quoted corporate, beating the recent record set by Saudi Electricity Company (sole led by HSBC) Transaction overview Breakdown by geography Issuer: Saudi Basic Industries Corporation (“Sabic”) Rating: Not rated Maturity: 15 July 2027 (first Put: 15 July 2012) Issue Amount: SAR 8bn (US$2.1bn) Coupon: 3m SAR SIBOR + 38 bps Joint Lead Manager: HSBC Sole Regional Coordinator: HSBC Transaction highlights Breakdown by investors • Despite external market volatility and mid-way increase in issuance ceiling, an orderbook of SAR 10bn in size was built up, allowing the company to issue at the revised ceiling of SAR 8bn. Half the allocated orders in number went to retail investors • Final distribution achieved investor diversification, with bank comprising only 40% of the issue. Retail investors comprised half the total in terms of number, and HSBC attracted new/first-time investors • HSBC is the only house to have Sukuk approved by a Saudi Shariah Committee (SABB Amanah Shariah Committee). The transaction firmly reinforces HSBC’s position as the leading Sukuk/DCM house and emphasizes its leadership in the Kingdom’s capital market

  30. QREIC – US$300m 5 year Sukuk On 27 July 2007, Qatar Real Estate Investment Co (“Alaqaria”) priced and launched a US$300m 5 year Sukuk issue This is the first rated Sukuk for a Qatari corporate HSBC acted as Sole Lead Manager and Bookrunner for the issue Transaction overview Breakdown by geography Issuer: Qatar Alaqaria Sukuk Company Obligor: Qatar Real Estate Investment Co. Q.S.C. Obligor Ratings: A2 (Moodys) / BBB+ (Fitch) Issuer Ratings: A2 (Moodys) / BBB+ (Fitch) Maturity: 2 August 2012 Issue Amount: US$300m Profit: 3m US$ Libor + 73 bps Listing: London Lead Manager HSBC Bookrunner: HSBC Transaction highlights Breakdown by investors • This is the first rated Sukuk for a Qatari corporate • The deal was priced at US$3m L + 73 bps, the tighter end of the initial price guidance of “75bps area” in a volatile market environment. • HSBC Financing Solutions Group successfully acted as the ratings advisor in this exercise as well as advising on structuring the Sukuk to receive the same ratings as the Company • The transaction reinforces the Group’s leading position in Islamic Capital and highlights the seamless and successful co-operation between Investment Banking, Amanah, Debt Capital Markets and the Financing Solutions Group teams in providing integrated value-added proposition to Alaqaria

  31. Saudi Electricity Company – SAR 5bn Sukuk al-Istithmar On 23 July 2007, Saudi Electricity Company (“SEC”) issued its debut SAR 5bn (US$1.3bn) Sukuk This is the largest-ever Sukuk or bond issued from Saudi Arabia and the largest non-equity linked Sukuk in the region by a publicly quoted corporate Although purely a domestic transaction, the issue attracted substantial demand with a final order book of SAR 7bn from 33 accounts, nearly 3 times SEC’s issuance target Transaction overview Breakdown by geography(issue is restricted to Saudi nationals and entities only) Issuer: Saudi Electricity Company (“SEC”) Rating:Not rated Issue Date:23 July 2007 Maturity: 15 July 2027 (first Put: 15 July 2012) Issue Amount: SAR5bn (US$1.3bn) Profit: 3m SAR Sibor + 45 bps Sole Boookrunner: HSBC Sole Lead Manager: HSBC Transaction highlights Breakdown by investors • This transaction represents the largest Sukuk or bond issuance (domestic or international) by a Saudi Arabian issuer • Final distribution achieved SEC’s goal of investor diversification, with banks comprising about 50% of the issue • The issuance highlights the Group’s ability to harness domestic SAR liquidity, even during turbulent external market conditions • The success of this issuance reinforces the Group’s position as the leading Sukuk and bond house and its leadership in the Kingdom’s debt markets

  32. Maybank – US$300m Subordinated Tier 2 Sukuk On 18 April 2007, Malayan Banking Berhad (“Maybank”) successfully priced a landmark US$300m Subordinated Lower Tier 2 Sukuk The transaction represents the world’s first ever subordinated bank capital Sukuk and showcases HSBC’s continued leadership in innovation in the Islamic capital markets HSBC acted as Joint Lead Manager and Joint Bookrunner on this prestigious transaction Transaction overview Breakdown by geography Issuer: MBB Sukuk Inc. Obligor: Malayan Banking Berhad Obligor Ratings: A3 / A- / A- Issue Ratings: Baa1 / BBB+ / BBB+ Pricing / Settlement Date:18 / 25 April 2007 Maturity / Call Date: 25 April 2017 / 2012 Re-offer Spread: 6m US$ Libor + 33 bps Listing: Singapore and Labuan Joint Lead Manager & Bookrunner: HSBC Transaction highlights Breakdown by investors • HSBC was able to leverage off Maybank’s many credit strengths to price at 6m US$ Libor + 33 bps, the tight end of initial guidance (of 35 bps +/- 2 bps). This represented the tightest ever pricing in US Dollars for a Malaysian borrower and also the tightest ever USD Sukuk pricing globally (excluding supranational borrowers) • Combined with an aggressive but transparent pricing strategy, the transaction attracted almost US$2.4bn of orders, an oversubscription of over 7x • Strong interest in the transaction was seen from both Islamic and conventional investors, with over 70 accounts in the book. Every Islamic order brought into the book was done so by HSBC on a sole basis

  33. ADIB – US$5bn Trust Certificate Programme On 30 November 2006, ADIB priced and launched its debut debt capital market issue; US$800million 5 year Sukuk issue under the programme This is the first rated Trust Certificate Programme by a commercial bank and the largest in size among all trust certificate programmes This transaction reinforces HSBC’s leading position as an arranger of Islamic EMTN issuance – HSBC was the arranger of the only other Shariah-compliant EMTN Programme in 2005 Transaction overview Breakdown by geography Issuer: ADIB Sukuk Company Ltd Obligor: Abu Dhabi Islamic Bank PJSC (“ADIB”) Rating: A2 (Moody’s) / A (Fitch) First Issue Date: 12 December 2006 Maturity Date: 12 December 2011 Issue Amount: US$800m Coupon: 3m US$ Libor + 40 bps Lead Manager:HSBC Sole Arranger/Bookrunner: HSBC Transaction highlights Breakdown by investors • The transaction was 2 times oversubscribed (total order book being close to US$1bn) beyond the initial target issue size of US$500m, with 47 accounts participating in the issue • The issue was upsized to US$800m after the high allocation demand from the participating accounts. Non-Middle Eastern investors accounts for 50% of the order book, which is the highest ever achieved by a commercial bank Sukuk issue • The transaction highlights the seamless and successful co-operation between CIBM Amanah, Debt Capital Markets and the Ratings and Capital Advisory teams and reinforces the Group’s leading position in the Islamic Capital Markets

  34. Khazanah – US$750m Exchangeable Islamic Bonds On 27 September 2006, Khazanah successfully issued US$750m of Shariah compliant Islamic bonds which are exchangeable into shares of Telekom Malaysia This transaction marks: – The first-ever Shariah compliant exchangeable bond transaction – The largest equity-linked issue ever out of Malaysia – The largest equity-linked issue in Asia ex-Japan since January 2005 Transaction overview Breakdown by geography x No. of accounts Issuer: Rafflesia Capital Limited Obligor: Khazanah Nasional Berhad Underlying shares: Telekom Malaysia (“TM”) Base issue size: US$650m Greenshoe: US$100m or 15.4% of base issue size Tenor: 5 Years Periodic payment: 1.25% per annum payable annually Yield: 5.07% Exchange premium: 19% Redemption amount: 121.14% Reference share price: MYR9.1143 (VWAP on pricing date) Exchange price: MYR10.85 Issuer’s call option: After 3 years subject to 130% Listing: HKSE and Labuan HSBC role: Joint Bookrunner and Joint Lead Manager Transaction highlights Breakdown by investors • The offering was upsized from an initial size of US$500m to US$750m after overwhelming demand from international investors during the first two days of bookbuilding • A well devised marketing strategy was implemented to educate Middle Eastern investors on the innovative exchangeable bond structure and conventional investors on the Islamic aspects of the structure • The book was over-subscribed by about 6 times the initial issue size with high quality demand from dedicated CB specialists, Middle Eastern Islamic and conventional investors and some fixed income funds • HSBC played a key role in assisting Khazanah achieve its key objective of maximizing demand from the Middle East by generating over 50% of the demand from the region • Demand was well diversified with the Middle East comprising 29% of allocations, Europe 41%, Asia 26% and offshore US accounts taking 4%

  35. SABIC – SAR3bn Sukuk Istithmar On 29 July 2006, SABIC issued a SAR 3bn (US$ 800m) Islamic bond (Sukuk Al-Istithmar). HSBC was sole bookrunner and lead manager for this debut transaction This is the first corporate Sukuk/bond in Saudi Arabia and the first public bond issuance in Saudi Arabia; it is also the largest in the region by a publicly quoted corporate It is also the first tradable Sukuk/bond in the Kingdom and the first to be cleared through the Saudi Stock Exchange Transaction overview Breakdown by geography Issuer: Saudi Basic Industries Corporation (“Sabic”) Rating: Not rated Issue Date: 29 July 2006 Tenor: 5 years Issue Amount: SAR 3bn (US$800m) Coupon: 3m SAR SIBOR + 40 bps Sole Bookrunner: HSBC Transaction highlights Breakdown by investors • The Sukuk structure utilised an existing business as the underlying assets and is the first one where the company itself is the issuer rather than an SPV • While purely a domestic transaction, the issue attracted substantial demand with a final order of over SAR 4.3 billion, allowing issuance at the maximum approved size (SAR 3 billion). Final distribution achieved Sabic’s objective in diversifying its investor base and will act as a catalyst to the Kingdom’s debt capital market • This landmark transaction firmly highlights HSBC’s debt credentials in Saudi Arabia and reinforces HSBC’s position as the number one lead manager of Middle East Bond issuance

  36. Tabreed – US$200m 5 year Sukuk On Monday 10th July, Tabreed priced and launched a 5-year US$200 million Sukuk via Tabreed 06 Financing Corporation The offering represents the first internationally rated corporate Sukuk globally and the underlying Istisna-Ijara structure is the first of its kind. It offers an innovative solution to issuers lacking assets to achieve benchmark sized Shariah-compliant financing Transaction overview Breakdown by geography Issuer: Tabreed 06 Financing Corporation Obligor: National Central Cooling Company (PJSC) (“Tabreed”) Rating: BBB- (S&P) Issue Date: 20 July 2006 Maturity Date: 20 July 2011 Issue Amount: US$200m Coupon: 6m US$ Libor + 125 bps Joint Bookrunner: HSBC Global Coordinator: HSBC Transaction highlights Breakdown by investors • In addition to being the first investment grade corporate Sukuk globally, the offering is also the first unsupported (by a sovereign guarantee, explicit or implicit) corporate rating in the GCC region • A total order size of US$285m was achieved; however the Issuer opted to limit the total amount of the offering to US$200m • Following the allocation process, 75.5% of the Sukuk were placed in the Middle East, 13.8%Asia and 9.7% Europe

  37. Islamic Republic of Pakistan - US$600m 5 year Sukuk Breakdown by geography Transaction rationale Issuer: The Islamic Republic of Pakistan Rating: B+ Issue Date: 27 January 2005 Maturity Date: 27 January 2010 Issue Amount: US$ 600 million Coupon: 6m US$ Libor + 220 bps Reoffer Spread: 6m US$ Libor + 220 bps Joint Bookrunner: HSBC On Tuesday 18th January 2005, HSBC acted as Joint Lead Manager and Bookrunner on the Islamic Republic of Pakistan’s US$600m Sukuk Floating Rate Trust Certificates issue The highly successful transaction is the debut Sukuk offering from Pakistan and represents the first international Sukuk issue by a non investment grade obligor Breakdown by investor type Transaction highlights • As a result of substantial investor appetite the issue was upsized to US$600m from an initially anticipated US$500m • With 82 investors participating in the offering, the issue achieved widespread geographical distribution and account diversification • The Sukuk structure diversified Pakistan’s investor profile to include Islamic investors whist simultaneously embracing conventional bond accounts • Of the total order book, 48% of orders were given jointly to Citigroup & HSBC, while a further 45% of the book comprised of orders obtained by HSBC exclusively

  38. IDB – US$500m 5 year Sukuk On Wednesday 15th June, Islamic Development Bank priced and launched the inaugural Sukuk issue under its US$1bn EMTN Programme The transaction has a maturity of 5 years and was priced at Libor +12 bps With this issue, IDB has effectively re-positioned its credit in the market and created a strong benchmark for future issuance Transaction overview Breakdown by geography Issuer: IDB Trust Services Ltd. Obligor: The Islamic Development Bank Rating: AAA (S&P) / AA (Fitch) Issue Date: 15 June 2005 Maturity Date: 22 June 2010 Issue Amount: US$500m Coupon: 6m US$ Libor + 12 bps Joint Bookrunner: HSBC Transaction highlights Breakdown by investors • The Sukuk successfully achieved IDB’s objective of investor diversification: final allocations saw two-thirds of the deal placed outside the Middle East • The final order book exceeded US$700m and contained 29 orders, including ticket sizes up to US$100m • The quality of the order book was clearly demonstrated by strong participation from central banks – Approximately a third of the deal was allocated to these investors • Pricing and launch followed a road show that visited centres in Asia, Europe and the Middle East

  39. The Government of Dubai – US$1bn 5 year Sukuk On Thursday 28th October the Government of Dubai, acting through Department of Civil Aviation (DCA), issued a US$1bn Islamic bond issue (Sukuk al-ljara). HSBC was joint bookrunner and lead manager Due to over-subscription and a final order book over US$1.2bn, the deal was increased in size from an initial US$750m This transaction consolidates HSBC’s position as the number one lead manager of Middle East sukuk issuance Transaction overview Breakdown by geography Issuer: The Government of Dubai, acting through DCA Rating: Unrated Issue Date: 28 October 2004 Maturity Date: 4 November 2009 Issue Amount: US$1bn Coupon: 6m US$ Libor + 45 bps Reoffer Spread: 6m US$ Libor + 45 bps Joint Bookrunner:HSBC Transaction highlights Breakdown by investors • The purpose of the financing is for the expansion and development of Dubai International Airport, reflecting Dubai’s fast growing status as a major regional and global hub • The deal achieved a diversified book by investor type with around 70% of the deal placed among non-Islamic investors. Investor types included central banks, banks, supranationals, corporates, insurance and pension companies and private banks • This is Government of Dubai’s debut international sukuk issue - in 2003 HSBC lead managed an AED 1.5 billion domestic bond issue • Although the pre-marketing roadshow only visited the GCC region, the deal still achieved 16% placement outside the Middle East

  40. State of Qatar – US$700m 7 year Sukuk The State of Qatar’s issuance was only the second time that a sovereign has issued internationally rated and listed Islamic securities, and it was the first time that a Sukuk al-Ijara had been issued from the GCC under the Regulation S format The final order book closed more than twice subscribed at US$1.2bn. The deal was increased from US$500m to US$700m, the largest ever international Islamic financing, restricted by the underlying asset that is valued at approximately US$700m Transaction overview Breakdown by geography Issuer: State of Qatar Rating: A+ Issue Date: 30 September 2003 Maturity Date: 9 October 2010 Issue Amount: US$700m Coupon: 6M US$ Libor + 40 bps Sole Bookrunner: HSBC Transaction highlights Breakdown by investors • Having announced initial price guidance in a range of +38-43 bps, the deal was priced at 40 bps over Libor. This was despite Qatar’s fixed rate US$ bond due 2009 trading at Libor +55 bps at the time of pricing. The appeal of the Sukuk / FRN product, together with the rarity value of new Qatar sovereign issuance, enabled strong book-building at the lower margin • Qatar achieved its objective of broadening its investor base as new investors accounted for about two-thirds of the allocated orders and around three-quarters of the issue amount • Qatar maintained a balanced distribution between liquidity-orientated and buy-and-hold investors and an equal split between Islamic and conventional accounts. This ensures sufficient secondary market liquidity for the notes, as Middle East investors are typically reluctant to trade

  41. Federation of Malaysia – US$600m 5 year Sukuk Most Innovative Bond Issue of the Year – THE ASSET Most Innovative Capital Markets Transaction of the Year – FINANCEASIA Best Asian Sovereign Bond – EUROMONEY Most Innovative Bond Deal of the Year – FINANCEASIA Sovereign Bond of the Year – ASIAMONEY Deal of the Year – INSTITUTIONAL INVESTOR Transaction overview Breakdown by geography Issuer: Federation of Malaysia Rating: BBB/Baa2 Issue Date: 3 July 2002 Maturity Date: 3 July 2007 Issue Amount: US$600m Coupon: 6 month US$ Libor plus 95 bps Sole Bookrunner: HSBC Transaction highlights Breakdown by investors • The deal was priced on 25 June late evening at US$ Libor +95bp – At the tightest end of the price talk range • The order book closed more than 2 times oversubscribed at US$1.1bn • An equal split between Islamic and conventional accounts to ensure sufficient secondary market liquidity for the Sukuk • First sovereign Islamic bond issue to be rated by international rating agencies (Moody’s & S&P) and to be listed on the Luxembourg Stock Exchange. First Islamic bond to be distributed under Reg. S and Rule 144A • Initial price guidance on 20 June: At US$ Libor + 95bp area. Interest from Asia alone grew to over US$600 million. The momentum enabled Malaysia to tighten price guidance to a range within 92 - 95 bps

  42. Issued by HSBC Bank Middle East Limited, PO Box [66/4604], Dubai, UAE, which is incorporated in Jersey, Channel Islands and regulated by the Jersey Financial Services Commission to carry on investment business under the Financial Services (Jersey) Law 1998. Services are subject to the Bank's terms and conditions. HBME is a member of the HSBC Group of companies (the “HSBC Group”), any member of which may trade for its own account as Principal, may have underwritten an issue within the last 36 months or, together with its Directors, officers and employees, may have a long or short position in securities or instruments or in any related instrument mentioned in this document. Brokerage or fees may be earned by any member of the HSBC Group or persons associated with them in respect of any business transacted by them in all or any of the securities or instruments referred to in this document. The information in this document is derived from sources believed to be reliable but which have not been independently verified. HSBC Bank makes no guarantee of its accuracy and completeness and is not responsible for errors of transmission of factual or analytical data, nor is it liable for damages arising out of any person’s reliance upon this information. All charts and graphs are from publicly available sources or proprietary data. The opinions in this document constitute the present judgment of HSBC Bank, which is subject to change without notice. This document is neither an offer to sell, purchase or subscribe for any investment nor a solicitation of such an offer. This document is intended for the use of institutional and professional customers and is not intended for the use of private customers. This document is not intended for distribution in the United States of America or to US persons. This document is intended to be distributed in its entirety. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. Any transaction will be subject to HSBC Bank’s Terms of Business. HSBC Bank Middle East LimitedIncorporated in Jersey, Channel IslandsRegistered Office: HSBC House, EsplanadeSt.Helier, Jersey JE4 8UBChannel IslandsMember of HSBC Group

More Related