developments in the global sukuk market...developments in the global sukuk market iifm awareness...

Developments in the Global Sukuk Market

IIFM Awareness Seminar on Islamic Finance Hosted by Bank Indonesia

Tuesday, 12 November 2019

Multi Function Room, 3rd Floor, Building B, Bank Indonesia, Jakarta

Ijlal Ahmed Alvi

Chief Executive Officer

IIFM

Total Sukuk Issuances

Total GLOBAL Sukuk Issuances (Jan 2001 - Dec 2018) - All Tenors, All Currencies (in USD Millions)

Source: IIFM Sukuk Database Total Global Sukuk Issuance USD 1,101,502 Million

66,830

50,184

24,33737,927

53,125

93,173

137,599135,557

107,300

67,818

87,784

116,717123,150

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

1IIFM Awareness Seminar on Islamic Finance, 12th November 2019, Jakarta

Total INTERNATIONAL Sukuk Issuances (Jan 2001 - Dec 2018) - All Tenors, All Currencies (in USD Millions)

Total International Sukuk Issuance USD 251,440 Million Source: IIFM Sukuk Database

21,556

14,002

2,210

7,0234,248

8,684

20,26922,992

26,730

21,880

31,210

37,648

32,988

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000


Total DOMESTIC Sukuk Issuances (Jan 2001 - Dec 2018) - All Tenors, All Currencies (in USD Millions)

Total Domestic Sukuk Issuance USD 850,062 Million Source: IIFM Sukuk Database

45,27536,182

22,12730,904

48,877

84,490

117,331112,565

80,570

45,93856,574

79,06990,162

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000


Total SHORT-TERM (GLOBAL) Sukuk Issuances (Jan 2001 - Dec 2018) - All Currencies, Tenor 12 Months or Less, in USD Millions

14,667

3,6718,552

20,932

35,264

43,365

65,227 62,72556,601

15,990

23,34017,074

34,459

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Total Global Short Term Sukuk Issuance 401,869 Millions Source: IIFM Sukuk Database


Total SHORT-TERM (INTERNATIONAL ) Sukuk Issuances (Jan 2001 – Dec 2018) - All Currencies, Tenor 12 Months or Less, in USD Millions

1,910

48 0 0 19 0 01,018

5,800

7,576

9,3009,850

8,110

0

2,000

4,000

6,000

8,000

10,000

12,000

Total International Short Term Sukuk Issuance 43,631Millions Source: IIFM Sukuk Database


Total SHORT-TERM (DOMESTIC) Sukuk Issuances (Jan 2001 – Dec 2018) - All Currencies, Tenor 12 Months or Less, in USD Millions

12,757

3,6238,552

20,932

35,245

43,365

65,22761,708

50,801

8,41414,040

7,224

26,323

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Total Domestic Short Term Sukuk Issuance 358,211Millions Source: IIFM Sukuk Database


Total SHORT-TERM (GLOBAL) Sukuk Issuances (Jan 2001 – Dec 2018)– All Currencies, Tenor 12 Months or Less, in USD Millions

ASIA & FAR EAST Number of Issues Amount USD Millions % of Total Value

Brunei Darussalam 136 8,571 2.13%

Bangladesh 4 37 0.01%

Indonesia 77 7,759 1.93%

Malaysia 2,864 342,384 85.20%

Pakistan 8 141 0.04%

Singapore 3 221 0.05%

Total 3,092 359,113 89.4%

GCC & MIDDLE EAST Number of Issues Amount USD Millions % of Total Value

Bahrain 340 15,995 3.98%

Oman 1 130 0.03%

Saudi Arabia 6 1,301 0.32%

United Arab Emirates 1 100 0.02%

Yemen 1 234 0.06%

Total 349 17,760 4.4%

AFRICA Number of Issues Amount USD Millions % of Total Value

Gambia 252 365 0.09%

Sudan 21 16,520 4.11%

Total 273 16,885 4.2%

Europe & OTHERS Number of Issues Amount USD Millions % of Total Value

Turkey 265 8,112 2.02%

Total 265 8,112 2.02%

Grand Total 3,979 401,869 100%


Total SHORT-TERM (GLOBAL) Sukuk Issuances (Jan 2018- Dec 2018) – All Currencies, Tenor 12 Months or Less, Amount In USD Millions)Currency Breakdown

BHD, 1,897, 5.51%GMD, 228, 0.66%

IDR, 3,674, 10.66%

MYR, 15,853, 46.01%

SDG, 86, 0.25%

TRY, 4,611, 13.38%

USD, 8,110, 23.54%

Source: IIFM Sukuk Database


Corporate, 5,333, 15.48%

FI’s, 4,955, 14.38%

Quasi-Sovereign, 9,487, 27.53%

Sovereign, 14,684, 42.61%


9

Total SHORT-TERM (GLOBAL) Sukuk Issuances (Jan 2018- Dec 2018) – All Currencies, Tenor 12 Months or Less, Amount In USD Millions)Breakdown by Issuer Type

IIFM Awareness Seminar on Islamic Finance, 12th November 2019, Jakarta

Hybrid Sukuk , 472, 1%

Hybrid Sukuk - Wakalah /Murabahah,

7, 0.02%

Sukuk Al Ijarah, 4,482, 13%

Sukuk Al Mudharabah, 3,264, 10%

Sukuk Al Murabahah, 11,026, 32%

Sukuk Al Musharakah, 469, 1.36%

Sukuk Al Salam, 1,368, 4%

Sukuk Al Wakalah, 13,371, 39%

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Total SHORT-TERM (GLOBAL) Sukuk Issuances (Jan 2018- Dec 2018) – All Currencies, Tenor 12 Months or Less, Amount In USD Millions)Structure Breakdown



Sukuk Issuances Breakupby Issuer Status

11

Total GLOBAL SOVEREIGN Sukuk Issuances (Jan2001-Dec2018) - All Tenors, All Currencies (in USD Millions)

Source: IIFM Sukuk Database Total Sovereign Sukuk Issuance USD 606,391 Million

11,324

6,874 7,58510,637

24,881

34,071

67,765

87,09383,211

68,788

33,429

41,255

62,09767,381

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000


12

Total GLOBAL CORPORATE Sukuk Issuances (Jan2001-Dec2018) - All Tenors, All Currencies (in USD Millions)

Source: IIFM Sukuk Database Total Corporate Sukuk Issuance USD 278,459 Million

19,185

23,420

39,702

12,549

8,856

14,77816,052

23,235

34,585

12,67514,731

19,81716,835

22,039

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000


13

Total GLOBAL QUASI-SOVEREIGN Sukuk Issuances (Jan2001-Dec2018) - All Tenors, All Currencies (in USD Millions)

Source: IIFM Sukuk Database Total Global Quasi-Sovereign Sukuk Issuance USD 158,864 Million

1,979 1,448 1,497855

3,996

2,881

5,651

21,649

12,793

21,635

11,503

21,317

28,622

23,038

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000


14

Total GLOBAL FI’s Sukuk Issuances (Jan2001-Dec2018) – All Tenors, All Currencies (in USD Millions)

Source: IIFM Sukuk Database Total FI’s Sukuk Issuance USD 57,789 Million

735

1,8641,400

296 193

1,395

3,706

5,6234,969

4,202

8,155

5,395

9,163

10,693

0

2,000

4,000

6,000

8,000

10,000

12,000


Global Sukuk IssuancesBy Currency Breakdown

GLOBAL Sukuk Issuances (Jan 2001-Dec2018) - All Tenors (in USD Millions)by Currency Breakdown

15


AED, 8,324, 0.76%

BDT, 37, 0.00%

BHD, 19,453, 1.77%

BND, 10,257, 0.93%

CFA, 1,434, 0.13%

CNY, 236, 0.02%

EURO, 2,151, 0.20%

GBP, 1,385, 0.13%

GMD, 383, 0.03%

IDR, 62,889, 5.71%

JOD, 483, 0.04%

KWD, 332, 0.03%

LKR, 5, 0.00%

MAD, 105, 0.01%

MVR , 10, 0.001%

MYR, 611,373, 55.50%

NGN , 714, 0.06%

OMR , 1,070, 0.10%

PKR, 12,523, 1.14%

QAR, 16,816, …

SAR, 70,492, 6.40%

SDG, 19,516, 1.77%

SGD, 2,735, 0.25%

TRY, 17,711, 1.61%

USD, 240,816, …

YER, 253, 0.02%


Global Sukuk Issuance Breakup by Sukuk Structure

16

INTERNATIONAL Sukuk Issuances (Jan2018-Dec2018)- All Tenors (in USD Millions) by Structure Breakdown

Hybrid Sukuk , 1000, 3%

Hybrid Sukuk - Wakalah /Murabahah, …

Hybrid Sukuk -…

Hybrid Sukuk -…

Hybrid Sukuk -Murabahah/ Mudharabah, 2,000, 6%


Sukuk Al Mudarabah/Wakalah,

1,690, 5%Sukuk Al Mudharabah,

1,955, 6%

Sukuk Al Murabahah, 700, 2%




17

Hybrid Sukuk , 1,512, 2% Hybrid Sukuk - Wakalah /Murabahah, 509, 1%

Hybrid Sukuk -Murabahah/ Mudharabah, 14,108, 16%


Sukuk Al Mudharabah, 4,186, 5%

Sukuk Al Murabahah, 37,442, 41%

Sukuk Al Musharakah, 2,172, 2%

Sukuk Al salam, 1,386, 1%


DOMESTIC Sukuk Issuances (Jan2018-Dec2018) - All Tenors (in USD Millions) by Structure Breakdown



Challenges In Sukuk Market

Challenges in Sukuk Market

1) Limited availability of tangible assets leads to over reliance on certain Sukukstructures

2) Asset title transfer law particularly for sovereign assets

3) Investor’s preference and risk appetite tilted towards balance-sheet risk rather than direct risk on a tangible asset

4) Utilization of Sukuk in liquidity management & product range

5) Absence of insolvency & close-out netting law in most of OIC Countries leads to structuring challenges (title transfer versus security interest)


6) Legal Framework & Enhancement of Shari’ah monitoring (Dana Gas Sukuk legal case)

7) Corporate Sukuk issuances below par contribution

8) Equity linked Sukuk issuances to be encouraged i.e Exchangeable Sukuk

9) Tax Neutrality

10) Quasi Sovereign Sukuk Implicit and Explicit Government Guarantee

19

Challenges in Sukuk Market (Continued)


1) Use of Sukuk/Islamic Securities as Collateral

IIFM Collateralized Murabahah Standard

2) Currency and Rate of Return Risk Mitigation

IIFM Hedging Standards

3) Established conventional bond issuance process vs Sukuk issuance process (structuring, documentation, market guidelines)

IIFM Sukuk Standards and Guidelines Under Development

Solutions to Challenges


Update on IIFM Standardized Sukuk Documentation

Initiative

Key Considerations

Objective: create non-jurisdictional specific, English law benchmark suite of Islamic finance

documents for Sukuk Al-Ijarah and Sukuk Al-Mudarabah (both senior unsecured and also a

subordinated, Tier 1 issuance)

Market preference is asset based Sukuk not asset backed

Defaults and recourse to underlying assets

Asset backed Sukuk documentation may be considered at a later stage

Structuring Tier 1 transactions (Mudarabah transactions)

Governing law

Shari’ah representation


Market Update - Shari’ah Representation

Inclusion of standard Shari’ah representation in Sukuk documentation due to market developments:

Shari’ah Compliance

– Each of the [Company] and the [Trustee] agree that it has accepted the Shari’ah compliant nature of this Agreement; and:

a) it shall not claim that any of its obligations under this Agreement (or any provision thereof) is ultra vires or not compliant with the principles of Shari’ah;

b) it shall not take any steps or bring any proceedings in any forum to challenge the Shari’ah compliance of this Agreement; and

c) to the extent permitted by law, none of its obligations under this Agreement shall in any way be diminished, abrogated, impaired, invalidated or otherwise adversely affected by any finding, declaration, pronouncement, order or judgment of any court, tribunal or other body that this Agreement is not compliant with the principles of Shari’ah.


Sukuk Standards

Sukuk Al-Ijara h(senior unsecured):

Sale and Purchase Agreement

Ijarah Agreement

Service Agency Agreement

Purchase Undertaking

Sale and Substitution Undertaking

Skeleton Prospectus – summary of principal transaction documents and structure diagram and principal cashflows.

Declaration of Trust

Note: capital market documents (subscription agreement, agency agreement) are not part of the current standardisation project; the key is to have a template suite of Islamic finance documentation.


Sukuk Standards

Sukuk Al-Mudarabah (senior unsecured):

Mudarabah Agreement

Skeleton Prospectus – summary of principal transaction documents and structure diagram and principal cashflows


Note: No purchase undertaking. Take full risk on the performance of the Mudaraba.

Sukuk Al-Mudaraba h(Tier 1, subordinated issuance):

Mudarabah Agreement

Skeleton Prospectus – summary of principal transaction documents and structure diagram and principal cashflows


However, Tier 1 regime is entirely linked to the regulatory regime in the applicable jurisdiction and must tie into Shari’ah requirements of the relevant organisation / jurisdiction.


Process and Timeline

Clifford Chance appointed to prepare suite of standardised Sukuk documentation.

Working group consisting of financial, legal and Shari’ah institutions to review documents.

Sukuk Al-Ijarah

Initial drafts circulated in February 2018 to working group.

Responses from working group received from April to June 2019.

Second drafts circulated in October 2018.

Responses from working group received in January 2019.

Third drafts circulated in February 2019.

Working party call on 14 March 2019.

Responses on third drafts received in March 2019.

Revised drafts circulated in April 2019 for IIFM Shari’ah guidance process.

First Shari’ah guidance meeting in July 2019.

Revised drafts incorporating Shari’ah guidance recommendations circulated in September 2019.

Shari’ah guidance process to continue in December 2019.


Process and Timeline

Sukuk Al-Mudarabah

Initial drafts were circulated in November 2019.

Working group comments received March 2019.

Second drafts circulated in April 2019.

Working group comments received in July 2019.

Revised drafts to be circulated in November 2019.

Working party call and Shari’ah guidance process to follow thereafter with expected completion date of Q1 2020.

Sukuk market guidelines

Currently under assessment


ShukranWassalamu ‘Alaikum

International Islamic Financial Market (IIFM)Office 72, 7th Floor, Zamil Tower , Government Avenue, P.O. Box: 11454, Manama, Kingdom of BahrainTel: +973 17500161 , Fax: +973 17500171, Email: [email protected], Website: www.iifm.net

Disclaimer: The information herein has been obtained from sources believed to be reliable but cannot be guaranteed. The views or opinions expressed are subjected to change at any time. Neither the information nor any opinion expressed can be construed as a solicitation for the purchase or sale of any securities. International Islamic Financial Market disclaims liability in this respect.

developments in the global sukuk market...developments in the global sukuk market iifm awareness...

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