islamic finance and sukuk market review

1

Islamic Finance and Sukuk Market ReviewDecember 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

Profit-sharing methodology drives

Islamic finance solutions

Principles of Islamic finance

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)

Compliance with Islamic principles

Principles of Islamic finance (cont)

5

Industry evolution: growth over the last 30 years

• Commercial banking

1970s


• Project finance & syndications

1980s



• Equity

• Ijarah

1990s



• Equity

• Ijara

• Sukuk market

• Structured alternative assets

2000s



• Equity

• Ijarah

• Sukuk market


• Risk management

• Private equity

2007+


1970s



1980s



• Equity

• Ijarah

1990s



• Equity

• Ijara

• Sukuk market


2000s



• Equity

• Ijarah

• Sukuk market


• Risk management

• Private equity

2007+

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

The Islamic finance industry has grown

rapidly over the past ten years

6

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

Major instruments in Islamic finance

Product Type Description

Sukuk

Sukuk are trust certificates which represent an undivided pro-rata ownership of an underlying asset. The certificates are feely tradable. Sukuk holders as undivided pro-rata owners of underlying leased assets jointly assume the incidents of ownership and are thereby entitled to jointly share the income generated through the use of the underlying asset.

Murabaha

A ‘cost-plus’ financing popular for providing trade financing. Involves the sale of a goods—often a commodity—at a price that includes cost plus a stated profit known to both the vendor and the purchaser. The price is usually paid back by the buyer in deferred payments.

MudarabaInvolves ‘provider’ of capital and ‘manager’ of capital. The manager utilises the capital for investments in a pre-agreed manner and returns it in the end with a pre-agreed share of profits.

Istisna

An Istisna contract is made-to-order construction contract, for a project in which payment can be made in advance of delivery. The manufacturer designs and manufactures the item in accordance with the buyer’s wishes. Repayment can commence either during the construction phase or upon completion.

MusharakaParticipants share in profit/losses in proportion to capital contribution. Similar in nature to joint ventures.

Ijara (Lease)

Client selects the assets to be financed by the financial institution and the financial institution then purchases these assets from the manufacturer and leases it to the customer for a fixed period. This type of financing can equally be used to refinance assets owned by the client in a sale and lease back arrangement.

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 BondConventionalIslamicParameter

• A comparatively smaller pool of conventional bond investors will mean that there is less demand for the paper.

• A larger pool of Sukuk investors creates more demand, hence may help to achieve slightly more competitive pricing (Malaysia ’s experience)

Financing Cost

• No additional administrative costs associated with conventional bond issues

• Additional fees: legal and Shariah advisory feeAdministrative Cost

• Conventional bonds can only tap the conventional bond investors

• Sukuk issues enjoy a wider investor base from both sets of investors –Islamic (Islamic banks, takaful cos, Islamic asset management cos) & conventional

Investor Base

• An issuer of conventional bonds is not limited in its business activities

• A Sukuk issuer shall be engaged in business activities which are permissible under Shariah

The Issuer

ConventionalIslamicParameter

• A comparatively smaller pool of conventional bond investors will mean that there is less demand for the paper.

• A larger pool of Sukuk investors creates more demand, hence may help to achieve slightly more competitive pricing (Malaysia ’s experience)

Financing Cost

• No additional administrative costs associated with conventional bond issues

• Additional fees: legal and Shariah advisory feeAdministrative Cost

• Conventional bonds can only tap the conventional bond investors

• Sukuk issues enjoy a wider investor base from both sets of investors –Islamic (Islamic banks, takaful cos, Islamic asset management cos) & conventional

Investor Base

• An issuer of conventional bonds is not limited in its business activities

• A Sukuk issuer shall be engaged in business activities which are permissible under Shariah

The Issuer

9

Structure Asset Type Description Benefits Considerations

Ijara

Existing tangible assets such as plant, machinery, buildings etc

Involves a sale and leaseback of tangible assets

Most commonly-applied and accepted Sukuk structure

Tradable on secondary market Wide Shariah acceptability (AAOIFI-compliant) Relatively easy documentation process

Identification of assets 100% of assets have to be tangible Assets remain in the ownership of investors

till maturity Assets should be unencumbered at time of

sale

Head-lease & Sub-lease

Existing tangible assets

Involves long- and short-term leases of tangible assets

Tradable on secondary market Shariah acceptability Template document available Avoid sale of assets which can be sensitive in

certain jurisdictions

Tangible assets required; with possibility of using suitable operating rights as underlying assets (subject to Shariah approval)

Long-term lease has to be for a period of more than 50 years (for Shariah structuring purposes)

Istisna’/ Ijara

Combination of existing tangible assets and istisna’ contracts (construction contracts)

Involves a sale and leaseback of a pool of assets comprising of tangible assets and construction contracts

Allows issuer to execute a Sukuk Ijara even if there is a lack of tangible assets to achieve benchmark sized financing

Tradable on secondary market provided that one-third of the value of the Sukuk must be in the form of tangible assets

Tangible assets must comprise at least one-third of the value of the Sukuk in order to be tradable

Construction contracts must be Shariah-compliant in nature

Assets remain in the ownership of investors till maturity

Istithmar

Revenue generating agreements

Linked to business activity

Transfer of certain rights and obligations to Issuer

Income from agreements are used to service the periodic payments

Shariah acceptability

No tangible assets required

Assets can be long-term agreements

Template documents available

Issuer does not give up operating control of the business

Identification of assets and suitability Size of Sukuk limited to size of business and

require significant due diligence on business Non-Middle Eastern investors may require

more education on the structure Introduces ‘business’ risks (performance

risk of company) which is not a typical credit risk

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

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

Volume & Number

-44%

5-year tenor remains sweet spot for Sukuk issuers

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

Summary2008 (YTD)20062004*

0-3 4-5 6-10 >10

Co

un

try

Saudi Arabia UAE Qatar Bahrain Kuwait Pakistan Indonesia Europe/USA

AED SAR USD & EUR Other Local Currency

Cu

rren

cyT

eno

r

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)

•Source: Dealogic, HSBC Amanah Analysis;

•Country, currency, tenor analysis is based on domestic and international issuances excluding Malaysia (19 November 2008)

Malaysia vs. ROW

Rest of World Malaysia

62%38%

14

HSBC/DIFX Sukuk/Bond Index (Libor Spread) MSCI GCC Index

U.S. Fed takes over Freddie & Fanny

Merrill sold to Bank of America; Lehman files for Chp. 11; and AIG recieves

US$85bn

Crisis spreads to Europe

UAE offers US$13.6bn to domestic banks;

guaranteees deposits and interbank lending Britain begins bank

nationalization with GPB37bn injection (RBS,

Lloyds & HBOS)

MoF adds US$19bn injection

Kuwait guarantees all local deposits; suspends trading

of Gulf Bank

Saudi injects additional funds into the banking

sectors following US$3bn in October

Qatari government begins purchasing equity stakes in

local banks

Amlak and Tamweel merge under a government owned

entity

Iceland nationalized banks; seeks US$6bn from IMF

Saudi cuts repo rates and reduces reserve

requirements

GCC market developments

September October November

Significant widening of Dubai-based CDS commences

AED denominated spreads continue to weigh on secondary market

UAE Central bank announced it will boost financial sector liqudity; banks now allowed to borrow 100% of reserve requirment

Lehman falls and the US government rescues AIG with a US$85bn loan while banning short selling and guaranteeing deposits

Moody’s releases report announcing concern with banks’ real estate exposure

Amlak and Tamweel announce merger discussions

UAE announces guarantee of deposits of local and foreign banks

QIA announced plan to purchase 10-20% of capital of banks listed on the Doha Borse

Confirming rumors, the IMF announced Abu Dhabi will help pay Dubai’s debts

Kuwait’s Gulf Bank hit by losses on currency derivatives contracts

Doha Banks plans to raise US$404mn by selling shares to QIA; Commercial Bank of Qatar raises US$887mn equity capital from the government

Barclay’s announced it has raised GBP7.3bn hybrid capital from Qatar and Abu Dhabi

Saudi government announced it will inject more into the banking sector following a US$3bn injection in October

Amlak and Tamweel to merge under Real Estate Bank, a unit of the UAE Ministry of Finance

The GCC has not been ensconced from the global

credit crisisLike many emerging

markets, the worst may be yet to come

Abu Dhabi Qatar

CDS Spreads (5yr)

EIBOR LIBOR

EIBOR vs. LIBOR

*Source: Bloomberg; HSBC Analysis

15

Regional equity performance

*Source: Bloomberg

Dubai Kuwait Saudi Arabia

3 Year Performance

Price Earnings Ratio Market Capitalization (US$)

Sep ‘08 Present % Sep ‘08 Present %

Kuwait 14 12.3 -12% 282,163 134,813 -52%

Saudi Arabia 19.6 10.3 -48% 451,411 216,295 -52%

Dubai 11.5 4.3 -62% 91,865 42,133 -54%

Regional equity markets have been hammered

over the past few months

The real estate sector—most significantly in

Dubai—has lead the dive

16

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

0

500

1000

1500

2000

02/08/0716/08/0730/08/0713/09/0727/09/0711/10/0725/10/0708/11/0722/11/0706/12/0720/12/0703/01/0817/01/0831/01/0814/02/0828/02/0813/03/0827/03/0810/04/0824/04/0808/05/0822/05/0805/06/0819/06/0803/07/0817/07/0831/07/0814/08/0828/08/0811/09/0825/09/0809/10/0823/10/0806/11/08

Financial Services Sukuk GCC Senior Fins GCC Subordinated Fins GCC Conv. Corporate

c

*Source: Bloomberg; HSBC Analysis (17 November 2008)

HSBC-DIFX Indexes

+210

+285+325 +325

+370 +360

+445

+650

+725 +710

+950

+740+690

+150+195 +215

+

+100

+200

+300

+400

+500

+600

+700

+800

+900

+1000

Sau

di G

ov

Qa

tar

Gov

Abu

Dh

abi

Go

v NC

B

AD

CB

Ra

sGas

Sam

ba

Bah

rain

TA

QA

AB

C

Du

bai

Em

irate

sG

roup

Em

irate

sB

ank

DP

Wo

rld

Mas

hre

qB

ank

Du

bai

Ho

ldin

gs

+210

+285+325 +325

+370 +360

+445

+650

+725 +710

+950

+740+690

+150+195 +215

+

+100

+200

+300

+400

+500

+600

+700

+800

+900

+1000

Sau

di G

ov

Qa

tar

Go

v

Ab

u D

hab

i G

ov NC

B

AD

CB

Ra

sGas

Sam

ba

Ba

hra

in

Go

v

TA

QA

AB

C

Du

bai

Go

v

Em

irate

sG

roup

Em

irate

sB

ank

DP

Wo

rld

Mas

hre

qB

ank

Du

bai

Ho

ldin

gs

Year Ago

Current

Regional CDS Spreads*

Govt

17

Timing

Details

Considerations

12th October, 24 November 2008

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

The steps announced were designed as preventative measures against the current financial turmoil and to maintain confidence in the financial markets.

UAE

29th October 2008

The Kuwaiti government has approved a bill to guarantee bank deposits and will seek parliamentary approval for this shortly.

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.

Kuwait

12th October, 24 November 2008

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

The steps announced were designed as preventative measures against the current financial turmoil and to maintain confidence in the financial markets

Saudi Arabia

13th October 2008

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.

Qatar

GCC government support

18

Islamic finance investor base

*Source: Bloomberg; HSBC Analysis (17 November 2008)

Investment Agencies

Central Banks

Local governments/municipalities

Governments

Ministries of religious affairs

Endowment funds

Pension funds

Institutions

Non-bank financial instiutions

Islamic financial institutions

High Net -worth

Retail

2000s1990s1980s1970s

Investment Agencies

Central Banks

Local governments/municipalities

Governments

Ministries of religious affairs

Endowment funds

Pension funds

Institutions

Non-bank financial instiutions

Islamic financial institutions

High Net -worth

Retail

2000s1990s1980s1970s

Key Islamic InvestorsGrowing Islamic Investors

Islamic Issuers Islamic Investors

More than two thirds of Islamic funds are from the Middle East

Islamic Assets: Global Distribution

QREIC Sukuk

Sole Lead Manager/ Bookrunner

Middle East (70%)

Europe (27%)

Asia (3%)

QREIC SukukQREIC Sukuk

Sole Lead Manager/ Bookrunner

Middle East (70%)

Europe (27%)

Asia (3%)

Tabreed USD200m Sukuk

Sole Global Coordinator/Joint Bookrunner

Middle East (76%)Asia (13%)Europe (10%)Other (1%)

Tabreed USD200m SukukTabreed USD200m Sukuk

Sole Global Coordinator/Joint Bookrunner

Middle East (76%)Asia (13%)Europe (10%)Other (1%)

IDB USD500m Sukuk

Joint Lead Manager

Asia (35%)Middle East (32%)Europe (26%)Supranational (7%)

IDB USD500m SukukIDB USD500m Sukuk

Joint Lead Manager

Asia (35%)Middle East (32%)Europe (26%)Supranational (7%)

Gulf Finance House Sukuk

Joint Lead Manager/ Bookrunner

Middle East (55%)

Europe (25%)

Asia (20%)

Gulf Finance House SukukGulf Finance House Sukuk

Joint Lead Manager/ Bookrunner

Middle East (55%)

Europe (25%)

Asia (20%)

19

Comments Typical geographical and investor type distribution

• Many corporate borrowers take advantage of the 144a market to target the U.S. institutional investors base in global jumbo transactions

Corporate Jumbos (144a)

Funds (65%)

Banks (15%)

Pension/Insurance (10%)

Retail (10%)

US (60%)

UK (20%)

Europe (15%)

Asia (5%)

• Historically distributed into local as well as European banks and funds

• Last primary market bonds were placed at the beginning of 2007

Senior Financial

(RegS only)

UK (35%)

Middle East (35%)

Europe (15%)

Asia (15%)

Banks (75%)

Funds (15%)

Other (10%)

• 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

LT2 Financial

(RegS only)

Middle East (40%)

UK (35%)

Asia (15%)

Europe (10%)

Banks (60%)

Funds (30%)

Other (10%)

• Predominately driven by and distributed into the local Islamic accounts with some additional follow-on demand from Asian and European Islamic funds

Sukuks

Middle East (60%)

Europe (25%)

Asia (15%)

Banks (80%)

Funds (15%)

Other (5%)

• 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

Local Currency

Middle East (60%)

Europe (20%)

US Offshore (15%)

Asia (5%)

Banks (60%)

Funds/Hedge Funds(35%)

Retail (5%)

Middle East investors by products

20

HSBC Islamic Finance Credentials

21

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

Bank USD $ m IssuesMkt Shr

1 HSBC 1,389.37 334.1%

2 Calyon 666.58 116.4%

3 RBS 601.85 414.8%

4 Barclays Capital 500.00 212.3%

5 Ntnl Bk of Abu Dhabi 500.00 212.3%H

Source: Bloomberg, 15th Oct, 2008

GCC Sukuk Issuance 2007– 2008 YTD

Bank USD $ m IssuesMkt Shr

1 HSBC 3,842.36 715.8%

2 Barclays Capital 2,824.68 811.7%

3 JP Morgan 2,076.73 38.6%

4 Dubai Islamic Bank 1,800.78 77.4%

5 Deutsche Bank AG 1,653.78 46.8%

Source: Bloomberg, 15th Oct, 2008

Selected GCC Sukuk issues

Selected Awards

December 2006

US$800 million Sukuk

Abu Dhabi Islamic Bank

Sole Bookrunner


Best International Islamic Bank 2008

“Try as they might, no other international financial institution can match HSBC Amanah’sproduct innovation and breadth of coverage in Islamic banking and finance”



“Try as they might, no other international financial institution can match HSBC Amanah’sproduct innovation and breadth of coverage in Islamic banking and finance”

Best Sukuk Deal 2008

Maybank Sukuk (US$300 m)

“Size isn’t everything. This is certainly the case for the winning Sukuk deal, at only US$300m. Malaysia’s Maybank became the first bank to raise subordinated bank capital in the form of a Sukuk”



Maybank Sukuk (US$300 m)

“Size isn’t everything. This is certainly the case for the winning Sukuk deal, at only US$300m. Malaysia’s Maybank became the first bank to raise subordinated bank capital in the form of a Sukuk”


"No other institution can match its breadth and depth across products and geography ”



"No other institution can match its breadth and depth across products and geography ”


Khazanah US$750m

Exchangeable Sukuk - the largest ever equity -linked issue out of Malaysia and since January 2005, in Asia (ex Japan)



Khazanah US$750m

Exchangeable Sukuk - the largest ever equity -linked issue out of Malaysia and since January 2005, in Asia (ex Japan)

Best Sukuk House 2007

Notable Deal: Sabic Sukuk

First corporate sukuk and first public issuance in Saudi Arabia. First structure to be approved by a Saudi Shariah board for distribution in the Kingdom. First tradeable capital market instrument in the country.



Notable Deal: Sabic Sukuk

First corporate sukuk and first public issuance in Saudi Arabia. First structure to be approved by a Saudi Shariah board for distribution in the Kingdom. First tradeable capital market instrument in the country.

September 2008

SAR 1 billion Sukuk

Saudi Bin Ladin Group

Sole Lead Manager and Bookrunner

September 2008

SAR 1 billion Sukuk


September 2008

SAR 1 billion Sukuk


August 2008

Joint Bookrunner

SAR 5 billion Sukuk

Saudi Basic Industries Co

August 2008

Joint Bookrunner

SAR 5 billion Sukuk

Saudi Basic Industries Co

November 2007

Joint Bookrunner


Ras Al Khaimah Investment Authority

November 2007

Joint Bookrunner



July 2007

Sole Bookrunner

SAR 5 billion Sukuk

Saudi Electricity Company

July 2007

Sole Bookrunner

SAR 5 billion Sukuk


MENA Region Domestic Bonds 2008 YTD

HSBC Amanah: a powerhouse in Islamic capital markets

22

Global Sukuk 2002-Present (ex -MYR)

Bank USD $ m Issues Mkt Shr1 HSBC 7,724 19 20.3%2 Barclays Capital 5,989 8 15.7%3 Dubai Islamic Bank 5,207 10 13.7%4 Deutsche Bank AG 2,839 9 7.5%5 JP Morgan 2,183 4 5.7%

Source: Bloomberg, 15 th October 2008

Global Sukuk 2002-Present (ex -MYR)



Source: Bloomberg, 15 th October 2008

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

Source: Bloomberg, 15 th Oct, 2008

GCC Sukuk Issuance 2007- 2008 YTD

Bank USD $ m Issues Mkt Shr1 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%







Bank USD $ m Issues Mkt Shr1 HSBC 3,230.35 46 13.9%2 CIMB 2,201.32 62 9.5%3 Calyon 1,633.45 3 7.0%4 Standard Chartered PLC 1,548.44 13 6.7%5 Dubai Islamic Bank 1,547.93 6 6.6%

All Islamic Financing 2008 YTD


Bank USD $ m Issues Mkt Shr1 HSBC 3,230.35 46 13.9%2 CIMB 2,201.32 62 9.5%3 Calyon 1,633.45 3 7.0%4 Standard Chartered PLC 1,548.44 13 6.7%5 Dubai Islamic Bank 1,547.93 6 6.6%

All Islamic Financing 2008 YTD


SAR 5bn Sukuk

Saudi Basic Industries Co.

Joint Bookrunner

August 2008

SAR 8bn Sukuk


Joint Bookrunner

August 2007

US$325m Sukuk


Joint Bookrunner

November 2007

US$300m Sukuk

Qatar Real Estate Investment Co.

Sole Bookrunner

July 2007

SAR 5bn Sukuk


Sole Bookrunner

July 2007

US$200m Sukuk

Gulf Finance House

Joint Bookrunner

July 2007

US$800m Sukuk

Abu Dhabi Islamic Bank

Sole Bookrunner

2006

US$225m Sukuk

Sharjah Islamic Bank

Sole Bookrunner

2006

SAR 3bn


Sole Bookrunner

2006

US$200m

National Central Cooling (TABREED)

Joint Bookrunner & Global Coordinator

2006

US$200m Sukuk

Amlak Finance

Sole Bookrunner

2005

US$500m Sukuk

Islamic Development Bank

Joint Bookrunner

2005

US$550m Sukuk

Emirates

Joint Bookrunner

2005

US$700m

State of Qatar

Sole Bookrunner

2006

US$1,000m Sukuk

Department of Civil Aviation Dubai

Joint Bookrunner

2004

HSBC Amanah GCC Sukuk credentials

23

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

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

Government of Malaysia – 2002

Best Asian Sovereign Bond Euromoney

Deal of the Year Institutional Investor

Most Innovative Capital Markets Transaction FinanceAsia

Most Innovative Bond Deal FinanceAsia

Ras Al Khaimah Investment Authority – 2007

Best Sovereign Deal Islamic Finance News 2007

Alaqaria Sukuk – 2007

Qatar Deal of the Year Islamic Finance News 2007

Qatar Deal of the Year The Banker 2008

Gulf Finance House – 2007

Bahrain Deal of the Year Islamic Finance News 2007

State of Qatar Sukuk – 2003

Best Sovereign Deal Middle East and Africa Euroweek

Excluding regional Malaysian Ringgit

denominated issuances, HSBC Amanah continues to be the leader by every

measure of Sukuk underwriting since 2002

US$ Global Islamic Bonds 2002 to 2007

Bank USD $ m Issues Mkt Shr1 HSBC 7,723 19 212 Barclays Capital 5,989 8 16.33 Dubai IslamicBank 5,207 10 14.14 Deutsche Bank 2,655 8 7.25 JP Morgan 2,183 4 5.9Source: Bloomberg, 15

Bank USD $ m Issues Mkt Shr1 HSBC 7,723 19 212 Barclays Capital 5,989 8 16.33 Dubai IslamicBank 5,207 10 14.14 Deutsche Bank 2,655 8 7.25 JP Morgan 2,183 4 5.9

Bank USD $ m Issues Mkt Shr1 HSBC 7,723 19 212 Barclays Capital 5,989 8 16.33 Dubai IslamicBank 5,207 10 14.14 Deutsche Bank 2,655 8 7.25 JP Morgan 2,183 4 5.9Source: Bloomberg, 15th Oct, 2008

US$300m Sukuk

Malayan Banking Berhard

JLM & Bookrunner

2007

US$750m Sukuk

Khazanah Nasional Berhard

Joint Bookrunner

2006

BN$500m Sukuk

Government of Brunei

Sole Advisor

August 2007

US$600m Sukuk

Islamic Republic of Pakistan

Joint Bookrunner

2005

US$600m

Government of Malaysia

Sole Bookrunner

2003

Malayan Banking Berhad (Maybank) – 2007

Best Sukuk Deal Euromoney 2008

Malaysia Deal of the Year Islamic Finance News 2007

HSBC Amanah non-GCC Sukuk issues and notable awards

24

HSBC has set the standard in the Islamic finance space, executing a wide range of “firsts” in the market

Government of Malaysia, 2002- First Islamic Sovereign Global Bond

State of Qatar, 2003 – First Islamic Sovereign Eurobond from the Middle East

Government of Brunei, 2006- First Capital Market Initiative in the Kingdom

The Islamic Republic of Pakistan, 2005- First Global Islamic Bond Issue by the issuer

Department of Civil Aviation, Dubai, 2004– Largest Islamic Sovereign Global Bond

Sharjah Islamic Bank, 2006– First rated Commercial Bank Sukuk from Middle East

Khazanah Exchangeable Sukuk, 2006- First Shariah-compliant Exchangeable Bond

Qatar Real Estate Inv. Co., 2007- First rated Sukuk for a Qatari corporate

Maybank, 2007– First ever Subordinated Tier 2 Sukuk

Tabreed, 2006– First internationally rated GCC corporate Sukuk

Leading the way in innovative transactions

25

Selected Sukuk Deal Summaries

26

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

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

Breakdown by geography

Breakdown by investors

Saudi Binladin Group – SAR 1bn Sukuk

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

Transaction overview

Transaction highlights

Saudi (100%)

27

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

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



Pension Funds, Mutual Funds & ThriftFunds (37.4%)Institutions & Corporates (30.3%)

Bank Treasury (32.2%)

Retail (0.1%)

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



Saudi (99%)

Non Saudi (1%)

28

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

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




Banks (53%)

Corporates (20%)

Private Banks (22%)

Fund Managers (5%)

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



Middle East (75%)

United Kingdom (12%)

Rest of Europe (13%)

29

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

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



Pension, Mutual & other funds (30%)

Corporate & Institution (30%)

Banks (40%)

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)



Saudi Nationals (94%)

Non-Saudi (6%)

30

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

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



Banks (82%)

Funds (12%)

Corporates (6%)

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



Middle East (70%)

Europe (27%)

Asia (3%)

31

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

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

Breakdown by geography(issue is restricted to Saudi nationals and entities only)


Bank Treasury (50%)

Funds (26%)

Institutions & Corps (24%)

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



Saudi Arabia (100%)

32

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

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



Asia (61%)

Europe (24%)

Middle East (15%)

Banks (60%)

Asset Managers (28%)

Insurance Co (9%)

Private Banks (3%)

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



33

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

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


Coupon: 3m US$ Libor + 40 bps

Lead Manager: HSBC

Sole Arranger/Bookrunner: HSBC



Middle East (50%)Europe (37%)Asia (12%)US Off-shore (1%)

Banks & Treasury (56%)

Fund Managers (28%)

Corporates (8%)

Others (8%)

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



34

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%

Issuer: Rafflesia Capital Limited Obligor: Khazanah Nasional BerhadUnderlying shares: Telekom Malaysia (“TM”)Base issue size: US$650mGreenshoe: US$100m or 15.4% of base issue sizeTenor: 5 YearsPeriodic payment: 1.25% per annum payable annuallyYield: 5.07%Exchange premium: 19% Redemption amount: 121.14% Reference share price: MYR9.1143 (VWAP on pricing date)Exchange price: MYR10.85Issuer’s call option: After 3 years subject to 130%Listing: HKSE and Labuan HSBC role: Joint Bookrunner and Joint Lead Manager



Europe (41%)

Middle East (29%)

Asia (26%)

US offshore (4%)

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



6.0x104

0

1

2

3

4

5

6

Subscription No. of Accounts

0

40

80

120

x No. of accounts

35

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

Issuer: Saudi Basic Industries Corporation (“Sabic”)

Rating: Not rated


Tenor: 5 years

Issue Amount: SAR 3bn (US$800m)

Coupon: 3m SAR SIBOR + 40 bps

Sole Bookrunner: HSBC



Saudi Nationals (100%)

Pension, Mutual & other funds (49%)

Corporate & Institutions (15%)

Banks (36%)

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



36

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

Issuer: Tabreed 06 Financing Corporation

Obligor: National Central Cooling Company (PJSC) (“Tabreed”)

Rating: BBB- (S&P)


Maturity Date: 20 July 2011




Global Coordinator: HSBC



Middle East (75.5%)Asia (13.8%)Europe (9.7%)Others (1%)

Banks & Treasury (87%)

Fund Managers (12%)

Private Banks (1%)

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



37

Islamic Republic of Pakistan - US$600m 5 year Sukuk

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

Issuer: The Islamic Republic of Pakistan

Rating: B+

Issue Date: 27 January 2005

Maturity Date: 27 January 2010

Issue Amount: US$ 600 million


Reoffer Spread: 6m US$ Libor + 220 bps


Transaction rationale

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



Breakdown by investor type

Middle East (47%)

Asia (30%)

Europe (22%)

Govt & Central Banks (25%)Asset Managers (23%)Islamic Banks (20%)Banks (18%)Private Banks (11%)Insurance and Corporates (3%)

38

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

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






Middle East (32%)Asia (35%)Europe (26%)Supranational (7%)

Banks & Treasury (43%)Central Banks (32%)Corporates (12%)Agency (10%)Insurance Co. (2%)Private Bank (1%)

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



39

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

Issuer: The Government of Dubai, acting through DCA

Rating: Unrated

Issue Date: 28 October 2004

Maturity Date: 4 November 2009

Issue Amount: US$1bn


Reoffer Spread: 6m US$ Libor + 45 bps




Banks (73%)Financial Institution (9%)Central Banks (8%)Pension Companies (4%)Corporates (4%)Others (2%)

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



Middle East (73%)

Asia (11%)

Europe (16%)

40

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

Issuer: State of Qatar

Rating: A+

Issue Date: 30 September 2003

Maturity Date: 9 October 2010


Coupon: 6M US$ Libor + 40 bps




Banks (83.1%)

Financial Institutions (6.7%)

Corporates (4.5%)

Private Bank (4.5%)

Other (1%)

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



Middle East (72%)Europe (14%)Asia (11%)US (3%)

41

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

Issuer: Federation of Malaysia

Rating: BBB/Baa2


Maturity Date: 3 July 2007


Coupon: 6 month US$ Libor plus 95 bps




Banks (81%)

Funds (17%)

Corporates (2%)

Private Bank (0.3%)

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



Middle East (51%)Asia (30%)Europe (15%)USA (4%)

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 Islands

Registered Office: HSBC House, EsplanadeSt.Helier, Jersey JE4 8UB

Channel IslandsMember of HSBC Group

islamic finance and sukuk market review

Documents

yearsislamic finance

islamic systemislam

equitable mode of finance

provider of capital

user of capital

capital markets

owner of capital

islam alcohol