leading lawyer 2010.indd

43, Mavrommateon Str., 104 34 Athens, Greece

Tel: +30 210 825 7777 • Fax: +30 210 825 7770

[email protected] • www.alexiouco.com

Your Global Islamic

Finance Legal Advisors

EADING LAWYERS2009

L . LEADING LAWYERS 2010

www.IslamicFinanceNews.com I 1

In the past four decades, the global Islamic fi nance industry has grown from strength to strength. From the development of innovati ve Shariah products to legal documentati on to the issues of standardizati on, the industry has enjoyed more att enti on and debate than ever before.

There is a fi eld of professionals who are directly responsible for that growth. They are made up of the senior management of law fi rms who engage in Shariah law, without whom the industry would not have witnessed such a plethora of products and applicati ons.

We celebrate this dedicati on and contributi on to the fi eld of Islamic fi nance by featuring the leading lawyers who have been voted by industry practi ti oners fortunate enough to work with these individuals.

The Islamic Finance news Leading Lawyers 2010, gives an appreciati on of the complexiti es of the Shariah legal framework and the people who make it work.

In additi on to the guide of leading lawyers, we have compiled a range of reports on various aspects of Islamic fi nance including real estate, corporate fi nance, energy fi nance, investment funds, off shore Islamic fi nance, project fi nance, securiti zati on and structured fi nance, Shariah shipping and transportati on and restructuring, dispute resoluti on and Takaful.

We hope you will fi nd this guide valuable and applicable.

Kind regards,

Arfah Hani AbdullahEditor

Architects of Islamic Finance

EADING LAWYERS2009


2 I www.IslamicFinanceNews.com

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Islamic Finance news team Published By: 21/F, Menara Park, 12, Jalan Yap Kwan Seng 50450 Kuala Lumpur, Malaysia Tel: +603 2162 7800 Fax: +603 2162 7810

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DISCLAIMERAll rights reserved. No part of this publicati on may be reproduced, duplicated or copied by any means without the prior consent of the holder of the copyright, requests for which should be addressed to the publisher. While every care is taken in the preparati on of this publicati on, no responsibility can be accepted for any errors, however caused.

Contents

4Islamic Banking and Finance

Sukuk — an Issue of EnforceabilityBy Wong & Partners

Leading Lawyers Profi les

21Islamic Corporate Finance

Corporate Sukuk Issuances in IndonesiaBy Helen Joni Marsinih, Dian S Kusdihardjo and Hayu Kurniasih


26Islamic Dispute Resoluti on

The Ibra Issue, AgainBy Mohamed Ismail Mohamed Shariff


30Shariah Investment Funds

Off shore Islamic Funds in 2010By Philip Ireland and Tahir Jawed


35Islamic Restructuring

Islamic Finance Restructuring: Sector OverviewBy Chris Langdon and Sumit Soni


39

Islamic Project Finance

Islamic Project Finance – Playing its Part in 2009By Craig Nethercott and Mohammed Al-Sheikh

Islamic Project Financing: A Tale of Two TranchesBy Paul Jarvis and Bilal Aquil


EADING LAWYERS2009



Contents

46

Islamic Energy FinanceChallenges in Structuring non-recourse Financing for Energy Projects in Saudi ArabiaBy Nabil A. Issa and Leroy Levy


51Islamic Transportati on FinanceShariah Ship FinancingBy ARSA


56

Islamic Securiti zati on & Structured Finance

Islamic Securiti zati on and Structured FinanceBy John H Vogel


61Off shore Islamic Finance

Meeti ng Market ChallengesBy Fawaz Elmalki and Sameer Tegally


65

Takaful & re-TakafulThe Opportuniti es and Challenges for the Takaful and re-Takaful IndustryBy Susan Dingwall and Ffi on Flockhart


68 Islamic Real Estate FinanceLeading Lawyers Profi les

Registered Agents for Patents, Trade Marks and Industrial Designs

Strategic Alliance PartnersEversheds (Europe, Singapore, Hong Kong, China, UAE and Africa)Adnan Kelana Haryanto & Hermanto (Indonesia)Hammad, Al-Mehdar & Co (Saudi Arabia)

Shahrizat Rashid & Lee (“the Firm”) provides comprehensive services across all areas of Islamic capital market and Islamic fi nance transactions/products including project fi nancing under Islamic principles of Musyarakah and Istisna’, debt fi nancing under the Islamic principles of Bai’ Bithaman Ajil and Bai’inah, trade fi nancing under the Islamic principles of Wakalah, Murabahah and Kafalah and Islamic capital market instruments such as Sukuk al-Ijarah, Islamic Commercial Papers, Islamic Medium Term Notes, Murabahah Underwritten Notes as well as Bai’ Bithaman Ajil Islamic Debt Securities.

With the Firm’s alliance partners, the Firm has also advised on the establishment of an international real estate investment trust (IREIT) with proposed dual cross border listing.

Th e Firm was the fi rst to structure a hybrid Islamic and conventional fi xed rate fi nancing programme for one of the largest commercial retail complexes in South East Asia and was involved in the project fi nancing for a major telecommunications network operator and for the Kuala Lumpur City Centre project. Th e Firm was also the fi rst to undertake an Islamic private sector driven asset backed securitisation programme (ABS) in the property sector.

At the Firm we believe in providing a cost eff ective relationship to the Firm’s clients and with the Firm’s international alliance partners, the Firm has a truly worldwide reach, broad perspective and is able to guide clients through many jurisdictions.

Level 12 Menara Milenium, 8 Jalan Damanlela,Damansara Heights, 50490 Kuala Lumpur, MalaysiaTel : +603 2710 5555 Fax : +603 2710 3104

Email [email protected]

EADING LAWYERS2009



More than half a year has passed since the near-default of the Sukuk Ijarah issued by Nakheel. The salutary lessons from the episode nonetheless bear repeati ng, not only as a cauti onary refrain, but also to appreciate the signifi cant diversity between the markets in the Gulf states and the more mature, even if occasionally lower yielding markets in Malaysia.

Credit risk when it’s dueAn important point to appreciate from the near-default of the Nakheel Sukuk is not to tar all Sukuk with the same brush. Fundamentally, the issue is one of credit, and the fact that a parti cular instrument was issued based on Islamic principles does not make it any more risky or prone to failure than a conventi onal instrument. Indeed, much toil is spent by fi nancial engineers and lawyers with the express purpose of ensuring that the economic characteristi cs of Sukuk structures replicate that of conventi onal bonds.

A fact that is oft en understated is that, of the debt obligati ons of the Dubai World group, less than a quarter comprised Sukuk.

The Islamic risk premiumHaving said this, it cannot be denied that Islamic fi nance structures, driven by the need to ensure revenues are free of riba and add a layer of complexity to fi nancing transacti ons. But this is or should be a temporary phenomenon, as investors in ti me become more accustomed to Islamic fi nance structures. Malaysia, for example, is an object lesson: Sukuk have been around from well before the boom in Islamic fi nance, and investors there do not require a higher premium for Sukuk over conventi onal instruments.

Asset based but not necessarily backedThe additi onal complexity oft en makes it diffi cult to discern the disti ncti on between a transacti on that is backed by an underlying asset, and one that is merely based on an underlying transacti on

involving a physical asset. Due to the precepts of Islamic law, almost all Islamic fi nancing transacti ons are asset-based, in that there must be an underlying transacti on involving a physical asset to create a debt obligati on. Money cannot be simply lent and repaid with profi t.

Of course, just because a Sukuk is issued on the back of an underlying transacti on does not mean that recourse can be had to assets relati ng to that transacti on in the event of default of the Sukuk. As an example, a commodity Murabahah transacti on will involve the sale of a commodity, but the holders of Sukuk issued based on the principle of Murabahah will not have any claim on the commodity, which in any case would have been cycled out of the transacti on at the incepti on of the Sukuk.

Debt or equity?It is oft en also said that Sukuk holders, as holders of trust certi fi cates, are more akin to equityholders rather than debtholders. Although this statement is sound in principle, the structure of the Sukuk bears close examinati on in order to determine the precise rights of a Sukuk holder.

While it’s true that Sukuks are trust certi fi cates, and therefore more akin to equity ownership in parti cular assets, in most structures those assets are themselves debt obligati ons, for example in a deferred purchase price model employed in a Murabahah transacti on, or a right to receive cashfl ow employed in a sale and leaseback or Ijarah transacti on. So, the transacti on structuring eff ecti vely converts the equity into an instrument that has the economic characteristi cs of debt. As least, this should be the case if the lawyers and arrangers have done their homework!

Jurisdicti onal diff erencesThe enforceability of a Sukuk structure in a default scenario is driven principally by the corporate and insolvency regimes applicable in each jurisdicti on. In Dubai, the Dubai World restructuring decree was

Sukuk — an Issue of EnforceabilityBy Wong & Partners

continued....

EADING LAWYERS2009



issued to establish a special tribunal to oversee the fi nancial reorganizati on of Dubai World, presumably as it was thought that the insolvency laws of the Dubai Internati onal Financial Centre (DIFC) would not be adequate, whether to achieve an orderly reorganizati on or to provide suffi cient fl exibility to the process.

It would not be unfair to say that the insolvency regime in Dubai is largely untested. By contrast, other jurisdicti ons may have mature companies and insolvency regimes — regimes, such as that in Malaysia, that have weathered several crises over the years and have proven workable, even if not perfect. But those imperfecti ons are a known quanti ty, and so there is greater clarity on the opti ons available to investors in a restructuring process.

The DIFC recently announced that it will create a set of standardized ‘Dubai docs’ for documenti ng Sukuk. Although the move has been spurred by a desire to drive costs down to a more competi ti ve level, the standardizati on of the documentati on should also provide for greater legal certainty.

Again, to contrast the example of Malaysia, where Sukuk have been in issuance for two decades, transacti on costs for a Sukuk issuance do not depart far from that for a conventi onal issuance.

Governing law versus ShariahThe jurisdicti onal diff erences can be amplifi ed if a local court rules that a parti cular Sukuk issuance is unenforceable on grounds that it is not in compliance

with the principles of Shariah. This may well be the case in jurisdicti ons — such as Saudi Arabia — where courts do not recognise foreign governing law clauses in contractual documentati on.

Again taking as an example Malaysia, which employs a common law system: governing law clauses in Sukuk documentati on do not refer to the principles of Shariah. As such, the legality and enforceability of an instrument issued on the basis of an Islamic principle is determined — or at least should be determined — purely by reference to conventi onal contractual principles, and are not eff ected by the issue of whether or not the instrument is Shariah compliant.

The questi on of Shariah compliance is more an issue for the investor’s own evaluati on for compliance with its internal moral standards to which it has chosen to adhere. For issuers, therefore, the incenti ve is to off er an instrument that is universally accepted as complying with Shariah (not to forget that there are many diff erent schools of thought as to what is acceptable from a Shariah perspecti ve), in order to achieve as wide an investor audience as possible. The possibility that the transacti on structure fails to clear a Shariah hurdle should not jeopardise the investment of the holder of the instrument.

A bump in the road?The Dubai World restructuring may yet prove to be a mere blip as the growth in Islamic fi nance moves forward. The seriousness of intent of Malaysia to become a global Islamic fi nancial centre places it in a good positi on to exploit that growth, given that its legal and market infrastructures are suffi ciently mature to weather storms and crises.

Sukuk — an Issue of Enforceability (continued..)

Azizul Adnan leads the Islamic fi nance practi ce in Wong & Partners in Kuala Lumpur, Malaysia.

EADING LAWYERS2009



Areas of Experti se:

• Corporate & Commercial

• Informati on Technology

• Shariah Finance

Individual Profi le

For over 25 years, Dr Raman Saad has been involved in documenti ng and advising on a wide variety of fi nancings arranged for the benefi t of Islamic investors. In his capacity as a lawyer in ARSA, he has represented many fi nancial insti tuti ons (both Islamic and conventi onal) and is acti vely involved in the structuring of Islamic fi nancial transacti ons. He is well acquainted with the principles to be observed in structuring transacti ons to comply with the principles and policies approved by the Shariah Committ ees of Islamic banks.

He is a regular parti cipant at the Islamic Legal Studies Program (ILSP) at the Harvard Law School since 2004. ILSP’s aim is to study the fi eld of Shariah fi nance from the legal and Shariah points of view by analyzing contemporary scholarship, encouraging collaborati on among scholars within and outside the Muslim world, and increasing the interacti on between theory and practi ce in Shariah fi nance.

Dr Raman Saad currently sti ll conti nues with his research in the area of Intellectual Property Collateralizati on of Shariah fi nancing, with several publicati ons to his credit in the said area in Rati ng Agency Publicati on and the Internati onal Pacifi c Bar Journal.

Dr Abdul Raman SaadManaging PartnerMobile: +601 2718 1949Email: [email protected]

Educati on:

LLB (Hons) Singapore

LLM (Electronic Law) Melb.

DBA MidW Missouri

1977: Called to the Malayan Bar

1995: Called to the bar of the Supreme Court of the Republic of Singapore

2002: Admitt ed as a Solicitor for England and Wales

Islamic Banking & Finance, Islamic Project

Finance, Islamic Real Estate

namedin the category of

Level 8, Bangunan KWSP,No. 3 Changkat Raja Chulan,Off Jalan Raja Chulan,50200 Kuala Lumpur,MalaysiaTel: +603 2032 2323Fax: +603 2032 5775Website: www.arsa.com.my

EADING LAWYERS2009




• Mergers & Acquisiti ons• Islamic Finance• Project Finance• Foreign Investment • Privati sati on• Capital & Debt Markets• Venture Capital & Private Equity• Intellectual Property• Real Estate• Liti gati on & Dispute Resoluti on• ICT & Biotechnology

Individual Profi le

Lutf i is one of the founding partners of Azmi & Associates, Malaysia. He has advised various clients in numerous exercises ranging from private debt securiti es, syndicated and cross-border fi nancing, structured and project fi nancing, trade faciliti es; both conventi onal and Islamic, Islamic banking product development, corporate debt restructuring, privati zati on and build-operate-transfer/build-operate-own projects, mergers and acquisiti ons, foreign direct investment, energy and power related transacti ons, joint ventures to telecommunicati on projects and building contracts.

Lutf i has advised clients in various transacti ons involving debt and equity structured on Shariah concepts of Murabahah, Mudarabah, Musharakah, Tawarruq, Ijarah, Isti snah, Wakalah, Bay Sarf, Bai Dayn, Kafalah and Rahnu.

His capabiliti es include the areas of Sukuk, syndicati on and structured fi nance. He also has signifi cant experti se in Islamic product development, venture capital and private equity funding.

Ahmad Lutf i Abdull MutalipPartner/ Head of Global Financial Services and Islamic Banking Direct line: +603 2118 5002Email: [email protected]

Notable Assignments:

• RM745 million (US$232 million) Projek Lintasan Shah Alam Sukuk Ijarah and Sukuk Mudarabah

• RM4 billion (US$1.25 Billion) Sukuk Ijarah for a Malaysian Insfrastructure company

• Advised Bursa Malaysia Islamic Services on the draft ing of the rules governing the operati ons of Bursa Suq al-Sila’

• Issuance of up to RM2.5 billion (US$781 million) Murabahah commercial papers by a shipping company

• Developing legal documentati on for an Islamic profi t rate swap product

• Developing legal documentati on for an Islamic Foreign Exchange Opti on (FXOP-i)

• Safeena Mariti me Fund Deal on the Malaysian law

14th Floor, Menara Keck Seng203 Jalan Bukit BintangKuala Lumpur, MalaysiaTel: +603 2118 5000Fax: +603 2118 5111Website: www.azmilaw.com

Islamic Banking & Finance


EADING LAWYERS2009




• Islamic Finance• Projects Finance• Securiti es

Individual Profi le

Azizul leads the Islamic fi nance practi ce in Wong & Partners, and has been in legal practi ce for more than 7 years. Since commencing practi ce, he has been involved in a number of local and cross-border acquisiti ons as well as listi ngs of companies.

Prior to legal practi ce, he worked for fi ve years in CIMB, a leading Malaysian investment bank, and four years with the Securiti es Commission of Malaysia. At CIMB, Azizul was the head of its corporate planning and legal unit, and advised on banking and securiti es laws, in parti cular laws relati ng to the secondary market trading of debt and equity instruments and over-the-counter derivati ves markets.

During his ti me with the Securiti es Commission, Azizul was involved in policy formulati on and review and law and regulatory reform relati ng to the exchange-traded derivati ves industry. This included the review of the regulatory infrastructure of the futures industry, in parti cular the Futures Industry Act 1993 and Futures Industry (Amendment and Consolidati on) Act 1995. He also co-authored the business rules for MESDAQ in 1997 and is a member of the Malaysian Bar.

Educati on:

• 1992: University of Cambridge

• 1994: Certi fi cate in Legal Practi ce

• 2003: Admitt ed to practi ce in the High Court of Malaya

Azizul AdnanPartnerTel: +603 2298 7886Email: [email protected]

Level 21, Suite 21.01,The Gardens South Tower,Mid Valley City,Lingkaran Syed Putra,59200 Kuala Lumpur,MalaysiaTel: +603 2298 7888Fax: +603 2282 2669Website: www.wongpartners.com

Deals Closed:

• Cagamas Berhad RM650 million (US$200 million) small medium enterprise (SME) securiti zati on loans. • Cagamas RM915 million (US$271 million) Tawarruq based securiti es. • Representi ng a global leader in the fi nance sector in relati on to an applicati on for a Licence to Deal in Securiti es under the Capital Markets and Services Act 2007, in connecti on with its applicati ons to the Malaysian Securiti es Commission for a licence to carry on a business of dealing in securiti es pursuant to the provisions of the Malaysian Capital Markets and Services Act 2007 and to an exchange holding company to be admitt ed as a parti cipati ng organizati on.• Carlyle Singapore Investment Advisors Ltd, RM800 million (US$247 million) att empted acquisiti on



EADING LAWYERS2009




• Islamic Finance• Microfi nance• Consumer Finance• SME Finance• Banking & Finance • Liti gati on & Alternati ve

Dispute Resoluti on • Capital Markets & Derivati ves • Mergers & Acquisiti ons • Clinical Negligence • Power Projects • Corporate / Commercial • Privati zati on • Real Estate & Constructi on • Cross-Border Joint Ventures

& Cross-Border Liti gati on • Regulatory & Compliance • Informati on Technology • Shipping & Admiralty • Structured & Project Finance • Takaful

Individual Profi le

Faresa is a Barrister-at-Law and joined Liaquat Merchant Associates (LMA) in 1984. Since then she has played a major role in developing cor-porate work at LMA. She currently heads the eight-member corporate department which advises extensively on all matt ers pertaining to bank-ing, fi nance and corporate matt ers.

Since the introducti on of Islamic banking in Pakistan in 2003, LMA has structured, designed and draft ed Islamic banking documents in consulta-ti on with Shariah advisors and bankers, both within and outside Pakistan. The documents prepared by LMA are used by the corporate, commercial and consumer departments of banks and pertain to a wide variety of products. These documents are now used as standard base documents on a recurring basis, for transacti ons worth billions of Pakistani rupees. LMA has structured and advised on Islamic treasury documents, such as Mudarabah placement and Commodity Mudarabah fi nance. LMA has also draft ed Islamic security documents covering a wide range of collateral.

Faresa has been instrumental in the development of the Islamic bank-ing law practi ce at LMA due to her knowledge, insight and sound un-derstanding of the issues involved when structuring Islamic banking transacti ons. She has worked closely with bank offi cers, as well as Sha-riah advisors, in coming up with the best course of acti on, keeping in mind that the civil and commercial laws of Pakistan are in the process of being adapted to Shariah principles applicable to banking.

The fi rm is headed by managing partner Liaquat H. Merchant who has been the driving force behind the practi ce. LMA enjoys an excellent work-ing relati onship with Kennedys, and also with Habib Al Mulla & Company. With 15 Barristers-at-Law and Advocates, the fi rm also enjoys a relati on-ship with Lane & Partners and during the past few years has developed a structured relati onship with DLA Piper in the UK. This has resulted in the two fi rms working together on a number of projects for Pakistan.

Faresa Jafarey Ahsan Corporate PartnerDirect Line: +92 21 3583 5016Email: [email protected]

Associate offi ces:Dubai, Abu Dhabi, Islamabad, Lahore, London

Clients:American Express Bank, Deutsche Bank, Royal Bank of Scotland, Standard Chartered Bank, Nati onal Bank of Pakistan, Habib Bank, United Bank, Allied Bank, MCB Bank, Habib Metropolitan Bank, Emirates Bank, Bank Al Habib

Juris PK, 4-C, 9th Zamzama Commercial Lane, Phase V Defence Housing Authority, Karachi,PakistanTel : +92 21 3583 5101 – 04Fax: +92 21 3583 5109 / 10Website: www.liaquatmerchant.com



EADING LAWYERS2009




• Islamic Transacti ons including Sukuk, Islamic Finance & Structured Products• Corporate • Banking & Finance• Mergers & Acquisiti ons • Internati onal Commercial Transacti ons • Taxati on, Arbitrati on & Liti gati on

Individual Profi le

Hossam Abdullah is a partner at ASAR – Al Ruwayeh & Partners, the largest law fi rm in Kuwait and one of the leading law fi rms in the Gulf region.

Hossam has over 17 years of extensive legal experience in the corporate, banking and fi nance sectors, with emphasis on structuring transacti ons and handling conventi onal and Islamic fi nance transacti ons, debt and equity, capital markets, investment funds, and mergers and acquisiti ons. He also has in-depth knowledge of Shariah principles and has worked on leading Islamic and conventi onal transacti ons not only in Kuwait but also the Gulf Cooperati on Council region and the US.

Hossam is consistently ranked as a leading lawyer in Kuwait by a number of disti nguished insti tuti ons including the Internati onal Financial Law Review, Chambers & Partners, The Legal 500, PLC Which Lawyer, Asia Law and Best Lawyers Internati onal (USA) in the areas of corporate, capital markets, banking, and Islamic fi nance.

Hossam has also been featured on Kuwaiti nati onal television on the subject of Kuwaiti law. His areas of experti se include corporate, banking, mergers & acquisiti ons, internati onal commercial transacti ons, Islamic transacti ons including Sukuk, Islamic fi nance, and structured products; taxati on, arbitrati on, and liti gati on

Hossam received his LLB (1992) and Diploma in Internati onal Trade Law and Investment (1993) from Cairo University, Egypt; Diploma in Private Law (1996) from IARS-ALESCO; and LLM, Internati onal Business Law (1998) from Manchester University, UK. He was admitt ed to the Egypti an Bar Associati on in 1993.

Hossam is fl uent in English and Arabic.

Hossam AbdullahPartnerEmail: [email protected]

PO Box 447, Safat 13005, KuwaitSalhiya Complex, Gate 1, 3rd Floor, KuwaitTel: +965 2292 2700Fax: +965 2240 0064 Website: www.asarlegal.com Islamic Banking &

Finance


Other Offi ces:

ASAR - Al Ruwayeh & Partners(In Associati on with Stephenson Harwood)

BahrainAl Rossais TowerDiplomati c Area 317Building No. 283, 12th FloorPO Box 20517ManamaKingdom of BahrainTel: +973 17 533 182 / 3Fax: +973 17 533 185Email: [email protected]

Associated Offi ces: London, Paris, Hong Kong, Shanghai, Guangzhou, Piraeus, Singapore

EADING LAWYERS2009




• A wide range of Sukuk issuances for fi nancing power plants in Malaysia and China

• Project fi nancing for the automoti ve, texti le and garment industries, as well as downstream and upstream acti viti es in the palm oil industry

• Islamic structured products and Islamic syndicated fi nancing

• Advising the Government of Malaysia in relati on to the Government to Government arrangement for concessionnal loans for infrastructure projects under the 9th and 10th Malaysia Plan.

• Structuring Islamic Financing for the Government’s Private Finance Initi ati ve pursuant to the Government’s Public Private Partnership under the 9th and 10th Malaysia Plan.

Individual Profi le

Jal heads the Islamic fi nance practi ce in Shook Lin & Bok, one of the oldest and largest law fi rms in Malaysia. He was instrumental in setti ng up the Islamic fi nance practi ce and conti nues to chart the course of this practi ce area. His task includes setti ng the policy directi on for the development of a structured research and development unit to promote an eff ecti ve conti nuing legal educati on scheme.

Leveraging on 16 years of experience as a banking and fi nance lawyer, Jal guides and leads his team of 20 lawyers advising on Islamic fi nance deals. He is also acti vely involved in the drive for innovati on in the industry and advises Islamic banks, both in Malaysia and abroad, on various product developments. His experience in advising some major conventi onal cross-border mergers and acquisiti ons and real estate acquisiti ons have benefi ted him in his role as an Islamic fi nance lawyer.

Concurrent with managing his portf olio in the fi rm, Jal is also very much involved in the Islamic fi nance industry in general. He holds positi ons in INCEIF University, and has also been commissioned by the Securiti es Commission of Malaysia and the Rati ng Agency of Malaysia for product development and regulatory requirements. Jal is also involved in law reform through the Malaysian central bank committ ee for Islamic Finance Law Reform.

Consistent with the fi rm’s policy of driving a global presence, Jal has parti cipated in various internati onal platf orms as a speaker, moderator, panelist and commentator. These include conferences, workshops and forums in Australia, China, Hong Kong, Indonesia, Egypt and Singapore.

Islamic Finance Deals worked on:

• Retail, mezzanine and ti er-one fi nancing deals, both for onshore and cross-border clients

Jal OthmanPartnerEmail: [email protected]

20th Floor, AmBank Group Building,No 55, Jalan Raja Chulan,50200 Kuala Lumpur,MalaysiaTel : +603 2031 1788Fax: +603 2031 1775/8/9Website: www.shooklin.com.my

Educati on:

• Queen Mary & Westf ield College of the University of London



EADING LAWYERS2009





• Projects & Infrastructure

• Banking & Finance

• Islamic Banking & Finance

• Fund & Asset Management • Technology Media & Telecommunicati ons

• Intellectual Property

• Real Estate & Property

• Tax & Private Client

Individual Profi le

Khairul Ismail was called to the Malaysian Bar in September 2000. He holds a LLB (2nd class upper division) from King’s College, London. He comes with a wealth of experience in both corporate commercial and Islamic banking & fi nance transacti ons having served as an in house legal counsel for a large Malaysian conglomerate prior to joining Naqiz & Partners in 2006. He has advised many local and internati onal clients in corporate & commercial matt ers relati ng to capital markets in both debt and equity off erings, mergers and acquisiti ons, infrastructure projects, concessions, renewable energy projects, corporate governance practi ces, private equity and more.

Khairul is one of the pioneer batch of students who underwent the Chartered Islamic Finance Professional (CIFP) program under INCEIF. He has since advised many fi nancial insti tuti ons and fund management companies in structuring various types of collecti ve investment schemes comprising unit trust funds and wholesale funds including capital protected and capital guaranteed schemes.

Islamic Finance deals worked on:

• Credit enhancement exercise for a RM370 million (US$115 million) Islamic MTN Programme by way of issuance of a Kafalah bank guarantee facility amounti ng to RM210 million (US$65.5 million)

• Acti ng for the Kafalah bank in relati on to the granti ng of a RM239 million (US$ 74.6 million) Al-Kafalah guarantee facility to a customer for land acquisiti on

• Assisti ng clients in the setti ng up of their Islamic fund management business

• Assisti ng clients in their cross-border investment via the incorporati on of a Shariah compliant off shore mutual fund to invest in setti ng up Halal hubs overseas

• Acti ng on behalf of the lead arranger in relati on to the issuance of up to RM370 million (US$115 million) Islamic medium term notes program

Khairul IsmailPartnerEmail: [email protected]

Unit PL01, Plaza Level,No. 45, Block A, Medan Seti a 1,Plaza Damansara, Damansara Heights,50490 Kuala Lumpur,MalaysiaTel: +603 2095 1188Fax: +603 2095 1186Website: www.naqiz.com

In associati on with

____________________________Bastaman Enrico (Att orneys At Law)Plaza Asia, Zone 12CJl. Jend. Sudirman Kav. 59Jakarta 12190 IndonesiaTel: +622 1514 01 380 Fax: +622 1514 01 379Website: www.bastamanenrico.com



EADING LAWYERS2009




• Islamic Finance

• Debt & Equity Capital Markets

• Project Finance

• Mergers & Acquisiti ons

Individual Profi le

Having practi ced in Malaysia, Singapore and the Middle East, Marwalis has gained an astute understanding of fi nancing transacti ons. Her ability to bridge both debt and equity transacti ons and to provide soluti ons in funding of complex projects has won her many accolades. Her experti se lies in Islamic fi nance, debt restructuring, mergers & acquisiti on and public and private off ering of equity and debt securiti es.

Marwalis is currently a partner in Jeff Leong, Poon & Wong (JLPW), Malaysia. She heads the Islamic fi nance group and co-heads the fi nancial services practi ce group in JLPW. She set up and headed the fi rm’s capital markets department in 2001, which is now listed as ‘recommended’ in the Asia Pacifi c Legal 500.

A graduate of the University of Cardiff , UK, and a member of the Middle Temple Inn, London, she started her legal career as a foreign lawyer in one of the largest law fi rms in Singapore. Marwalis then moved to Kuala Lumpur in 1996. In 1999, she joined HSBC Bank Malaysia, in the capital markets & treasury department before returning to legal practi ce. She has also expanded her experience in project fi nancing when she practi ced in Dubai covering projects in Saudi Arabia and Dubai.

Passionate about sharing her knowledge and experience, Marwalis speaks regularly at seminars in Kuala Lumpur, Labuan, Bahrain, Singapore and Japan. In 2007, she lectured on an Islamic Finance course in Kobe University, Japan.

MarwalisMohd KassimPartnerTel: +603 2166 3225 ext 308Email: [email protected]

B-11-8, Level 11, Block B, Megan, Avenue II, Jalan Yap Kwan Seng,50450 Kuala Lumpur,MalaysiaTel: +603 2166 3225Fax: +603 2166 3227

Past Deals & Achievements:

Sukuk Mudarabah-Isti snah - “Most Innovati ve Product in Islamic Project Financing” by the Associati on of Islamic Bankers, Malaysia and CERT in 2006.

Corporate debt restructuring – Asian Counsel Deals of the Year 2007.



EADING LAWYERS2009




• Islamic Finance

• Banking & Capital MarketsIndividual Profi le

Mohd Shuhaimi heads the Islamic banking and fi nance department at Hisham, Sobri & Kadir. He has extensive experience in draft ing various types of Islamic fi nance documents on Islamic capital markets, syndicated fi nancing, project fi nancing as well as corporate and consumer fi nancing. He has been involved in the drawing up of Islamic banking documents for a number of banks in Malaysia which have been adopted as standard or template documents. He also plays an acti ve role in advising clients on the formulati on, structuring and development of new Islamic fi nance products and instruments.

Mohd Shuhaimi is frequently invited to present conference papers, deliver talks and conduct trainings in the area of Islamic banking and fi nance. Mohd Shuhaimi holds a law degree from Internati onal Islamic University Malaysia. He graduated in 1994 and was admitt ed to the Malaysian Bar in May 1995.

Hisham, Sobri & Kadir is one of the pioneer law fi rms in the area of Islamic banking and fi nance. It has disti nguished itself as an acti ve player in the development of structural frameworks for new Islamic fi nancial products.


• Involved on numerous issuance of Sukuk and Islamic debt securiti es based on Ijarah, Musharakah and other approved Shariah principles. Among others, the issuance of Islamic debt securiti es and Sukuk by Sarawak Power, Sejingkat Power, Gas Malaysia, DRB-Hicom, IJN Capital and Syarikat Prasarana Negara

• Involved in Isti snah project fi nancing for the KL-Kuala Selangor Expressway and MMC-Gamuda JV

• Involved in US$1.25 billion Sukuk Ijarah by 1Malaysia Sukuk Global Berhad

Mohd Shuhaimi IsmailPartner, Islamic Banking and FinanceDirect line: +603 2694 1513Email: [email protected]

16th Floor, Pertama Complex,Jalan Tuanku Abdul Rahman,50100 Kuala Lumpur,MalaysiaTel: +603 2692 3433Fax: +603 2698 8050Website: www.hsk.com.my

Achievements:

• Member of Law Review Committ ee established by Bank Negara Malaysia to undertake studies and make recommendati ons on legal issues that aff ect the operati on of Islamic fi nance in Malaysia

• Member of Law Review Sub Committ ee on Tax and Stamp Duty which was instrumental to the tax neutrality treatment between conventi onal and Islamic fi nance instruments

• Advised on the formulati on and documentati on for the fi rst

Islamic Credit Card issued in Malaysia



EADING LAWYERS2009




• General Shariah Principle, Islamic Finance and Saudi laws.

Individual Profi le

Shaikh Muddassir Siddiqui is uniquely qualifi ed both as a Shariah expert and a US trained att orney. Shaikh Siddiqui is a partner in the Dubai offi ce of DentonWildeSapte. Shaikh Muddassir is a member of the AAOIFI Shariah Standards Committ ee. He is also a member of the Fiqh Council of North America and the New York Bar. He has extensive experience in advising on transacti ons involving Shariah compliant fi nancing and Saudi laws.

Notable assignments

• Collaborated on the draft ing of an Ijarah contract related to the purchase of an aircraft at UAE bank

• Islamic Development Bank: Serving on the Shariah committ ee• Parti cipated in the Shariah review of the Islamic Financial

Services Board’s (IFSB) Standards• Shariah advisor to Fannie Mae. Draft ing core Shariah compliant

contracts (sale contracts, notes and mortgages) for use by US home buyers uti lising Murabahah and Ijarah methods in the States of New York, Michigan and Illinois

• Shariah law expert on Afghanistan Transiti onal Commercial Law Project involving codifi cati on of laws for Afghanistan

• Advising the Creditor’s Committ ee in relati on to the restructuring of a Mudarabah fi nancing

• Conducti ng courses and seminars on the introducti on to Islamic fi nance and products and advising on practi cal steps for facilitati ng the implementati on of Islamic fi nance within their jurisdicti ons for various central banks

Muddassir SiddiquiPartnerMobile: +971 5 668 30808Direct: +971 4405 4323Email: [email protected]

26th Floor, API World Tower Sheikh Zayed Road PO Box 1756 Dubai UAETel: +971 4331 0220 Fax: +971 4331 0201Website: www.dentonwildesapte.com



Other Offi ces:

Europe• London• Istanbul• Milton Keynes• Paris

Middle East and Africa• Abu Dhabi• Amman (associate offi ce)• Bahrain• Cairo• Doha• Dubai• Kuwait (associate offi ce)• Lebanon (associate fi rm)• Muscat• Riyadh (associate offi ce)

CIS• Almaty• Moscow• St Petersburg (associate fi rm)• Tashkent• Ashgabat (associate fi rm)

Southeast Asia• Singapore

EADING LAWYERS2009





• Shariah Finance

Individual Profi le

Norliza has extensive experience in corporate banking & fi nance documentati on, and advisory work for both conventi onal and Islamic banking transacti ons. As head of the Islamic banking practi ce group of the fi rm, Norliza has undertaken various assignments incorporati ng Shariah principles. She has represented several fi nancial insti tuti ons in the structuring and draft ing of transacti on documents incorporati ng Shariah principles as applied to fi nancing products ranging from straight term fi nancing to Islamic private debts securiti es.

Norliza also advises and represents companies, housing developers, state government agencies in corporate and commercial transacti ons. This includes all aspects of property and real estate related transacti ons namely privati zati on, development and joint-venture agreements. She also advises multi nati onal oil companies on their acquisiti on of landed properti es in Malaysia from straight acquisiti on to conversion and sub-division of land ti tles and the unique process of surrender and re-alienati on of land ti tles under the Nati onal Land Code of Malaysia.

Norliza is a regular parti cipant and has spoken at conferences organized by Islamic Finance news.

NorlizaMohammedSenior PartnerMobile: +601 2782 1968Email: [email protected] Level 8, Bangunan KWSP,

No. 3 Changkat Raja Chulan, Off Jalan Raja Chulan,50200 Kuala Lumpur,MalaysiaTel: +603 2032 2323Fax: +603 2032 5775Website: www.arsa.com.my

Educati on:

LL.B (Hons) Leeds, U.K.,

Certi fi cate in Legal Practi ce (CLP)

MBA (Islamic Banking & Finance), IIUM

1994: Called to the Malayan Bar

Islamic Banking & Finance, Islamic

Real Estate


EADING LAWYERS2009




• Islamic Finance

• Sukuk

Individual Profi le

Richard recently returned to the UK aft er being the managing partner of the Abu Dhabi offi ce. He has been involved in the Middle East since 1979 and has spent 20 years living and working in the UAE and Oman. Richard heads up the co-ordinati on of the fi rm’s Islamic fi nance practi ce.

He has extensive experience advising banks (including Islamic fi nancial insti tuti ons) and borrowers in a wide range of banking and fi nancial transacti ons in the UAE, the Middle East, the UK and the US and has also been involved in various capital market transacti ons in the Middle East.

Richard has had many years experience in dealing with leading Shariah scholars and has been acti vely involved in the structuring and documentati on of many leading Shariah compliant transacti ons.


• US$210 million Tamweel Sukuk• Qatari Diar Real Estate Investment Company on a multi -million

reverse share Murabahah fi nancing• US$200 million Amlak Finance Sukuk Musharakah • Abu Dhabi Islamic Bank’s multi -million Dirhams unsecured facility

extended to a Dubai corporate using an Ijarah structure • Abu Dhabi Islamic Bank: A complex Shariah compliant fi nancing

for a major Dubai real estate project which involved both equity investment and Shariah compliant shareholder loans

• US$1.25 billion Shuweihat Ijarah Financing• Al Hilal’s US$110 million Ijarah fi nancing for an A340 to Eti had

Airways.• Shariah-compliant ‘mortgage’ provider in relati on to a proposed

‘warehousing’ style Suk.

Richard de Belder PartnerMobile: +44 7891 852 727Email: [email protected]

Other Offi ces:





One Fleet Street,London EC4M 7WS,UKTel : +44 20 7242 1212Fax: +44 20 7246 7777 Website: www.dentonwildesapte.com



EADING LAWYERS2009




• Islamic Banking & Finance

• Corporate Finance

• Internati onal Commercial Transacti ons

• Cross Border Transacti ons

Individual Profi le

Sam Habbas is the senior partner at ASAR - Al Ruwayeh & Partners, the largest law fi rm in Kuwait and one of the leading law fi rms in the Gulf region. He has been primarily responsible for the transformati on of the fi rm’s Internati onal department into the premier fi rm in Kuwait. Today, ASAR is the largest fi rm in Kuwait and one of the largest in the region.

Sam, who oversees the internati onal department, is an expert in the fi elds of fi nance, Islamic fi nance, internati onal commercial transacti ons, and project work in a variety of sectors. He also has signifi cant experience in complex cross-border transacti ons, providing consultancy to foreign fi rms seeking to conduct business in the Middle East on fi nancing, commercial matt ers, and developing aspects of Kuwaiti law. Sam acts as lead counsel for several large multi nati onal companies both foreign and domesti c.

The Internati onal Financial Law Review, Legal 500, Chambers and Partners Global Guide, and PLC Which Lawyer consistently rank Sam as one of the leading lawyers in Kuwait and recommend the fi rm as a Tier 1 fi rm in the areas of banking, capital markets, corporate and commercial.

Over the years, Sam has authored many arti cles for presti gious legal publicati ons.

Sam received his educati on at the University of Santa Clara, California (BA, Honors, 1980) and Boston College Law School, Massachusett s (Juris Doctorate, 1983).

Sam HabbasSenior PartnerEmail: [email protected]

PO Box 447, Safat 13005, KuwaitSalhiya Complex, Gate 1, 3rd Floor, KuwaitTel: +965 2292 2700Fax: +965 2240 0064 Website: www.asarlegal.com Islamic Banking &

Finance


Other Offi ces:

ASAR - Al Ruwayeh & Partners(In Associati on with Stephenson Harwood)

BahrainAl Rossais TowerDiplomati c Area 317,Building No. 283, 12th FloorPO Box 20517ManamaKingdom of BahrainTel: +973 17 533 182 / 3Fax: +973 17 533 185Email: [email protected]


EADING LAWYERS2009



All Named Lawyers in the Category of Islamic Banking & Finance

continued....

• Abdul Aziz AlgasimAbdulaziz AlGasim Law Firm with A & O

• Abdul Raman SaadAbdul Raman Saad & Associates

Also Named in Islamic Real EstateFinance, Islamic Project FinanceSee Full Profi le on Page 6

• Abdulaziz Al-BosailyLaw Offi ce of Abdulaziz A. Al-Bosaily

• Ahmad Lutf i Abdull MutalibAzmi & Associates

See Full Profi le on Page 7

• Amar MeherAllen & Overy

• Amjad Ali KhanAfridi & Angell

• Andri Aidham BadriKadir Andri & Partners

• Anzal MohammedAllen & Overy

• Ati f HanifAllen & Overy

• Ayman KhaleqVinson & Elkins

• Azizul Azmi AdnanWong & Partners


• Bimal DesaiAllen & Overy

• Christopher LeeChristopher Lee & Co

• Shahrir Abdul JalilShahrizat Rashid & Lee

• Davide BarzilaiNorton Rose

• Deepak SadasivanAdnan Sundra & Low

• Dian S. KusdihardjoMMIK Law Firm

• Fara MohammadNorton Rose

• Faresa Jafery AhsanLiaquat Merchant Associates


• Giovanni Mofsol MuhammadHanafi ah Ponggawa & Partners

• Hamid YunisTaylor Wessing

• Helen Joni MarsinihMMIK Law Firm

• Hooman Sabeti -Rahmati Allen & Overy

• Hossam AbdullahAl Ruwayeh & Partners


• Husam HouraniAl Tamimi & Company

• Ian Ingram-JohnsonAllen & Overy

• Ian SiddellBaker & Mckenzie

• Imran Muft iLovells

• Imti az ShahLovells

• Indri Pramitaswari GuritnoHadiputrano, Hadinoto & Partners

• Jal OthmanShook Lin & Bok


• Jawad AliKing & Spalding

• Jeremy InghamTrowers & Hamlins

• Julian JohansenAbdulaziz AlGasim Law Firm with A & O

• Julie AlexanderBaker & Mckenzie

• Kazi RahmanWragge & Co

EADING LAWYERS2009



All Named Lawyers in the Category of Islamic Banking & Finance

• Kenneth AboudAllen & Overy

• Khairul Ismail Naqiz & Partners


• Lily TanAlbar & Partners

• Loh Mei MeiZul Rafi que & Partners

• Lynett e BrownAl Tamimi & Company

• Mark Lim Wong & Partners

Also Named in Islamic Project FinanceSee Full Profi le on Page 44

• Marwalis KassimJeff Leong, Poon & Wong


• Matt hew SapteDentonWildeSapte

Also Named in Islamic Securiti zati on & Structured FinanceSee Full Profi le on Page 59

• Megat Hizaini HassanZaid Ibrahim & Co

• Michael J.T. McMillen Fulbright & Jaworski

• Mohamed Ismail Mohamed Shariff Skrine

• Mohamed RidzaMohamed Ridza & Co

Also Named in Islamic Dispute Resoluti onSee Full Profi le on Page 28

• Mohammed Al-JadaanAl-Jadaan Law Firm

• Mohammed Al-SheikhLatham & Watkins

• Mohd Shuhaimi IsmailHisham Sobri & Kadir


• Muddassir SiddiquiDentonWildeSapte


• Muneer KhanSimmons & Simmons

• Nadim KhanHerbert Smith

• Neale DownesTrowers & Hamlins

• Neil D. MillerNorton Rose

• Norliza Mohammed Abdul Raman Saad & Associates

Also Named in Islamic Real EstateFinance, Islamic Project FinanceSee Full Profi le on Page 16

• Oliver AghaAgha & Shamsi

• Qudeer Lati fCliff ord Chance

• Rahail AliLovells

• Richard De BelderDentonWildeSapte


• Ronald TanTay & Partners

• Sam HabbasAl Ruwayeh & Partners


• Sarah GoodenTrowers & Hamlins

• Shauaib MirzaCliff ord Chance

• Sheeza AhmedMandviwalla & Zafar

• Tan Kong YamKadir Andri & Partners

• Yeo WicoAllen & Gledhill

EADING LAWYERS2009



The history of corporate Sukuk issuance in Indonesia started when Indosat issued its IDR175 billion (US$19.2 million) Mudarabah Sukuk on the 6th November 2002. Since then, corporate Sukuk issuances have emerged widely in Indonesia through various Sukuk schemes.

Providing the basic principles of the Sukuk issuance, the Nati onal Shariah Board has issued two fatwa regarding the scheme of Sukuk issuance, (i) Nati onal Shariah Board –Majelis Ulama Indonesia fatwa No 33/DSN-MUI/IX/2002, regarding Sukuk Mudarabah, and (ii) Nati onal Shariah Board — Majelis Ulama Indonesia fatwa No 41/DSN-MUI/III/2004 regarding Sukuk Ijarah. The capital market and fi nancial insti tuti on supervisory board has also issued some regulati ons regarding Sukuk issuance as stated in (i) decree of chief of capital market and fi nancial insti tuti on supervisory board No KEP-130/BL/2006 regarding Shariah stock issuance (Rule No IX.A.13) and (ii) decree of chief of capital market

and fi nancial insti tuti on supervisory board No KEP- 131/BL/2006 regarding agreements used for Shariah stock issuance in capital market (Rule No IX.A.14).

Corporate Sukuk commonly issued in Indonesia are the Mudarabah and Ijarah schemes. This paper will give a brief descripti on of the respecti ve Sukuk scheme issuances.

One of the corporate Sukuk issued in a Mudarabah scheme is Indosat’s IDR175 billion (US$19.2 million) fi ve-year term Mudarabah Sukuk. In this scheme, Indosat issued Mudarabah Sukuk to collect funds to reimburse a part of its internal funds that had been used in the acquisiti on of Satelit Palapa Indonesia (Satelindo), for the development of its cellular business acti vity.

In this scheme (akad Mudarabah), Indosat acted as the Mudarib who is using the collected investor’s

Corporate Sukuk Issuances in IndonesiaBy Helen Joni Marsinih, Dian S Kusdihardjo and Hayu Kurniasih

continued....

Satelite Revenue

Cash (Mudarabah Fund)

Return of Mudarabah FundRevenue Sharing for Investor

Shared

Sukuk Mudarabah

TRUSTEE

CellularFinancing

Investor

Internet Revenue

Satelit PalapaInd.

IndosatMegamedia

Revenue Sharing

Satelindo

4

2

1

3

Diagram 1: Sukuk Mudarabah Scheme of Indosat

Source: htt p://www.bapepam.go.id/pasar_modal/publikasi_pm/kajian_pm/studi-2007/laporan%20Studi%20akuntansi%20Syariah.pdf, see page 65

EADING LAWYERS2009



capital to fi nance its business and reimburse part of its internal funds which had been used in the acquisiti on. The agreed profi t sharing scheme is as follows: a predetermined rati o multi plied with the shared profi t from Indosat’s revenue, which in turn, is calculated based on the revenue from its two subsidiaries Satelindo (satellite operati ons) and Indosat Mega Media (Internet-based).

Pursuant to the agreed profi t sharing scheme, profi ts made are shared between the capital provider (Shahib al-Maal) and Indosat. (Mudarib) according to the predetermined rati o. This scheme is illustrated in Diagram 1. The Sukuk Mudarabah scheme chosen by Indosat was suitable for companies that issue Sukuk for fi nancing purposes.

In terms of Ijarah, one of the corporate Sukuk issued is the Sukuk Ijarah IV Perusahaan Listrik Negara (PLN) Year 2010 with a total nominal value of IDR297 billion (US$32.4 million). This consists of two series: (i) Sukuk Ijarah PLN IV Year 2010 Series A with a nominal value of IDR130 billion (US$14.2 million) and a seven-year term and (ii) Sukuk Ijarah PLN IV Year 2010 Series B with a nominal value of IDR167billion (US$18.2 million) and a 10-year term.

In this contract (akad Ijarah), PLN transfers the ben-efi t of its electric network to the Sukuk holder for a certain period of ti me. Here, PLN acts as the owner of the electric network who then transfers the benefi t of the electric network to the Sukuk holders. Besides Ijarah, PLN and the Sukuk holders also sign a Wakalah contract (akad Wakalah). With Wakalah, the Sukuk holder grants authorizati on to PLN to act on behalf of the Sukuk holder to perform certain acti ons related to such electric network. This Sukuk Ijarah scheme of PLN is ilustrated in Diagram 2 below:

Sukuk in Indonesia has emerged widely in recent years. It is hoped that in the coming years, issuers will issue Sukuk with Shariah schemes other than Mudarabah and Ijarah, for example Musharakah, Isti snah, and combinati ons of two or more Shariah schemes which are not in confl ict with Shariah principles.

Corporate Sukuk Issuances in Indonesia (continued..)

PLN as Owner of electricity network

1b. Sukuk Fund4. Payment of Ijarah andFree Ijarah

2. Akad Wakalah1. Akad Ijarah

Sukuk Holder 3. Contract with Customer

3a. Electricitypayment byPLN’s Costumer

1a. Electricity network

PLN as Wakil

Helen Joni Marsinih and Dian S Kusdihardjo are the founders of MMIK Law Offi ce and Hayu Kurniasih is associate in the fi rm.

Diagram 2: Sukuk Ijarah Scheme

Prospectus of Sukuk Ijarah PLN IV Year 2010, page xii

EADING LAWYERS2009




• Commercial Law

• Cross-border Investment & Negoti ati ons

• Islamic Finance

• Dispute Resoluti on

• Mergers & Acquisiti ons

Individual Profi le

Noor Meurling is an internati onal partner of Blake Dawson and a senior foreign legal consultant with Soebagjo, Jati m, Djarot (in associati on with Blake Dawson). Noor has worked in Singapore, New Zealand, Sweden and Indonesia.

Noor has advised in major domesti c and internati onal transacti ons among others in the areas of general commercial law, cross-border investment and negoti ati ons, fi nance and banking (including Islamic funding), and the Indonesian process towards dispute resoluti on. Noor is well known for her experti se in mergers & acquisiti ons and has been recognized as an Asia Law Leading Lawyer over the years from 2004 up unti l 2010 for professional services in mergers and acquisiti ons and for Islamic fi nance.

A Singaporean, Noor was called to the Singapore Bar and holds a Masters in Law from the University of London. Noor is acti ve in Indonesian business and industry circles, and in internati onal legal organizati ons. Noor is a council member of the Inter Pacifi c Bar Associati on (IPBA); chairman of IPBA scholarship committ ee and sits on the governing board of the Singapore Chamber of Commerce in Indonesia, among others.

Noor MeurlingSenior Foreign LegalConsultantEmail: [email protected]

Plaza DM, Floor 17th,Jl Jend Sudirman Kav 25,Jakarta 12920,IndonesiaTel: +62 21 2996 9200Fax: +62 21 2903 5360Website: www.sjdlawfi rm.com

Islamic Corporate Finance


EADING LAWYERS2009




• Islamic & Conventi onal Transacti ons• Sukuk, Bonds & Structured Debentures• Banking & Finance• Corporate & Commercial Matt ers• Mergers & Acquisiti ons• Internati onal Commercial Transacti ons

Individual Profi le

Rob Litt le is a partner with ASAR - Al Ruwayeh & Partners, the largest law fi rm in Kuwait and one of the leading law fi rms in the Gulf region. Rob received his educati on at the University of Saskatchewan in Canada. He was admitt ed to both the Law Society of Upper Canada (Ontario) and the Law Society of Saskatchewan in 1993.

Prior to joining ASAR, Rob practi ced law in Canada. While in Canada, he lectured at the Bar Admission Course and published papers on various aspects of commercial law.

Rob specializes in general corporate commercial, capital markets, project work and fi nancial transacti ons.

Rob is consistently ranked as a leading lawyer in Kuwait by a number of disti nguished insti tuti ons including the Internati onal Financial Law Review, Chambers & Partners, The Legal 500, PLC Which Lawyer, and Best Lawyers Internati onal (USA) in the areas of banking, capital markets, corporate, fi nance, mergers and acquisiti ons, oil & gas and project fi nance and development.

Rob Litt lePartnerEmail: rlitt [email protected]

ASAR - Al Ruwayeh & Partners(In Associati on with Stephenson Harwood)PO Box 447, Safat 13005, KuwaitSalhiya Complex, Gate 1, 3rd Floor, KuwaitTel: +965 2292 2700Fax: +965 2240 0064 Website: www.asarlegal.com

Islamic Corporate Finance


Other Offi ces:

BahrainAl Rossais TowerDiplomati c Area 317,Building No. 283, 12th FloorPO Box 20517ManamaKingdom of BahrainTel: +973 17 533 182 / 3Fax: +973 17 533 185Email: [email protected]


EADING LAWYERS2009



All Named Lawyers in the Category of Islamic Corporate Finance

• Ahmad Fikri AssegafAssegaf, Hamzah & Partners

• Andri Aidham BadriKadir Andri & Partners



• Dian S. KusdihardjoMMIK Law Firm

• Farmida BiNorton Rose

• Helen Joni MarsinihMMIK Law Firm



• Irfan TayebaliMohsin Tayebaly & Co


• Kevin WongLinklaters


• Noor MeurlingSoebagjo Jati m Djarot




• Robert Litt leAl Ruwayeh & Partners


• Rustum ShahLovells

• Sheeza AhmedMandviwalla & Zafar

• Tahir JawedMaples & Calder

• Tariq HameedSimmons & Simmons

• Yeo WicoAllen & Gledhill

EADING LAWYERS2009



Islamic dispute resoluti on in commercial cases is essenti ally no diff erent from dispute resoluti on in other similar cases, parti cularly when these cases are tried in the civil courts, as they are in Malaysia. It is the claim for a right or a remedy in law by one party against another in a court of law and the subsequent enforcement of the order or judgement awarded by the court. But Islamic law diff ers from conventi onal law in certain basic aspects; hence the civil courts have to be mindful of these diff erences when deciding such disputes. Unfortunately, there has been a tendency at ti mes to apply civil law principles to cases arising from Islamic banking transacti ons even when there are clear principles in Shariah to the contrary.

Bai Bithaman Ajil casesMost of the cases on Islamic banking that have come before the Malaysian courts involve Bai Bithaman Ajil (BBA) contracts. These are deferred payment contracts similar to credit sales and are the most common form of fi nancing in the country, parti cularly for home fi nancing. In home fi nancing by BBA contracts, which involves the purchase and sale of houses by the banks, the bank fi rst buys the house at a purchase price (equivalent to a loan amount in conventi onal loan transacti ons). The bank adds its profi t to its purchase price and sells it to the customer at the sale price. The profi t arising on the sale is a real trading profi t, which in terms of the amount thereof may be compared to the total interest at a fi xed rate payable on a loan of a similar amount for a like period. The sale price will be payable in instalments over the agreed period of ti me.

If the customer defaults in the payment of the instalments the outstanding balance of the sale price will become immediately due and payable. In such an event, in the amount of the outstanding balance of the sale price due, there would be a sum that may be termed in conventi onal terms as “unearned profi t”. When payment is received or recovered the bank will return this “unearned profi t” by way of

Ibra to the customer. The amount of Ibra can only be determined when the bank receives or recovers the balance of the sale price.

IbraMany aspects of this mode of fi nancing have been dealt with by the courts. In this arti cle we look at one of the issues that have come up repeatedly: Ibra. Ibra is a discount that is granted by the creditor (bank) to the debtor (customer) for early sett lement or early recovery of the debt. In Shariah, Ibra is recognized as being discreti onary, that is to say, the granti ng of it and the amount of it are at the discreti on of the creditor. This point was considered in 1996 by the (then) Supreme Court in a case before it and the discreti onary nature of Ibra was recognized and approved by that Court. Unfortunately no writt en judgment was delivered. Even so, for many years thereaft er the courts decided such cases on the basis that Ibra is discreti onary.

However, in 2006 the High court in the case of Affi n Bank Bhd v. Zulkifl i bin Abdullah [2006]3 MLJ 67 decided that the bank must state the amount of Ibra that it will grant to a customer when it fi les a claim in court to recover the balance of the sale price upon default by the client. This requirement premised on equitable principles, with respect, goes against the Shariah principle that Ibra is discreti onary; the bank cannot be compelled to grant it. Secondly, since it would not be known at the outset when the balance would be paid or recoverable it would not be possible for the bank to determine the amount of Ibra to be granted when fi ling the acti on.

The Ibra Issue, AgainBy Mohamed Ismail Mohamed Shariff

continued....

“In Shariah, Ibra is recognized as being discretionary, that is to say, the granting of it and the amount of it are at the discretion of the creditor”

EADING LAWYERS2009



This point was taken up in a series of cases on appeal to the Court of Appeal last year but unfortunately the Court of Appeal did not deal with it in its writt en judgment. So of late the High court is again insisti ng that banks state the amount of Ibra that would be granted even before payment is received or recovered. This approach is apparently based on considerati ons of equity, that is, being fair to the customer. In my respectf ul opinion, this is wrong in principle even from a civil law point of view. First, it militates against the Shariah principle that Ibra is discreti onary, which principle the courts are bound to uphold by law, that is by the provisions of the Islamic Banking Act 1983. Secondly, the banks should not be compelled to commit to allow an amount of Ibra which may not necessarily be the correct amount when the ti me comes for computati on of Ibra. In some instances, owing to the length of ti me it takes to recover the outstanding amount, no Ibra would be due because the tenor of the facility would have expired. This will not be fair to the banks. Shariah

principles should not be compromised on grounds of equity in att empti ng to do justi ce.

ConclusionTo the writer’s knowledge there has been no instance where an Islamic bank has refused to grant Ibra to a customer for early sett lement or early recovery of the outstanding balance of the sale price. So, the banks could be relied upon to grant Ibra of an appropriate amount at the appropriate ti me. This is an instance where banking conventi ons should be allowed to evolve without too much interference by the courts.

The Ibra Issue, Again (continued..)

Mohamed Ismail Mohamed Shariff is a partner at Skrine in Kuala Lumpur, Malaysia.

Leaders in Financial, Technical and Product Training for the Islamic Financial Services Industry

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EADING LAWYERS2009




• Islamic Banking & Finance• Corporate & Commercial Law • Constructi on Law • Oil & Gas Individual Profi le

Mohamed Ridza graduated from the Internati onal Islamic University Malaysia with a Bachelor of Laws (First Class Honors) degree. He is also a graduate of the Insti tute of Chartered Secretaries and Administrators (London), a Fellow of the Insti tute of Chartered Secretaries and Administrators, an Associate Member of the Chartered Insti tute of Arbitrators. Together with his partners, Ridza set up Messrs. Mohamed Ridza & Co. in 2005 specializing in Islamic banking and fi nance, corporate and commercial law, constructi on law and oil and gas aft er leaving the partnership in Messrs. Zaid Ibrahim & Co. as head of his division.

He is a trainer with Securiti es Industry Development Corporati on (the training arm of Securiti es Commission, Malaysia) and Financial Sector Talent Enrichment Programme (FSTEP)(training arm of Insti tut Bank-Bank Malaysia). Ridza also sits on the Islamic Finance news advisory board. He has co-authored two books ti tled “Law and Practi ce of Islamic Banking and Finance” and “Sukuk Islamic Capital Market Series” published by Sweet & Maxwell Asia. Ridza has also spoken extensively in seminars locally and internati onally involving corporate matt ers and Islamic banking and fi nance. Ridza was named as one of the world’s leading Islamic fi nance lawyers as voted by his peers in the industry and sits as an independent director and member of audit committ ee in several companies in Malaysia.

Islamic Finance Deals worked on:AirAsia; Asian Finance Bank – QIB fi nancing; Baitak; Brunei LNG Brunei Shell Petroleum Sukuk; Bursa Suq Al-Sila; Citi group–Telekom Islamic ABS; Dentalmati cs, Canada; DRB Hicom Sukuk; Pearl KLCC; HSBC Dubai; Hatt a 4 (AmIslamic); Iskandar Malaysia; Kuwait Finance House (Kuwait); Lembaga Tabung Haji - Mydin; Metro Ikram (Turkey); Nanhai China; Olam-Islamic Bank Asia Singapore; Pavilion Malaysia 1; Pavilion Malaysia 2; SP Seti a Berhad Akasia; Pertamina Indonesia; PT IAT Indonesia; Reetaj (Glomac); Safeena Marine; United Engineering Malaysia Sukuk; South Quay Musy-arakah; Perbadanan Insurance Deposit Malaysia; Permodalan Kelantan Berhad/Bank Muamalat (Musyarakah); Bank Rakyat Documentati on; MTDC Islamic Financing; Felda Financing (RHB Islamic); Oval Mudharabah

Mohamed Ridza AbdullahManaging PartnerEmail: [email protected]

Awards

• One of Asia’s Leading Lawyer by Islamic Finance news.

• Asialaw Leading Lawyers in the area of Banking, Capital Markets, Corporate Finance and Islamic Finance.

• Finalist for ALB SE Asia Law Awards for 2006 US$96 million Murabahah Facility granted by Standard Chartered Singapore to Baitak Asian Real Estate Fund I (Labuan) Limited.

• Finalist for ALB SE Asia Law Awards for 2007 for Structured Finance and Securiti sati on Deal of the Year for Sukuk Ijarah Menara ABS Sukuk Ijarah.

• Legal adviser to Nibras 2 fund for the most innovati ve Islamic real estate transacti on in Iskandar Malaysia investment during London Summit Sukuk 2009 Islamic Finance Awards.

• One of the top Asian law fi rms (ALB) in Islamic banking & fi nance.

• Nominated as one of the outstanding practi ti oners in the World’s Leading Islamic Finance Practi ti oners by Legal Media Group’s Guide.

50-10-9, Level 10,Wisma UOA Damansara,No. 50, Jalan Dungun,Damansara Heights,50490 Kuala Lumpur,MalaysiaTel: +603 2092 4822Fax: +603 2092 5822Website: www.ridzalaw.com.my

Islamic Banking & Finance, Islamic Dispute

Resoluti on


EADING LAWYERS2009



All Named Lawyers in the Category of Islamic Dispute Resoluti on

• Mohamed Ismail Mohamed Shariff Skrine

• Mohamed RidzaMohamed Ridza & Co

Also Named in Islamic Banking & FinanceSee Full Profi le on Page 28


• Mohammed KamalLovells


EADING LAWYERS2009



The world has changed a great deal since our last survey of the use of off shore vehicles for Islamic, or Shariah compliant, investment funds as featured in A Study of Off shore Islamic Funds published in the Islamic Finance news Asset and Wealth Management Guide 2008. Financial crises and more volati le oil prices have seen liquidity levels in the Middle East come down from the high levels of 2007 to 2008, before making a cauti ous recovery in the latt er part of 2009. As signifi cant for the Shariah compliant investment funds industry has been the collapse in real estate prices worldwide. Much of the boom in the Middle East and North Africa (MENA) region, in parti cular, was fuelled by large investments in real estate and people buying and selling properti es for large profi ts very quickly.

Many investors and investment funds have had diffi cult ti mes with property-focused investment portf olios. In the area of off shore funds, changes which we have seen include a far greater reluctance on the part of investors in closed-ended funds to adhere to drawdown noti ces. New closed-ended funds which have launched provide greater concessions to investors than previously. The economic downturn has also seen a number of innovati ons by fund managers. The most signifi cant include greater numbers of open-ended funds and tentati ve moves towards jurisdicti ons which off er diff erent standards of regulati on. As we conclude, however, some things remain unchanged.

When things go badOne of the most appealing aspects of forming funds in off shore jurisdicti ons such as the Cayman Islands and the Briti sh Virgin Islands is the common law framework. Courts in off shore jurisdicti ons have traditi onally been robust, creditor-friendly and enforce contractual terms on their face. In many parts of the world this has meant that fund managers with off shore funds can enforce default provisions in limited partnership agreements or subscripti on agreements, when investors fail to pay, with comparati ve ease.

In the MENA region, however, managers and general partners of Shariah compliant funds are typically more reluctant to enforce default provisions. Part of the reason for this reluctance may be the nature of business acti vity in the region: many relati onships are personal and forged between families rather than purely as commercial transacti ons. The nature of Shariah relati onships is also an impediment to enforcing provisions which can result in forfeiture of investments or sti ff penalti es to the investor: all investors can be regarded as a Sharik (partner) in the fund and hence their parti cipati on is deemed vital to a fund’s success once they commit.

In closed-ended Shariah compliant funds, general partners faced with investors who refuse to pay committ ed amounts are exploring diff erent strategies. Transfers of limited partnership interests are common, oft en with the manager or general partner fi nding investors who are willing to buy interests in launched funds at a discount from distressed investors. Other general partners have reached arrangements with investors to obtain some part of the commitment rather than all of it. Fund managers launching new funds have learnt their lessons, too. Many new funds eschew the model of drawing down commitments for smaller, more secure, upfront contributi ons. Other managers are securing the commitment of key investors in the fund by giving them a porti on of the general partner’s profi ts or allowing them a role in the decision making of a fund.

Opening UpA survey in 2008 of the Islamic funds industry would have focused almost exclusively on closed-ended private equity funds, which are usually but not always structured as limited partnerships. While these structures are sti ll prevalent, a number of fund managers in the MENA region are now setti ng up ‘open ended’ funds (giving investors the ability to redeem at their own opti on). Open-ended funds mean less of a long-term commitment with investors

Off shore Islamic Funds in 2010By Philip Ireland and Tahir Jawed

continued....

EADING LAWYERS2009



exercising greater control over their money once a commitment has been made.

The ability to redeem arguably puts open-ended funds in confl ict with Shariah principles: putti ng money in and ‘betti ng’ on a fund’s success can be seen as haram. Many Shariah scholars now reject this view so long as investors themselves do not invest in Shariah compliant funds with a view to quick exits. (The fund manager can also address this concern by setti ng minimum periods, or “lock-up”, for which investors must keep investments in the relevant fund prior to redempti on.) Greater challenges arise at the level of the fund’s operati ons. Shariah compliant open-ended funds face signifi cant issues in terms of liquidity and the way they invest.

Unlike closed-ended limited partnerships, open-ended funds do not have a guaranteed corpus of money which investors have committ ed to keep in the fund unti l it is liquidated. Redempti ons may mean that a fund’s assets under management are insuffi cient to make lucrati ve investments. Conventi onal hedge funds typically deal with this by taking out bridge fi nancing or long-term loans. Interest payments or receipts by a Shariah compliant open-ended fund confl ict with Islamic prohibiti ons on usury or payment of interest. Shariah compliant borrowing — by way of Murabahah or Ijarah structures — can address this, but clearly thought needs to be given by the manager, at the outset, as to how this borrowing is structured and secured. More problemati c sti ll is the noti on of short-selling assets, given its clear parallels with gambling. This seems to be the greatest impediment to a true Shariah compliant hedge fund. To the extent that they are open-ended, Shariah compliant funds seem set to stay ‘long only’.

New horizonsShariah compliant funds have been diversifying both in the sectors in which they invest and in the domiciles which managers choose for funds. As a recent Westlaw update by Jack Bunker in Shariah compliant private equity: Added regulati on or added value points out, several nine-fi gure funds

focusing on areas as diverse as logisti cs warehouses, healthcare and educati on-related assets in Saudi Arabia and the Gulf-Arab region have been announced since December 2009.

The Dubai Internati onal Financial Centre is also moving from a place where managers situate themselves to a domicile for funds as well. Most notably, TVM Capital MENA announced the launch of a Shariah compliant healthcare growth capital fund in the DIFC in early 2010. As Bunker notes, the Dubai Financial Services Authority’s adherence to the Standards of the Accounti ng and Auditi ng Organisati on for Islamic Finance Insti tuti ons raises the prospect of a regulator which has Shariah standards engrained in its regulatory framework.

A number of recent publicati ons focus on the possibility of Luxembourg and Ireland becoming established jurisdicti ons for Shariah compliant undertakings for collecti ve investment in transferable securiti es (UCITS). Both countries have fl exible regulatory frameworks for investment funds. The tax positi on (usually crucial to fund managers when choosing a domicile) is not clear in Luxembourg, with the Luxembourg Tax Authoriti es looking to issue a circular on the classifi cati on of Shariah compliant investment funds (although a circular on Islamic debt instruments was released in January 2010).

Ireland may be a diff erent propositi on, with the high number of funds listed on the Irish Stock Exchange and its prominence as a jurisdicti on for fund administrati on (assisted by the Irish tax exempti on for fund acti viti es and the country’s strong network of tax treati es). From an Irish regulatory perspecti ve, Shariah investment is likely to be viewed as similar to a fund established with a socially responsible investment ethos. PricewaterhouseCoopers made a note on Shariah compliant funds in Ireland in a document dated October 2008, that regulators in Ireland have adopted an open door policy in their willingness to meet with promoters of new fund products. The tax and regulatory environment in Ireland, combined with its secure positi on as a home

Offshore Islamic Funds in 2010 (continued..)

continued....

EADING LAWYERS2009



for fund managers and administrators, seem likely to make it an important jurisdicti on for Shariah compliant funds with a European focus.

The more things change ...The global economic downturn has seen a number of innovati ons in the Shariah compliant funds space. Fund managers and general partners have tackled issues with defaulti ng investors in diff erent ways. The fl exibility aff orded by regulati on in off shore jurisdicti ons has facilitated many of these changes. Fund managers have made a number of changes in the way they structure funds, the amount of control they give investors, and most signifi cantly, in seeking to set up Shariah compliant open-ended funds. There has also been interest in jurisdicti ons other than the Cayman Islands and the Briti sh Virgin Islands (to date the domiciles of choice), in parti cular the Dubai Internati onal Financial Centre, Luxembourg, and Ireland.

But not everything is diff erent. As Cayman Islands, Briti sh Virgin Islands and Irish investment funds

lawyers in Dubai, we note that most investment funds in the MENA region remain domiciled in the Cayman Islands. A majority of Shariah compliant funds are set up as closed-ended exempted limited partnerships there, although with diff erent management structures and greater investor control than before. The money may no longer come exclusively from oil and there has certainly been a move away from putti ng it into property. These are signs of a maturing market. As the formati on and control of Shariah compliant funds evolves, however, most Islamic investment funds seem certain to conti nue being set up off shore.

Offshore Islamic Funds in 2010 (continued..)

Philip Ireland and Tahir Jawed are partners in Maples Dubai.

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EADING LAWYERS2009




• Funds

• Corporate Individual Profi le

Fawaz Elmalki is an associate in the Dubai offi ce of Conyers Dill & Pearman who specializes in investment funds, in parti cular private equity funds, real estate funds, infrastructure funds and hedge funds including Shariah compliant funds. Fawaz represents funds and their sponsors in connecti on with their formati on and also represents insti tuti onal investors in such funds. He also has broad experience in corporate fi nance and corporate law matt ers including off shore structuring of Islamic fi nance products such as Sukuk.

Fawaz previously worked as in-house counsel for a large Canadian pension fund manager and for Cliff ord Chance in London. He also spent four years in the Bermuda offi ce of Conyers Dill & Pearman. Prior to his internati onal experience, he worked for Heenan Blaikie in Montreal.

He completed an LLB (Civil Law, Dean’s List 2nd year) at the Université de Montréal in 1996 and an LLB (Common Law, Disti ncti on) at McGill University in 1999. He was admitt ed to practi ce in Québec, Canada in 1998, in England & Wales in 2002 (he does not currently practi ce in the UK), in Bermuda in 2003 and in the Briti sh Virgin Islands in 2007. Fawaz speaks English, French and Arabic.

Fawaz is ranked as a Recommended Lawyer by PLC Which Lawyer? and Chambers Global and as a Leading Lawyer by Who’s Who Legal (UAE) and Islamic Finance news. He has been cited in internati onal investment fund and private equity reviews and magazines. Fawaz has also contributed numerous arti cles to fi nancial and legal publicati ons including HFM Week, Legal Week, Islamic Finance news, The Brief, Asian Counsel and the Canadian Internati onal Lawyer.

Fawaz ElmalkiAssociateTel: +971 4428 2900Email: [email protected]

Arti cles

• Private Equity Trends in the Middle East

• HFM Reprint: New Beginnings

• Try the BVI for your next Musharakah

• Off shore Innovati on Supports Islamic Finance

• Sukuk — An Evoluti on

Off shore Islamic Finance, Shariah Investment Funds


Level 2, Gate Village 4,Dubai Internati onal Financial Centre,PO Box 506528, Dubai,UAETel: +971 4428 2900Fax: +971 4428 2999Website: www.conyersdill.com

EADING LAWYERS2009



All Named Lawyers in the Category of Shariah Investment Funds

• Abradat KamalpourAshurst

Also Named in Islamic Securiti zati on& Structured Finance and RestructuringSee Full Profi le on Page 37


• Chris P. Sioufi Dewey & LeBoeuf


• Fawaz ElmalkiConyers Dill & Pearman

Also Named in Off shore Islamic FinanceSee Full Profi le on Page 33

• Hamid YunisTaylor Wessing

• Hiba AllamVinson & Elkins



• Jeremy InghamTrowers & Hamlins

• Lynett e BrownAl Tamimi & Company


• Nabil A. IssaKing & Spalding

• Philip IrelandMaples & Calder


• Zubair MirHerbert Smith

EADING LAWYERS2009



One who faces hardship in paying his debts must be given ti me unti l his fi nancial conditi on improves. Would that you knew that waiving such a loan as charity would be bett er for you!

The Qur’an, chapter 2, verse 280

The wave of credit defaults and the ensuing fi nancial restructurings that began in 2008 and are conti nuing throughout many markets are also aff ecti ng its share of Middle Eastern borrowers and fi nanciers, as any examinati on of current fi nancial periodicals can att est. The prevalence of Islamic fi nance techniques and instruments in the Middle East, and their concurrent use with conventi onal loan faciliti es, has brought up new issues of parti cular interest to legal practi ti oners in this market. While practi ti oners may debate whether the structural benefi ts available to Islamic fi nanciers are outweighed by some of the challenges they face in a restructuring context, it is clear that parti cular care and thought needs to go into the handling of Islamic faciliti es to ensure that the Shariah compliance needs of the Islamic fi nanciers are met and that the Islamic fi nanciers are treated, to the extent possible in a manner economically and structurally equivalent to any similarly situated conventi onal lenders.

The structural integriti es required to be maintained when using Islamic fi nancing techniques are likely one of the primary reasons why the Middle Eastern fi nancial and credit markets did not fully experience the shocks of the sort seen largely throughout the western world. These integriti es generally include requirements that an element of risk be shared between the business and the fi nancier; and that fi nancings be backed by real assets. Complex fi nancial instruments of the sort popularized prior to the destabilizati on of western fi nancial and credit markets simply cannot be created in a Shariah compliant manner.

Nonetheless, in the Gulf, there have been recent and current examples of the interplay of conventi onal and Islamic fi nance in the context of workouts

and restructurings: the Saad Group and Al Gosaibi situati on, Dubai World including certain affi liates, Global Investment House and Investment Dar. There are a number of other less well publicized distressed debtors in the Gulf that are likewise involved in fi nancial restructurings.

These recent distressed credits have underscored the limitati ons of the current legislati ve framework in respect of bankruptcy and insolvency in many Gulf countries. For example, in the Kingdom of Saudi Arabia, the underlying bankruptcy and insolvency regime was formulated over 50 years ago and was principally designed to address an individual’s (rather than a corporate’s) bankruptcy and insolvency. The framework remains untested in respect of large or complex corporate bankruptcies, and consequently there is signifi cant uncertainty as to how long a complex corporate bankruptcy, or related court mandated ‘amicable conciliati on’ proceeding, would take and what the results of the bankruptcy or proceeding would be – both from a debtor’s and creditor’s perspecti ve. Accordingly, we have seen a tendency for a preference in the Middle East to achieve a negoti ated or consensual fi nancial restructuring and avoid any court mandated soluti ons, which at ti mes during workout negoti ati ons can favor debtors who have been advised of this situati on.

In this context, the recent spate of Middle Eastern corporates entering into standsti ll and restructuring arrangements with their fi nanciers have brought a renewed focus on the risks associated with att empti ng to restructure Islamic debt in the face of a lack of historical precedent or market standard. As many of these corporate borrowers had simultaneously entered into conventi onal and Islamic faciliti es, the diff erences between the two in terms of engineering standsti ll and restructuring methodologies have quickly been brought into sharp relief. Key among these diff erences is the desire expressed by Islamic fi nanciers for the underlying

Islamic Finance Restructuring: Sector OverviewBy Chris Langdon and Sumit Soni

continued....

EADING LAWYERS2009



transacti ons to remain Shariah compliant, which could have diff erent meanings for diff erent Islamic fi nanciers depending on the views held by members of their Shariah advisory boards. As the quote at the outset of this arti cle suggests, Islamic fi nanciers can approach distressed credit with a diff erent mindset than the average conventi onal lender: a conservati ve Islamic fi nancier is obliged under Shariah principles to respect any diffi culti es a borrower may face in repaying debt.

For some Islamic fi nanciers, this could potenti ally extend to not receiving some or all interest or commission that is being paid to similarly situated conventi onal fi nanciers of a debtor, owing to diffi culti es in ‘rolling over’ of principal amounts during a standsti ll period. Simply put, since many Islamic fi nance techniques involve purchase and sale transacti ons involving actual commoditi es at the end of the equivalent of each ‘interest period’, the concept of a ‘roll over’ of outstanding principal amounts during a standsti ll period during which interest or commission would conti nue to be paid could have litt le meaning.

Similarly, some Islamic fi nanciers, quoti ng Qur’anic requirements, could individually disclaim any right to receive additi onal fees or penalty amounts owing during a standsti ll period, eff ecti vely leaving such funds “on the table” to be returned to the debtor, on the theory that such funds would be bett er served assisti ng the debtor back to fi nancial health, or be donated to charity.

Other structural diff erences between conventi onal and Islamic faciliti es may also at ti mes favor conventi onal faciliti es. For example, while in the context of conventi onal syndicated faciliti es, lenders are contractually restricted from unilateral acti on, each lender technically is providing a separate loan to the debtor and, excluding security agent or trustee structures, has its own direct rights against the debtor and other obligors. In some cases this can permit more creati ve and fl exible workout and restructuring soluti ons. For example, it may be easier to break up a syndicati on into separate restructured

tranches of debt to refl ect the economic bargain struck between the banks and obligors. This can be more challenging in an Islamic fi nance structure. For example, syndicated Musharakah structures interpose an investment agent between the obligors and parti cipant banks, meaning that individual parti cipant banks cannot seek direct recourse against the obligors in cases where there is a desire to. This, in turn potenti ally restricts creati ve soluti ons to the restructuring of such obligati ons.

Further, the markets have already seen att empts being made take advantage of real or perceived uncertainti es in the enforceability of Islamic fi nance transacti ons. The Kuwaiti investment house Investment Dar, which has sought legal protecti on from creditor acti on under the terms of Kuwaiti law, claimed that the Sukuk program sponsored by it was outside its capacity since it was not Shariah compliant. It remains to be seen to what degree defences of this type will be successful.

It is true that a number of issues remain to be resolved before the regimes relati ng to standsti ll, sett lement or enforcement under Islamic faciliti es can be said to have the same level of certainty as it exists with conventi onal fi nance techniques. However, the very fact that such issues are being carefully considered by a number of leading fi nance practi ti oners and scholars in the Middle East adds a level of interest and even excitement which does not normally appear in this fi nance space. As this area of the Islamic fi nance legal regime is tested and refi ned, we can expect a number of certainti es with respect to the restructuring of Islamic debt to be confi rmed, and a number of uncertainti es clarifi ed, which will only aid fi nanciers in the next major round of fi nancings which have inevitably already begun.

Islamic Finance Restructuring: Sector Overview (continued..)

Chris Langdon is a partner and Sumit Soni is a senior associate of Latham & Watkins LLP.

EADING LAWYERS2009




• Islamic Finance• Sukuk • Structured Finance• Securiti zati onIndividual Profi le

Abradat Kamalpour is an internati onal fi nance partner based in London. He has extensive experience in securiti zati on, debt capital markets and structured fi nance transacti ons. Abradat has been at the forefront of structuring Islamic compliant capital markets and securiti zati on transacti ons, transforming structures into instruments acceptable to Islamic investors.

Abradat is ranked in Band 1 for Islamic fi nance by Chambers UK 2010 and named as a Leading Individual in Islamic fi nance by Legal 500 2009. He is also ranked as one of the world’s top 25 pre-eminent Islamic fi nance practi ti oners in Expert Guides, Best of the Best 2009 and was named a Leading Lawyer by Islamic Finance news (2009). Abradat was also included in The Lawyer’s Hot 100, 2008 of the 100 legal professionals to watch as well as being a key member of the team that won the Euromoney award for best global Islamic fi nance legal advisor 2006-2007.


• Acti ng for a group of Sukuk holders on the proposed US$3.52 billion Nakheel Sukuk restructuring

• Gatehouse Bank as arranger and dealer on the establishment of the US$1 billion Milestone Capital Sukuk program and the inaugural issue

• Dresdner Kleinwort and HSBC as joint arrangers on the US$1 billion Gulf Finance House Sukuk program

• Merrill Lynch Internati onal as arranger and dealer on the establishment of the US$25 billion Falak Islamic certi fi cate program

AbradatKamalpourPartnerDirect line: +44 20 7859 1578Email: [email protected]

Broadwalk House,5 Appold Street,London EC2A 2HA, UKTel: +44 20 7638 1111Fax: +44 20 7638 1112Website: www.ashurst.com

Other Offi ces:

DubaiLevel 5, Gate Precinct Building 3Dubai Internati onal Financial Centre, PO Box 119974Dubai, UAETel: +971 4 365 2000Fax: +971 4 365 2050 Abu DhabiSuite 101, Tower C2Al Bateen TowersBainunah (34th) StreetAl Bateen, PO Box 93529Abu Dhabi, UAETel: +971 2 406 7200Fax: +971 2 406 7250 Singapore55 Market Street,#07-01, Singapore 048941Tel: +65 622 12 21 4Fax: +65 622 15 48 4

Tokyo Shiroyama Trust Tower, 30th Floor, 4-3-1 ToranomonMinato-ku, Tokyo 105-6030Tel: +81 3 5405 6200Fax: +81 3 5405 6222

Islamic Securiti zati on & Structured Finance,

Shariah Investment Funds, Restructuring


EADING LAWYERS2009



All Named Lawyers in the Category of Islamic Finance Restructuring


Also Named in Shariah Investment Funds and Islamic Securiti zati on & Structured FinanceSee Full Profi le on Page 37


• Christi an AdamsLatham & Watkins





• Robin AbrahamCliff ord Chance

• Roger Wedderburn-DayAllen & Overy

• Siraj Al IslamBaker Bott s

EADING LAWYERS2009



In 2009 project fi nance volumes were down signifi cantly from the pre-fi nancial crisis levels. The dark economic clouds also put Islamic fi nance under the spotlight with structures scruti nized. Outside of the project sector the Dubai fi nancial crisis focused investors on the perceived risk associated with untested Islamic structures.

Notwithstanding these challenges Islamic fi nance conti nued its positi ve forward momentum. Saudi Arabia was a good example of the increasing reliability of Islamic funding sources in the project sector. Although Saudi Arabia was not immune from the economic winds blowing through the region in 2009. Internati onal and Saudi Arabian banks were faced with signifi cant distressed credit challenges and Internati onal banks were for the fi rst ti me in many years cauti ously and quietly re-evaluati ng Saudi Arabian lending risks. In summary, 2009 presented project sponsors with a challenging credit environment, reduced internati onal back capacity, a regional fi nancial crisis and, in the Islamic fi nance arena, the fi rst economic down cycle to put Islamic fi nance structures under a legal stress test. But notwithstanding these challenges Islamic project fi nance conti nued its trajectory of being a predictable and reliable component of most developers fi nancing plans in Saudi Arabia and elsewhere in the Middle East.

The US$2.5 billion Rabigh 1200MW IPP fi nancing developed by ACWA Power and KEPCO in Saudi Arabia saw Islamic project fi nance play a dominant role. Alinma, Al Rajhi and SAMBA provided signifi cant commitments with K-Exim also parti cipati ng. An Isti snah and Ijarah structure, now a sett led structure in Saudi Arabia, was the basis of the Islamic fi nancing. The involvement of the Islamic fi nance insti tuti ons in the Saudi power sector development was also repeated in the recently closed Riyadh IPP project being developed by GDF Suez and it partners. Banque Saudi Fransi, Alinma Bank, Nati onal Commercial Bank and SAMBA providing the largest non-export credit agency contributi on under an approximately US$600 million Isti snah Ijarah facility.

Elsewhere in the Gulf, we saw Islamic fi nance making a contributi on to project development. Al Hilal Bank contributed approximately US$380 million to the approximately US$1 billion Zayad University project. Again, Islamic fi nance playing a positi ve role in achieving a fi nance plan. Beyond the new money transacti ons, Islamic fi nancial insti tuti ons were acti ve in the refi nancing of existi ng large deals. 2009 saw Zain refi nance its US$2.5 billion greenfi eld telecoms fi nancing in Saudi Arabia. The transacti on was structured around a single Murabahah fi nancing with both Saudi Arabian and internati onal banks lending on an Islamic basis.

However the Islamic project fi nance market in the Middle East did not see great developmental advances in product development in 2009. The market weathered the storm of the regional fi nancial crisis and the legal challenges to Islamic market. But the hoped for step change in the product slate and the introducti on in parti cular of a debut project fi nance Sukuk off ering did not occur.

It is sti ll hoped that one of the regions mega projects will uti lize a Sukuk structure as a central part of its fi nancing plan and support the development of the product. In the same way as the Petro-Rabigh fi nancing paved the way for the now common use of Isti snah Ijarah structure in Saudi Arabia.

Looking ahead, there are fewer mega projects on the horizon. Those that require fi nancing will be driven to involve Islamic fi nance parti cipati ons. The infrastructure and power sectors in the Middle East region conti nue to present large funding needs and Islamic fi nance will conti nue to play an increasingly important and central role in bringing these projects to fruiti on.

Islamic Project Finance – Playing its Part in 2009By Craig Nethercott and Mohammed Al-Sheikh

Craig Nethercott and Mohammed Al-Sheikh are both heads of the global Islamic fi nance practi ce group in Latham & Watkins. Mohammed is the offi ce managing partner of the Riyadh offi ce.

EADING LAWYERS2009



A large number of project fi nancings in the Mid-dle East have an Islamic fi nance tranche. The GCC states conti nue to develop their infrastructure re-quirements (power, water, roads, bridges and other uti liti es) despite the current economic climate. Traditi onally, large multi -billion petrochemical and infrastructure projects were fi nanced by conven-ti onal fi nanciers. Islamic fi nance now features as a competi ti ve tranche alongside conventi onal project fi nancing. The development of a variety of Islamic fi nancial instruments developed by Shariah schol-ars, lawyers, bankers and accountants have sup-ported this growth.

Where there is a mix of conventi onal and Islamic fi nancing, there are two disti nct tranches. The Islamic parti cipants are only a party to the Islamic tranche. However, it is possible for a conventi onal bank to also be a party to the Islamic tranche. The relati onship between the conventi onal and Islamic parti cipants is regulated through an inter-creditor or common terms agreement. As the name suggests, the common terms agreement contains the terms that apply to both the conventi onal and Islamic tranche, such as events of default, representati ons and warranti es and undertakings.

The key Islamic structures used for project fi nancing include: 1. Forward lease (Ijarah Mawsufah fi -al dimmah) — a forward lease is structured so that the “real” leasing arrangements commence when the asset has been constructed or manufactured. While the asset is being constructed or manufactured, the Islamic fi nancier can charge advance rent. However, if the asset is not ready for leasing by the leasing commencement date, the lessee can walk away from the arrangements and demand a return of the advance rent.

2. Isti snah — an Isti snah is a form of sale and purchase agreement. It is one of the excepti ons to the general rule that the asset, which is the subject matt er of the contract, should exist when the contract is entered

into. The seller agrees to manufacture or construct an asset to be delivered in the future. Payment can be made either at the end of the period or, more normally, by instalments. Oft en a drawback with an Isti snah is that, because it is a sale and purchase agreement, the purchase price must be fi xed at the beginning. It has been adapted for use with Islamic fi nancing and works, by itself, as a form of fi xed rate fi nancing (due to the purchase price being fi xed at the beginning). However, if the tenor of the Isti snah is long (which would normally be the case for a project) then an Isti snah, by itself, is not an att racti ve propositi on for an Islamic fi nancier. This is why it is usually coupled with a forward lease. During the constructi on phase, the Islamic fi nancier’s return comes, not from the Isti snah, but from the forward lease.

Other structures such as Musharakah (joint venture) have also been used, but not so widely. It is beyond the scope of this arti cle to discuss these structures in detail. This arti cle examines some of the issues that may arise when a project fi nancing contains both conventi onal and Islamic tranches.

Sponsor supportIn a conventi onal fi nancing, many of the issues that arise during the constructi on phase are dealt with under off -take agreements and sponsor support in the form of guarantees. Conventi onal banks assess the commercial viability of the project based on the engineering, procurement and constructi on contract (EPC contract), any applicable operati on and maintenance agreement (O&M), off -take agreements or project documentati on. However, as Islamic fi nanciers need to have a contract with the parti cipants and the project enti ty, there are a number of issues that need to be considered if there is a joint fi nancing of a project with conventi onal banks.

Order of disbursements In a conventi onal loan the principal amount may be drawn down in stages during the availability period. This is not always necessarily the case with

Islamic Project Financing: A Tale of Two TranchesBy Paul Jarvis and Bilal Aquil

continued....

EADING LAWYERS2009



an Islamic tranche. An example includes an Ijarah facility. Where the asset exists when the facility is entered into, the supplier or manufacturer must normally be paid the full purchase price. However, if a forward lease is used in conjuncti on with an Isti snah, the payments under the Isti snah could be paid by instalments or at the end of the Isti snah. It will, therefore, be important to ensure that the Isti snah stage payments match the drawdown profi le of the conventi onal banks.

Co-ordinati ng payments to fi nanciersInterest periods should correspond to the relevant periods under the Islamic fi nancing (for example lease periods, deferred payment periods, periodic distributi on dates and such) so that payments are made to the fi nanciers at the same ti me.

Voti ng rightsIf there are diff erent drawdown profi les, this could aff ect the strength of the parti es’ voti ng rights. If the voti ng rights are based on the amounts outstanding, this could favour the Islamic fi nanciers in certain circumstances. An example would be a Murabahah fi nancing, where the deferred payment price includes the profi t for the enti re fi nancing period. Depending on the payment profi les of the two fi nancings, this could result in the Islamic fi nanciers having greater voti ng rights. In some cases, therefore, the conventi onal fi nanciers might wish to fi x voti ng rights by reference to fi nancial “commitments” instead.

Payments on enforcementIf, for example, there is a Murabahah or an Isti snah fi nancing, on a default the amount claimed will include a profi t element that is calculated over the full Murabahah or Isti snah period. In contrast, with a conventi onal fi nancing, the amount of interest is that which has accrued up to the event of default.

The conventi onal fi nanciers may, therefore, feel that the Islamic fi nanciers’ pro rata enti tlement to a share in any enforcement proceeds (based on amounts outstanding to the fi nanciers) means that they benefi t more than the conventi onal fi nanciers.

Proprietary or contractual interests of the Islamic fi nanciers Some documents such as purchase undertakings create proprietary or contractual interests in favour of the Islamic fi nanciers. Oft en these cannot be mortgaged. The ability of the Islamic fi nanciers to exercise their rights under a purchase undertaking will usually be triggered by an event of default. However, how and when those rights are exercised will need to be coordinated with the exercise of other rights, both under the Islamic fi nancing arrangements and under the conventi onal fi nancing.

Title to security assets in the name of Islamic fi nanciersThe global security trustee or agent will hold the security under the inter-creditor arrangements for the benefi t of the conventi onal and Islamic fi nanciers. A conventi onal lender will not own assets, but will have security interests granted in its favour. However, depending on the facility (such as an Ijarah or Musharakah), an Islamic fi nancier may have ti tle to certain assets. In an Ijarah fi nancing it will own the leased asset and in a Musharakah fi nancing it will own an equity interest in the partnership or joint venture.

What can be done with the assets in the name of the Islamic fi nancier? There are various considerati ons:

• Will the conventi onal banks be content to rely merely on the Islamic fi nancier contractually agreeing to share any proceeds, if it disposes of the project/asset if an event of default occurs?

• Depending on the applicable law, it may be possible for the Islamic fi nancier to grant a security interest in favour of the

Islamic Project Financing: A Tale of Two Tranches (continued..)

continued....

“If the voting rights are based on the amounts outstanding, this could favour the Islamic fi nanciers”

EADING LAWYERS2009



global security trustee or agent. One issue that oft en arises relates to what monetary obligati on the Islamic fi nancier is securing.

• If a special purpose company (SPC) is used, the SPC could grant the security interest so that any ti tle transfer to the Islamic fi nancier would be subject to that security interest.

• If the asset that the Islamic fi nancier owns is merely a contractual interest (this is someti mes done to avoid registrati on fees on the ti tle transfer), the customer (in whose name the legal ti tle remains) will grant the security interest.

Insurance Islamic fi nanciers prefer to use Shariah compliant insurers. However, oft en there are credit rati ng issues with these insurance companies.

Interest on enforcementOn an enforcement, a secular court judgment may award interest on amounts due under the conventi onal fi nancing (and may also do so in relati on to the Islamic fi nancing tranche). The Islamic fi nanciers cannot share in these amounts. The banks will need to consider if the Islamic fi nanciers should be paid additi onal amounts from other payments (that would normally be shared pro rata) in order to equalize the positi on.

Total loss with an IjarahThe Islamic fi nancier, as the lessor, cannot charge rent aft er a total loss occurs. This means that the ability of the Islamic fi nanciers to access the insurance proceeds becomes criti cal in order to recover the amounts they have fi nanced. Some of the issues to be considered are:

• If the insurance proceeds are not suffi cient, would the Islamic fi nanciers have a claim against the lessee (acti ng as the service agent) if it failed to fulfi l its insurance obligati ons? If so, should this claim be subject to the pari passu requirements?

• Many insurance policies give the insurer the opti on to pay out against a rebuild. Will this mean that the Islamic fi nancing must conti nue, but based on the rebuilt assets?

• Would a total loss trigger an event of default under the conventi onal facility? If so, how would this leave the Islamic fi nanciers, when a total loss could not be an event of default and when many Shariah scholars do not permit a total loss to trigger the rights under a purchase undertaking?

ConclusionProject fi nancing is an already technical subject. An Islamic structure imposed on a conventi onal fi nancing adds to the complexity, which, in some cases, may render an Islamic tranche unappealing for fi nanciers.

Middle East projects will conti nue to have Islamic fi nance tranches. It is therefore necessary for Islamic compliant structures to be understood before they are applied to the conventi onal framework of the fi nancing. Furthermore, it is important for both conventi onal and Islamic fi nanciers to understand the key issues to be negoti ated and discussed before the transacti on is documented. It is hoped that this will eliminate the frustrati ons encountered by conventi onal insti tuti ons entering into fi nancings with Islamic tranches and emphasize greater harmony between conventi onal and Islamic fi nancial insti tuti ons. Equally, it will assist the Islamic fi nanciers to understand the key issues to be dealt with in an inter-creditor agreement. An understanding of these issues will assist in the promoti on and growth of Islamic project fi nancing.

Islamic Project Financing: A Tale of Two Tranches (continued..)

Paul Jarvis is a partner and Bilal Aquil is an associate in the DentonWildeSapte Dubai offi ce.

EADING LAWYERS2009




• Islamic Finance • Syndicated Finance• Trade Finance• Islamic Investment Funds• Project Finance

Individual Profi le

Christopher is managing partner of the Bahrain offi ce. He has extensive experience in transacti ons involving the telecommunicati ons, power, petrochemicals and industrial sectors. He has worked on numerous syndicated loan transacti ons, Islamic fi nancing transacti ons and debt restructurings. Christopher also has signifi cant securiti es and banking regulatory experience, parti cularly in Saudi Arabia and the GCC.


• €28.5 million (US$35.16 million) bridge fi nancing for an African cement plant

• US$20 million Murabahah fi nancing with credit and politi cal risk insurance for an African obligor

• US$2.35 billion Murabahah fi nancing (and subsequently the US$1.95 billion Islamic bridge fi nancing) for the acquisiti on of licenses and roll-out of the 2nd Saudi Arabian mobile phone network

• US$500 million Ijarah fi nancing of a shopping complex in Mecca, Saudi Arabia

• US$5 billion acquisiti on of licenses and roll-out of the third mobile phone network in Saudi Arabia including Shariah compliant fi nancing (Murabahah)

• SAR2.975 billion (US$793.48 million) Islamic and conventi onal fi nancing of the expansion of the Prophet’s Mosque in Madinah, Saudi Arabia

• US$1 billion reverse Murabahah for a Saudi corporati on• US$20 million commodity murabaha trade fi nancing for a Saudi

conglomerate• US$271 million restructuring of an Ijarah facility for a Pakistani

steel mill Shariah compliant equity investment and bridge fi nanc-ing of a hotel development in Makkah, Saudi Arabia

ChristopherAylward PartnerTel: +973 17 102 591Email: [email protected]

Bahrain Financial Harbour - West Tower15th Floor,Offi ce No. 1501 to 1504,PO Box 5852, ManamaKingdom of BahrainWebsite: www.dentonwildesapte.com

Islamic Real Estate, Islamic Project Finance, Islamic Securiti zati on &

Structured Finance


Other Offi ces:





EADING LAWYERS2009




• Banking & Finance• Debt Capital Markets

(Conventi onal and Islamic)• Asset Backed Securiti zati on• Structured Finance• Project Financing & Islamic Finance

Individual Profi le

Prior to joining Wong & Partners in June 2010, Mark was a partner in the banking and fi nance department of one of the leading banking fi rms in Malaysia.

He has vast experience and has advised various insti tuti onal lenders in relati on to complex aspects of syndicated fi nancing deals. He has also advised in numerous syndicated and capital market transacti ons (local and cross-border).

He has represented various multi nati onal corporati ons and fi nancial insti tuti ons in deals which have been noted as some of “The Top Deals of Year 2006 and 2008 in Asia” by Asian Counsel. Examples of such deals are the RM500 million (US$154 million) Sukuk Ijarah issuance by South East Asia’s largest low cost carrier provider, a multi -billion ringgit funding project relati ng to the acquisiti on of one of Malaysia’s leading private power generati on corporati ons and a multi million ringgit fund raising exercise relati ng to the rati onalizati on exercise undertaken by a Malaysian public listed oil & gas corporati on.

Mark was named a leading lawyer for fi nancing by IFLR1000: A guide to the world’s leading fi nancial law fi rms (2008 editi on). He is a highly regarded practi ti oner in the area of debt capital market and Islamic fi nance. He co-wrote “The Malaysian Perspecti ve of Sukuk Issuance” in “Islamic Finance: Outlook & Opportuniti es”, published by Asia Law & Practi ce 2007.

Educati on

• Bachelor of Business (with an Accounti ng major) in Swinburne University of Technology — Melbourne, Australia

• Bachelor of Law (Hons) in the University of Greenwich, United Kingdom

• 1996 — Utt er Barrister of the Honorable Society of Middle Temple, London having been called to the English and Welsh Bar

• 1997 — Advocate & solicitor of the High Court of Malaya

Mark LimChin HianPartnerTel: +603 2298 7960Email: [email protected]

Level 21, Suite 21.01,The Gardens South Tower,Mid Valley City,Lingkaran Syed Putra,59200 Kuala Lumpur, MalaysiaTel: +603 2298 7888Fax: +603 2282 2669Islamic Banking &

Finance, Islamic Project Finance


Notable Transacti ons:

Project Financing/Islamic Debt Capital Market

• RM5.586 billion (US$1.72 billion) project fi nancing deal for Kapar Power Stati on

• RM2.1 billion (US$646.72 million) project fi nancing deal for the Senai-Desaru expressway in Malaysia

• Islamic lease facility up to RM270 million (US$83.1 million) for the Sultan Ismail Airport project in Malaysia

Bilateral/Syndicati on Financing/Islamic Finance

• A cross border US dollar denominated shipping fi nancing facility of up to US$23 million

• RM380 million (US$117.1 million) syndicati on fi nancing

• A shipping acquisiti on fi nancing of up to RM52 million (US$16 million) granted to the subsidiary company of a Malaysian listed company

EADING LAWYERS2009



All Named Lawyers in the Category of Islamic Project Finance


Also Named in Islamic Real EstateFinance, Islamic Banking & FinanceSee Full Profi le on Page 6

• Abdulaziz Al-BosailyLaw Offi ce of Abdulaziz A. Al-Bosaily



• Christopher AylwardDentonWildeSapte

Also Named in Islamic Real Estate, Islamic Securiti zati on & Structured FinanceSee Full Profi le on Page 43


• Craig Nethercott Latham & Watkins


• Debbie Barbour DLA Piper

• Harnek ShokerFreshfi elds



• Isam SalahKing & Spalding


• Jeff rey SmithNorton Rose

• John DewarMilbank


• Julie AlexanderBaker & Mckenzie

• Lewis JonesVinson & Elkins

• Mark Lim Wong & Partners


• Mohamed Hamra-KrouhaCliff ord Chance






• Paul Jarvis DentonWildeSapte

Also Named in Islamic Securiti zati on & Structured Finance, Islamic Real Estate, Islamic Transportati on FinanceSee Full Profi le on Page 54



• Robin AbrahamCliff ord Chance

• Shibeer AhmedBaker Bott s

• Siraj Al IslamBaker Bott s

EADING LAWYERS2009



In recent years, the Kingdom of Saudi Arabia has witnessed a dramati c increase in the number of investors interested in fi nancing energy projects in a Shariah compliant manner. This arti cle examines a number of specifi c challenges in relati on to structuring a fi nancing in Saudi Arabia, and the issue of interest in the context of an independent power project. Previous projects in Abu Dhabi and Saudi Arabia are analyzed with a view to illustrati ng some of the imaginati ve soluti ons that have been deployed.

Specifi c challenges in structuring a fi nancing in Saudi ArabiaWe have seen the growing use of diminishing Musharakahs and Bai al Ajals (purchase over ti me using installment payments) in terms of Shariah compliant fi nancing structures and the increased use of Sukuk and Shariah compliant funds as a means of raising funds from parti es other than traditi onal fi nancing parti es. As in other jurisdicti ons, many of these projects have a substanti al component that consists of non-Shariah compliant funds, parti cularly fi nancing received from internati onal export credit agencies and conventi onal fi nanciers.

Structuring the Shariah compliant fi nancing or investment properly with the conventi onal fi nancing is essenti al and is oft en made by way of a bifurcated structure so that no Shariah compliant investment is made directly into the project company. A number of challenges also exist in structuring a fi nancing in Saudi Arabia, parti cularly the concept of security and the means of perfecti ng and enforcing security interests. This becomes parti cularly diffi cult with respect to certain types of property that are the object of fi nancings, including immovable property such as real estate or fi xtures on land.

RahnFinanciers normally wish to obtain a Rahn (a pledge) of the real estate, movable property of the project

company and the facility to be constructed for use by the project company.

Below is a brief discussion of each type of asset:

i. Real estate/immovablesWhile it was once the practi ce to record the liens of banks on the real estate ti tle deeds, Public Notaries now refuse to record such liens, making it diffi cult to use real estate as collateral security for loan transacti ons from commercial banks. A notable excepti on to this is the Saudi Industrial Development Fund (SIDF) which is discussed below, and which routi nely registers valid mortgage interests against real estate and improvements.

When possible, fi nanciers will take an assignment of the lease on the relevant site. Also, because the SIDF takes a fi rst-priority mortgage over the lease and improvements, it is oft en possible for other fi nanciers to enter into an intercreditor agreement with the SIDF.

ii. MovablesIn a project fi nancing, the fi nanciers normally wish to take a mortgage over all the movables that belong to the project company. The Commercial Mortgage Regulati ons establish a statutory framework applicable to mortgages over movable property.

However, the governmental bodies that are tasked with recording the Rahn on the ti tle do not yet have a mechanism for recording such Rahn. For example, the Muroor (motor vehicle department) does not yet have a system for recording a Rahn on the Isti marah (ti tle deed) of vehicles. The Commercial Mortgage Regulati ons provide that, for a Rahn taken in accordance with the steps of the Commercial Mortgage Regulati ons, the fi nancier(s), in an event of default situati on, must provide the defaulti ng

Challenges in Structuring non-recourse Financing for Energy Projects in Saudi ArabiaBy Nabil A. Issa and Leroy Levy

continued....

EADING LAWYERS2009



borrower a noti ce of such default and a period of ti me within which to recti fy the default. If the default is not corrected within the agreed ti me frame, an applicati on is made to the Board of Grievances to conduct an aucti on sale of the movables that are subject to the Rahn.

iii. Aft er-acquired propertyAssets, or Marhoun, under the Shariah must be something that can be validly sold. Therefore, any Marhoun subject to a Rahn must (i) be in existence at the ti me of executi on of the Rahn, (ii) have a quanti fi able value and (iii) be saleable and deliverable. The defi niti on of Marhoun creates a problem in terms of aft er-acquired property. This can be addressed in a fi nancing through regular updates of the schedule of Marhoun/assets in the security agreement prior to each draw on a facility to ensure that the concerned Marhoun is covered by the security agreement.

Assignment of contract proceedsIt is possible to assign contract proceeds and other intangible rights under the Shariah, subject, however, to the caveat that it is not possible to “perfect” such assignments through recordati on with a central registry. Instead, borrowers in Saudi Arabia are oft en asked to assign specifi c contract proceeds, with an acknowledgment from the payor that the assignment shall remain in eff ect unti l the assignee consents to any transfer or terminati on of the assignment.

Under Shariah precepts as applied in Saudi Arabia, however, unilateral assignments are not eff ecti ve. In order to create an eff ecti ve assignment of a contract of the relevant project company and/or contractual obligati ons of counterparti es thereto, such counterparti es must be given noti ce of the assignment and must consent to the assignment. Thus, an assignment of amounts owed to a project company to the fi nanciers must include a writt en consent of such assignment by the payor(s) in order to be a perfected interest.

Power of att orneyFinanciers to projects in Saudi Arabia oft en rely on a Wakalah or a power of att orney given to a designee of the fi nanciers in order to exercise certain “step-in rights” in an event of default scenario. However, it is criti cal to note that powers of att orney in Saudi Arabia are revocable, even if the power of att orney is characterized on its face and in the security documents as an “irrevocable” power of att orney. In order to protect against the revocati on of a power of att orney granti ng step-in rights, fi nanciers oft en include a liquidated damages provision in the concerned security agreement that is triggered upon premature revocati on. In our experience, liquidated damages have been enforced by the local courts as long as the liquidated damages approximate the actual damages and are not draft ed as excessive fi nancial penalti es for non-performance.

Pledge of interests in a Saudi limited liability company A Saudi limited liability company (LLC) is the corporate form most oft en uti lized for Saudi Arabian joint venture enti ti es that are partly foreign owned. A Saudi LLC does not issue share certi fi cates.

Although this has been less of a problem for non-recourse fi nanciers in the petrochemical sector, it has presented diffi culti es with non-recourse fi nanciers in the power and water sector. In the absence of a share certi fi cate that can be physically delivered to the fi nanciers or even annotated, the pledge of interests in a Saudi LLC is not enforceable under local law. To get around this, fi nanciers have required sponsors to form SPVs in off shore jurisdicti ons (for example the Cayman Islands or elsewhere) to serve as the shareholders in the Saudi project company and then pledge the shares as a form of second ti er security, thus providing indirect control. However, careful structuring is required otherwise.

Moreover, payment made by a Saudi party (whether for services or dividends) to the off shore SPV will be subject to Saudi withholding tax at rates of between 5%.

Challenges in Structuring non-recourse Financingfor Energy Projects in Saudi Arabia (continued..)

continued....

EADING LAWYERS2009



It should be noted that Saudi Arabian joint stock companies do have certi fi cated shares that may be pledged to local fi nanciers. In the power and water IWPP/IPP sector, the project companies have been formed as joint stock companies to sati sfy the expectati on of non-recourse fi nanciers. Because of the ti me required to establish a joint stock company, the formati on process should begin at an early stage.

Interest payments under power and water project agreements In a typical independent power project (IPP), terminati on will be a key considerati on that will be reviewed by the project fi nanciers. The usual arrangement is that the power purchase agreement will be subject to terminati on in the event of specifi ed events, which fall into three broad categories. First, events of default caused by the project company. These might include a failure to build the power plant on ti me, a failure to maintain a certain level of availability and the insolvency of the project company. Second, events of default by the off taker. These might include a failure to pay the tariff in a ti mely manner, a failure to build any necessary transmission faciliti es and a failure to provide land necessary for the project company to build the power plant. Third, no-fault events. This would normally comprise force majeure events, which would normally be split between politi cal force majeure events and natural force majeure events.

In a typical IPP, where there has been a default, the relevant party would be enti tled to terminate the power purchase agreement. This would trigger a buy out obligati on or buy out opti on, depending on the specifi c event. The buy out simply means that the plant, whether constructi on has been completed or not, would be transferred from the project company to the off taker and the off taker would then pay the project company an amount with respect to the plant that has been transferred to it. The actual amount payable would be set out in the power purchase agreement pursuant to a detailed formula. The actual amount payable would depend on the ground of terminati on. For example, terminati on because of an off taker event of default would trigger the most generous pay out to the project company and would normally include an element of the project company’s loss of profi t.

Under each event of default, the project company would receive its outstanding bank debt. This would naturally include principal plus interest. The diffi culty with certain jurisdicti ons of law in the Gulf based on the Shariah is that the interest element will simply not be recoverable on the basis that it is Haram. This presents a signifi cant problem for any fi nancier seeking to fi nance a power project. Considering that the capex of such a project is likely to run to several hundreds of millions of dollars, if not several billions, with a typical debt equity rati o of 80/20, the outstanding debt element at any one ti me could be substanti al.

This issue was addressed in Abu Dhabi in its fi rst independent power and water project, the Taweelah II IWPP. The project structure comprised a power and water purchase agreement (the PWPA) and a sovereign guarantee. The PWPA was governed by English law and the sovereign guarantee was governed by the laws of Abu Dhabi. The idea was that if the PWPA terminated, the off taker would be obliged to pay the project company the relevant terminati on payments, including outstanding bank principal and interest. Because the off taker was a


continued....

EADING LAWYERS2009



special purpose vehicle with no assets, it would be unlikely that it would be in a strong enough credit positi on to pay the full amounts to the project company. As a result, the sovereign guarantee, entered into by the government, through the ministry of fi nance, was intended to support the obligati ons of the off taker and allow the project company to claim terminati on payments from the Ministry of fi nance in the event that the off taker refused or was unable to pay.

The diffi culty was that the ministry of fi nance was only prepared to issue a sovereign guarantee governed by the laws applicable in the emirate of Abu Dhabi. The expectati on of the lenders was that on English law sovereign guarantee would be issued and accordingly the structure was at risk of being rendered unbankable, even though interest based fi nancing is common and legal in the UAE. The soluti on that was devised was to enter into a direct agreement between the project fi nanciers and the ministry of fi nance. Although the ministry was reluctant to issue an English law sovereign guarantee, it accepted that English law direct agreements were necessary for each of the project agreements, including the sovereign guarantee. The direct agreement for the sovereign guarantee contained the usual clauses one would expect in a direct agreement, but also special provisions allowing the fi nanciers (not the project company) to claim bank debt, including interest payments, directly from the ministry of fi nance. This worked in the context of an English law governed direct agreement.

In the context of Saudi Arabia, the fi rst IWPP was the Shuaibah III project. When the request for proposals was issued, the documentati on included a Saudi law power and water purchase agreement and a Saudi law sovereign guarantee. It was obvious from the outset that under no circumstances was the ministry of fi nance willing or in fact able to sign an English law direct agreement. This meant that the Saudi model set out in the request for proposals was fundamentally diff erent to the model developed in Abu Dhabi under the Taweelah II project. This

created a signifi cant problem for the government, fi nanciers and sponsors in terms of resolving the impasse. Ulti mately, as is the case with most deals, a compromise was reached. The parti es agreed that the PWPA would simply be changed to an English law governed document. There would be no English law sovereign guarantee direct agreement on the basis that the ministry of fi nance was not permitt ed to enter into an English law agreement.

The rati onale behind changing the governing law of the PWPA was that in the event of a terminati on, the project company would sue the off taker under the English law PWPA and obtain an arbitral award that included the outstanding interest payments. The arbitral award would then be presented to the ministry of fi nance along with the Saudi law sovereign guarantee. The expectati on, at that stage, is that the ministry would ulti mately take a long term view and pay the interest payment on the basis that if they failed to do so the Kingdom’s credit rati ng would be seriously damaged and future direct investment would be discouraged. Ulti mately, it was a practi cal rather than legal soluti on to the issue of recovering interest.

ConclusionThere are a number of challenges in structuring a non-recourse fi nancing for an energy project in Saudi Arabia, parti cularly large projects that are partly fi nanced using conventi onal fi nancing. However, the fact that such projects are being closed and include both local and internati onal fi nanciers indicates that, with appropriate structuring, such fi nancings are possible in Saudi Arabia.


Nabil A. Issa is a partner & Leroy Levy is a counsel at King & Spalding.

EADING LAWYERS2009



All Named Lawyers in the Category of Islamic Energy Finance





• Harnek ShokerFreshfi elds

• Isam SalahKing & Spalding


• Jeff rey SmithNorton Rose






• Robin BalmerKing & Spalding

EADING LAWYERS2009



It makes perfect sense that Islamic fi nancing, being an industry based on tangible assets, is uti lized for ship fi nancing with the ship itself as the underlying asset. Many Islamic ship fi nancing deals have been successfully transacted in various structures and, reported among them are groundbreaking complex transacti ons that provide innovati ve soluti ons. The growing numbers of Islamic ship fi nancing in the market show the confi dence of ship-owners and operators in the feasibility and att racti veness of this type of fi nancing, more so with the credit crisis of conventi onal fi nancing in the western economies.

The demand for alternati ve fi nancing is also on the increase with the rise of global trade and the need to fulfi ll the requirements of transport of goods and raw materials such as crude oil. Growing economies with high demands for crude oil have seen increasing demands for very large crude carriers (VLCCs) to economically transport crude oil in large volumes by exporters in the Middle East and the Asian region. At the same ti me, purchases of support vessels such as fl oati ng producti on storage and off -loading vessels are also on the increase as producti on capacity is expanded. Apart from fi nancing ship buyers, the other aspect of fi nancing is to assist shipbuilders in the purchase of raw materials for the constructi on of new vessels.

Vessels ply internati onal seas and fi nancing of the purchase or constructi on of vessels oft en involve more than one jurisdicti on. From a legal point of view, this gives rise to intricate cross-border considerati ons and involvement of lawyers of the respecti ve jurisdicti ons to protect the rights of the parti es. This is to ensure compliance of many areas of the law, such as mariti me, contract, banking, fi nancing and company laws, and for Islamic fi nancing, further compliance with Shariah laws. Given the heft y amount of fi nancing required for most shipping transacti ons, syndicated deals are arranged, which may involve fi nanciers of various jurisdicti ons coming together. In fi nancing the purchase of a vessel, the main security would be a mortgage or charge over the vessel in

favor of the fi nancier, registered at the relevant ship registry. Under a mortgage, the rights of the mortgagee to the ship is only as far as it is necessary to make the ship available as a security in favor of the mortgagee fi nancier, whereby the property and interest in the ship as security of a debt is transferred to the mortgagee and the mortgagor remains the legal owner and retains possession and liabiliti es of the ship. A mortgage gives rights of possession, intercepti on of freight, sale, foreclosure and arrest of the vessel. It would be essenti al for the fi nancier that when there is default there is remedy against the vessel itself to adequately cover the amounts due.

Other than the mortgage, an assignment of the Takaful proceeds of the vessel is also crucial to protect the interest of the fi nancier. Ships carry high risks and potenti ally have large Takaful claims as they are of signifi cant value, carry valuable cargo, are constantly on the move and are exposed to harsh weather and piracy. Claims can arise from collision, polluti on, sinking, injury or death of passengers and crew, loss, damage and so on. Financiers may also require the ship-owner to obtain Takaful for mortgagee interest, hull and machinery, war risks and protecti on and indemnity (P&I) from the P&I club/associati on, with a view to lessen impairment of the security. The mortgagee interest Takaful is to protect the mortgage holder and covers the risk of non-payment by the underwriters where the claims are found to be void due to breach of the Takaful policy by the ship-owner.

Before a vessel is allowed to sail, it is required to be registered or to fl y the fl ag of a parti cular country. The purchaser may wish to have the vessel registered at a jurisdicti on other than that of the existi ng fl ag. In order to protect the parti es’ rights and interests, it is crucial to precisely synchronize and coordinate the disbursement of the purchase price from the fi nancier, the handing over of the vessel’s papers and also the lodgement of the mortgage, which may involve diff erent ti me zones.

Shariah Ship FinancingBy ARSA

continued....

EADING LAWYERS2009



In relati on to the Shariah principles used for ship fi -nancing, it is not confi ned to the principles of Muraba-hah or Bai’ Bithaman Ajil only. For the purchase of secondhand vessels, the Shariah principles of Ijarah or Musharakah can also be applied. As for the construc-ti on of vessels, the latt er Shariah principles are oft en being applied. In a transacti on combining Isti snah and Ijarah principles, the fi nancier shall fi rst enter into an Isti snah agreement with the customer to construct the vessel by placing an order for the constructi on of the vessel by the customer at an agreed price (Isti s-nah price). This will be the fi nancing amount.

Thereaft er, the fi nancier being the benefi cial owner of the vessel to be constructed will agree to lease the vessel to the customer once the vessel is complete. To facilitate the lease of the vessel to the customer, the fi nancier and the customer will enter into an Ijarah agreement whereby among the terms of the Ijarah is that, during the constructi on period, the customer will agree to pay advanced rental or forward lease to the fi nancier.

The Shariah principles adopted at this stage is called Ijarah Mawsufah Fi Zimmah (advance Ijarah rental). Once the vessel is ready, the advanced rental will be converted into an Ijarah rental under the principles of Ijarah Muntahiyah Bitt amlik (lease followed by ownership). The payment for the advanced Ijarah rental under the Ijarah agreement will take eff ect subsequent to the fi rst disbursement of the Isti snah price under the Isti snah agreement which may also be funded by the facility. In additi on to the Isti snah and Ijarah agreements, the customer undertakes to purchase the vessel from the fi nancier in the manner provided under the Ijarah agreement upon expiry of the tenor of the facility and full payment of the total Ijarah rental, early terminati on thereof or occurrence of an event of default.

The nature of vessels having elements of chartering and leasing makes it suitable to raise fi nancing un-der Islamic structures such as Sukuk, which rely on returns from the vessel such as charters or contracts performed by the vessel to produce cash fl ow to pay investors. Other than Sukuk, Shariah compliant ship-

ping private equity funds have also made their way into the market that aim to provide funding for acqui-siti on of vessels where the vessels are owned by the fund and are leased to the customer with an opti on for the customer to subsequently purchase the vessel. Apart from the classic Shariah based ship fi nancing between the fi nancier and the customer, innovati ve Islamic fi nancing structures are now oft en being applied in the internati onal mariti me industry. This strikes a balance between the needs of the parti es to the transacti on and the respecti ve unique features of the shipping industry and Shariah fi nancing. It also complies with the industry guidelines and regulati ons. The elements of risk-sharing and non-speculati ve asset based transacti ons, as proven to thrive for real estate, can also apply to the shipping industry. However experti se in this lucrati ve area is not yet as widespread as in the more common land transacti ons. Not all real estate models may be suitable for shipping in terms of profi tability, as proven with the underperfomance of the listed shipping trusts and REITs. This may be due to the unstable cyclical nature of shipping that aff ects the returns of the ship’s leasing.

Nevertheless, with government initi ati ves and the need of the fi nancing industry to look for valuable assets classes other than land based assets, which were badly aff ected during the fi nancial crisis, shipping assets off er a potenti ally viable opti on with the Shariah approach being the preferred form of fi nancing. The fact that the Shariah approach to ship fi nancing has been smooth-sailing and we do not hear of it parti cularly being challenged in any courts of law speaks volumes of its viability as one of the most innovati ve fi nancing products in recent ti mes.

Shariah Ship Financing (continued..)

This arti cle was authored by Abdul Raman Saad & Associates in Kuala Lumpur, Malaysia

EADING LAWYERS2009




• Corporate Finance• Aviati on Finance• Project Finance• Asset Finance• Internati onal Trade FinanceIndividual Profi le

Paul is a partner in the banking and fi nance department. He specializes in asset fi nance and in parti cular aircraft fi nance. Through his long associati on with the Middle East, he has also signifi cant experience and understanding of Islamic fi nance and was for some ti me head of Islamic fi nance within the fi rm.

Paul has extensive experience in a considerable range of Islamic fi nance transacti ons acti ng principally for banks in a variety of sectors, including general corporate fi nance, project fi nance, internati onal trade fi nance, asset fi nance and aircraft fi nance. He has writt en and published several arti cles and has delivered numerous lectures on the subject of Islamic fi nance.


• Aviati on Lease and Finance Company: Advising a member of the Kuwait Finance House group over the last six years on various Shariah compliant aircraft fi nance and leasing transacti ons

• The Bank of London and the Middle East: Advising on numerous transacti ons

• Gatehouse Bank: Advising on Tawarruq faciliti es• Faysal Islamic Bank of Bahrain: Advising on an Isti sna real estate

project• Arcapita: Advising on European real estate investments• Novus: Advising on an Islamically structured fi nancing of two

Boeing 767s to Condor• Qatar Airways: Advising on the US$150 million fi nancing of one

new Boeing 777-200LR. The lenders were a syndicate of banks led by Standard Chartered.

Paul Holland PartnerMobile: +44 7931 390 226Email: [email protected]


Islamic Transportati on Finance


Other Offi ces:





EADING LAWYERS2009




• Aviati on• Shipping• Project Finance• Real Estate

Individual Profi le

Paul joined the fi rm as a trainee lawyer in 1999 and qualifi ed into the fi rm’s Banking group in 2001. He became a partner in January 2009. His experience includes a broad range of both domesti c and cross-border fi nancings involving all types of assets. He acts for fi nanciers, operators, export credit agencies and equity investors involving a range of complex leasing structures, large syndicated debt transacti ons and structured tax-based fi nancings. Paul also has signifi cant Islamic fi nance experti se and has worked on a number of innovati ve structures involving aircraft , ships and real estate. Paul spent six months in the fi rm’s Dubai offi ce and also spent some ti me on secondment at a major internati onal bank. Paul is currently on secondment to the fi rm’s Abu Dhabi offi ce.


• Al Hilal Bank and a syndicate of banks: Advising on mixed Islamic and conventi onal property fi nancing

• The Islamic Corporati on for the Development of the Private Sector: Advising on an Islamic project fi nancing

• Bank of London and The Middle East: Advising on a master Murabahah facility

• Nati onal Bank of Abu Dhabi and a syndicate of banks: Advising on a Islamic real estate fi nancing

• Islamic equity fund and its UK managers and Dubai sponsor bank: Advising on numerous Shariah compliant pre and post delivery ship lease fi nancings

• Standard Chartered Bank: Advising on a Shariah compliant debt fi nancing to a Middle East and UK based group involving shipyards in the Ukraine, Russia and Abu Dhabi

• Citi bank: Advising on a Shariah compliant corporate jet transacti on.• BNPP: Advising on the structuring of a pre and post delivery Shariah

compliant ship facility for a leading local ship operator• Bahrain Islamic Bank: Advising on numerous Islamic fi nancing

structures involving aircraft and aircraft simulators

Paul Jarvis PartnerMobile: +971 5668 30800 Direct Line: +971 2612 9421Email: [email protected]

Suite 1204, Al Ghaith Tower, Hamdan Street (PO Box 47656), Abu Dhabi, UAETel: +971 2626 6180 Fax: +971 2626 6175 Website: www.dentonwildesapte.com

Islamic Project Finance, Islamic Securiti zati on & Structured Finance,

Islamic Real Estate, Islamic Transportati on

Finance


Other Offi ces:





EADING LAWYERS2009



All Named Lawyers in the Category of Islamic Transportati on Finance






• Paul HollandDentonWildeSapteSee Full Profi le on Page 53

• Paul Jarvis DentonWildeSapteAlso Named in Islamic Project Finance, Islamic Securiti zati on & Structured Finance, Islamic Real EstateSee Full Profi le on Page 54


• Robert FugardLinklaters


• Salim NathooAllen & Overy

• Shibeer AhmedBaker Bott s

EADING LAWYERS2009



As global economies are gradually recovering, notwithstanding the current disrupti ons in Europe, we are beginning to see a resurgence of Islamic-securiti zed transacti ons and other structured fi nancing. For example, Standard Chartered plans to arrange more than US$4 billion of Sukuk in 2010, and GE Capital has announced it will issue a second Sukuk in late 2010 or early 2011 (GE Capital’s fi rst Sukuk was oversubscribed).

Sukuk diff er from western securiti zati ons primarily in that they do not pay interest. However, Sukuk are otherwise very similar to conventi onal bonds: pur-chasers seek to generate a profi t, the Sukuk mature at a set date and are backed by one or more classes of assets. Sukuk diff er in that investors are not guar-anteed to make a profi t as with interest, but rather share profi t and loss by reason of the ownership and operati on of the underlying asset. A Sukuk Ijarah may be used not only as a vehicle for acquiring and owning of property, but also to raise funds for a proj-ect or to facilitate liquidity management through a structure similar to a sale/leaseback, where a prop-erty owner sells an asset to a fi nancier for immedi-ate funds and the conti nued use of the property in exchange for periodic rental payments.

The most common form of securiti zed Sukuk transacti ons are Sukuk Ijarah transacti ons. Similar to conventi onal securiti zati ons, sponsors may purchase groups of loans from loan originators, pool these loans, divide them into tranches, and sell them to investors. While Sukuk Ijarah structures may miti gate the risk for the loan originator, they may increase investor risks parti cularly in a volati le economy. These risks include non-liquidity of the Sukuk Ijarah, as well as tax risks, politi cal, economic and social considerati ons, currency conversion risks, and uncertainty in enforcement in light of current laws in many Middle Eastern jurisdicti ons. Credit risk may also be signifi cant: a borrower may default, and there is the risk that any asset repossessed aft er a lessee default may be sold or re-leased at a price lower than the original contract price.

A key diff erence between a conventi onal fi nance lease and a Sukuk Ijarah is in the identi ty of the risk taker. In a conventi onal fi nance lease, the lessee assumes the risks and benefi ts of ownership, in an Ijarah arrange-ment the lessor bears the risk of property damage although that risk is oft en contractually transferred to the lessee (or when the Ijarah is sold as a Sukuk Ijarah, the Sukukholders bear the risk). In the basic Sukuk Ijarah transacti on, originators sell existi ng or fu-ture revenues from lease receivables from a portf olio of Islamically-acceptable assets to a special purpose vehicle (SPV), which then issues unsecured Sukuk se-curiti es to market investors whose entrepreneurial in-vestment does not involve guaranteed, interest-based earnings. Depending upon the asset type uti lized, the SPV acquires ownership rights in either (i) exist-ing assets within a lease-purchase or sale-repurchase agreement or (ii) future assets as an equity investor, and then structures anti cipated cashfl ows from these assets into Sukuk payment obligati ons of diff erent risk levels and maturiti es.

The implementati on of Islamic securiti zati on requires assessment and verifi cati on under Shariah principles of (i) the type of assets in the underlying portf olio and (ii) the transacti on structure, including the confi gurati on of any credit enhancement and the form of ownership conveyance. Investors must have a meaningful parti cipati on in profi t or loss resulti ng from a real economic acti vity within an interest-free structural arrangement. Islamic securiti zati on must confer upon investors clearly identi fi able rights and obligati ons in religiously acceptable tangible assets, and ensure direct parti cipati on in any distributi on of risk or reward between lenders and borrowers with limited miti gati on and/or indemnifi cati on through credit enhancement. Underlying assets must not be debt, cash or a prohibited acti vity and must not be associated with excessive speculati on or uncertainty. Investors must hold an unconditi onal and unsecured payment obligati on and not a guaranteed promissory note. Any form of credit enhancement and/or liquidity support and any limitati ons of prepayment

Islamic Securiti zati on and Structured FinanceBy John H Vogel

continued....

EADING LAWYERS2009



risk must be in a permissible form and in accordance with the pronouncements of the Accounti ng and Auditi ng Organizati on of Islamic Finance Insti tuti ons (AAOIFI).

Islamic law does not proscribe the use of credit enhancement, so long as it is opti onal for investors and does not change the overall character of the transacti on: for example, tranche subordinati on in a conventi onal securiti zati on can be replicated by a lease-buyback (Ijarah) transacti on under Shariah law. Sukuk notes also convey an equity interest to investors in the form of a call opti on on parti al or complete ownership of the underlying assets, including the right to a calculable rate of return as a share of profi t and the repayment of principal. It should be noted that Shariah compliance of Sukuk securiti zed transacti ons is oft en criti cized by Islamic scholars on two grounds: (i) that the discount on the issued Sukuk could be considered equivalent to interest and (ii) that the guaranteed profi t from a discounted off er does not expose investors to meaningful investment risk.

Securiti zati on helps fi nancial insti tuti ons to meet their own credit demands by creati ng new fi nancial products which disaggregate, repackage and distribute asset risk (both inherent and extrinsic in nature) in markets where suitable hedging instruments may not be available or permissible. Securiti zati on can also facilitate the market entry of new fi nance companies into traditi onal markets dominated by a few large players exerti ng control and limiti ng the availability of risk-seeking capital. Amid regulatory, tax and legal reforms ongoing today in Islamic countries, securiti zati on helps accommodate a growing investor base, parti cularly pension and fund investors with a need for long-term, highly-rated local currency investments. Thus, it improves risk diversifi cati on within the fi nancial sector, increases overall fi nancial sector sophisti cati on and contributes to the development of a more liquid yield curve in poorly-developed fi nancial and legal systems.

Nevertheless, in emerging Islamic markets, securiti zati ons are generally hampered by problems

of limited and narrow asset supply, insuffi cient (if existent) standards in terms of disclosure and transparency requirements, the lack of standard documentati on, inconsistent Shariah law pronouncements, and the absence of clear enabling law and regulati ons. These characteristi cs have prevented the emergence of a mature investor base, a sound credit culture and market practi ce, and established standards of investor protecti on. These factors, combined with high executi on costs, structural complexity, and potenti al principal-agency problems between issuers and investors, as well as legal and regulatory uncertainty, have tempered the growth of securiti zati on in Islamic capital markets.

While Islamic securiti zati on has been largely the domain of government issuers as a stepping stone, as the global economies improve it is likely that we will see an increase in Shariah compliant securiti zati on structures. Given greater interest in Islamic securiti zati on, coupled with global economic recovery, structural innovati on will contribute to the further development and refi nement of Sukuk Ijarah and similar Islamic structured fi nance products that may be off ered at a competi ti ve level with conventi onal investments.

Numerous Islamic fi nancial insti tuti ons, parti cularly in Bahrain, Kuwait and Malaysia have been gearing up for Shariah compliant fi nancial innovati on. In parti cular, the work of the Islamic Financial Services Board, AAOIFI, the General Council for Islamic Banking and Finance Insti tuti ons, and the Islamic Internati onal Rati ng Agency should add consistency to Shariah interpretati ons by religious boards and enhance market practi ce which, together with the development of Islamic fi nance documentati on standards and conti nued evoluti on in banking and corporate law, should lead to the further growth of Islamic securiti zati on.

Islamic Securitization and Structured Finance (continued..)

John Vogel is a partner in Patt on Boggs in the US.

EADING LAWYERS2009




• Corporate & Asset Finance• Mergers & Acquisiti ons• Islamic Finance• Project Finance• Privati zati on

Individual Profi le

John helps clients navigate complex fi nancing and securiti es transacti ons, focusing on conventi onal and Islamic fi nancing, and on public and private off erings of equity and debt securiti es in the US and abroad.

John has extensive experience in the negoti ati on and draft ing of contracts for the operati on of businesses and investment properti es in the US and foreign countries. He has parti cipated in private and public placements of securiti zed and project debt securiti es issued by private issuers, as well as governmental agencies and instrumentaliti es of foreign governments.

John negoti ates and documents privati zati on and project and equipment fi nancing around the world. He has assisted clients in negoti ati ons with US and foreign private and public fi nancial insti tuti ons to structure conven-ti onal and/or Islamic fi nancing for private and public sector investment, real estate and infrastructure projects located in the US and throughout the world.

Achievements and Accolades:

• Bond Buyers’ Guide (Redbook)• Who’s Who in American Law• Men and Women of Disti ncti on• Who’s Who in Washington• Who’s Who in the East, Dicti onary of Internati onal Biography• Internati onal Who’s Who of Contemporary Achievements• Who’s Who of Emerging Leaders of America• The Nati onal Registry of Who’s Who• Strathmore’s Who’s Who Worldwide

John H VogelPartnerDirect Line: +1 202 457 6460Email: jvogel@patt onboggs.com

2550 M Street, NWWashington, DC 20037, USTel: +1 202 457 6000 Fax: +1 202 457 6315Website: www.patt onboggs.com

Islamic Real Estate, Islamic Securiti zati on &

Structured Finance



• Major mixed-use real property development in Qatar• Constructi on of six-star luxury hotel in Doha, Qatar• Single investor aircraft lease • Financing of Dubai waterfront real estate development• Sukuk-Musharakah for Qatar real estate project• Representati on of US lenders in connecti on with Shariah- compliant acquisiti ons and working capital fi nancings, including Takaful and Sukuk Ijarah fi nancings

Professional Affi liati ons:

• District of Columbia Bar Associati on • Maryland State Bar Associati on• American Society of Foreign Aff airs • Washington Insti tute of Foreign Aff airs • Inter-American Bar Associati on • Internati onal Bar Associati on • Union Internati onale des Avocats • Associati on of the Bar of the City of New York • Anciens Stagiares de la Communauté Européenne Economique

EADING LAWYERS2009




• Sukuk

• Shariah Compliant Derivati ves

Individual Profi le

Matt hew is a partner in the fi rm’s banking and fi nance department and specializes in debt capital markets and derivati ves. He regularly advises bank and corporate clients on a wide range of Shariah compliant and conventi onal debt issuance including MTN Programmes and equity linked issuances and derivati ve transacti ons (whether OTC, exchange traded, credit, commodity or equity linked).


• US$2.53 billion Aldar Properti es Exchangeable Trust Certi fi cates• US$3.52 billion Nakheel pre-IPO Equity linked Trust Certi fi cates• US$225 million Sharjah Islamic Bank Trust Certi fi cates • US$460 million Aabar Sukuk - Exchangeable Trust Certi fi cates• US$3.5 billion PCFC Development FZCO Pre-IPO Converti ble Trust

Certi fi cates (Sukuk al-Musharakah) • Acapita of US$210 million Trust Certi fi cates (Sukuk Wakala Bel-

Isti thmar) • US$550 million Wings FZCO Trust Certi fi cates (Sukuk Musharakah) • US$200 million Dubai Metals and Commoditi es Centre Trust

Certi fi cates (Sukuk Musharakah)• US$1 billion Dubai Department of Civil Aviati on Trust Certi fi cates

(Sukuk Ijarah)• Technical update of The Islamic Development Bank’s US$1.5

billion Trust Certi fi cate Issuance Program and the subsequent issue of US$850 million Trust Certi fi cates.

• Islamic Development Bank SG$200 million Trust Certi fi cates

Matt hew SaptePartnerMobile: +44 7795 618 325Email: matt [email protected]


Islamic Banking & Finance, Islamic Securiti zati on &

Structured Finance


Other Offi ces:





EADING LAWYERS2009



All Named Lawyers in the Category of Islamic Securiti zati on & Structured Finance


Also Named in Shariah Investment Funds and RestructuringSee Full Profi le on Page 37

• Anzal MohammedAllen & Overy



Also Named in Islamic Real Estate, Islamic Project FinanceSee Full Profi le on Page 43



• Debashis DeyCliff ord Chance

• Farmida BiNorton Rose

• Hooman Sabeti -Rahmati Allen & Overy

• Imran Muft iLovells

• John VogelPatt on Boggs

Also Named in Islamic Real Estate FinanceSee Full Profi le on Page 58


• Lewis JonesVinson & Elkins

• Matt hew SapteDentonWildeSapte







• Paul Jarvis DentonWildeSapte

Also Named in Islamic Project Finance, Islamic Real Estate, Islamic Transportati on FinanceSee Full Profi le on Page 54




• Rustum ShahLovells

• Salim NathooAllen & Overy

EADING LAWYERS2009



Off shore enti ti es conti nue to play a meaningful role in the structuring of Islamic fi nance transacti ons over the past year. Investors, businesses and bankers seek modern and eff ecti ve legal regimes, tax neutrality, an independent locati on for internati onal investors, accessible and pragmati c regulators and sophisti cated service providers in jurisdicti ons that are responsive, ti mely and thorough. The Cayman Islands, Bermuda, the Briti sh Virgin Islands (BVI), Mauriti us, Jersey and Luxembourg have been listening.

The Cayman Islands conti nues to be a trusted jurisdicti on for Islamic fi nance transacti ons structured in the Middle East judging by the numerous Sukuk issuances originati ng out of the GCC countries in 2009. This includes Abu Dhabi’s Tourism Development and Investment Company (TDIC) Sukuk, which was the largest GCC Sukuk issuance this past year. Bermuda’s popularity as a domicile for Sukuk issuers is increasing. This was highlighted in Q4 2009 by the GE Sukuk, the fi rst ever Sukuk to be issued by a Fortune 500 company. The GE Sukuk was acclaimed as the “Sukuk Deal of the Year” for 2009 by Islamic Finance news as well as “Deal of the Year” for 2009 by Airfi nance Journal.

Bermuda is the primary jurisdicti on for Sukuk issuances backed by aircraft due to its leading positi on as the off shore domicile of choice for aircraft registrati on and fi nance. Moreover, Bermuda has taken an important step towards positi oning itself as the off shore jurisdicti on of choice for Islamic fi nance in the Middle East aft er entering into a double taxati on agreement with Bahrain earlier this year.

Although the BVI has not made headlines with respect to Sukuk issuances, BVI companies are regularly used in Islamic fi nancings such as Murabahah, Mudarabah and Wakalah, and joint-ventures in the form of Musharakah. The BVI, like the Cayman Islands, is a common law based jurisdicti on which off ers tax neutrality and is in fact the world’s most popular off shore jurisdicti on.

Labuan has maintained its leading market positi on for Islamic fi nance transacti ons structured in Asia, including Sukuk issuances. In Q3 2009, Petronas issued a landmark dual-tranche US$1.5 billion Sukuk Ijarah, domiciled in Labuan which generated interest from a wide investor base located in Asia and Europe. Jersey is another popular off shore jurisdicti on for Islamic fi nance, while Luxembourg has att racted listi ngs of Sukuk on the Luxembourg Stock Exchange.

In 2009, Mauriti us aggressively marketed its advan-tages for Islamic fi nance transacti ons. Among them are its strategic locati on in the Indian Ocean, mod-ern corporate regime and appealing array of double taxati on avoidance agreements (DTAA’s) with 35 countries, including a host of MENA jurisdicti ons, and a pool of multi lingual professionals speaking English, Arabic, Urdu and French. Mauriti us is a ju-risdicti on of choice for Islamic fi nance transacti ons involving investments in India, Africa, Asia and Lati n America. Following favorable amendments to Mauri-ti us’ banking and tax laws, HSBC launched its Islamic banking window last year and the fi rst fully fl edged Islamic bank (a Qatar-Mauriti us joint venture) re-cently obtained its Islamic banking licence from the Bank of Mauriti us. The latt er is a Full Member of the Islamic Financial Services Board (IFSB) whereas its sister regulator for non-banking fi nancial services, the Financial Services Commission, is an Associate Member of IFSB.

Governments and regulatory authoriti es consult-ing with market parti cipants and representati ve or-ganizati ons is a central aspect in allowing off shore jurisdicti ons to maintain their vibrant and relevant

Meeti ng Market ChallengesBy Fawaz Elmalki and Sameer Tegally

“Mauritius is a jurisdiction of choice for Islamic fi nance transactions involving investments in India, Africa, Asia and Latin America”

continued....

EADING LAWYERS2009



approach to the provision of investment vehicles for use in conventi onal and Islamic fi nance transacti ons. For example, in the past twelve months the commit-ment of the Cayman Islands, Bermuda and the BVI to the highest internati onal tax transparency standards has been recognized by the Organisati on for Eco-nomic Cooperati on and Development (OECD). These jurisdicti ons have been moved onto the OECD’s “White List” of jurisdicti ons that are compliant with internati onal tax transparency standards.

This past year, we read about the The Investment Dar versus Blom Bank English court decision which put non-Shariah compliance defences in perspecti ve. Essenti ally, TID argued that a Wakalah contract it had entered into with Blom Development Bank did not comply with Shariah. Since TID was prevented by its consti tuti onal documents from entering into agreements that did not comply with Shariah, it argued that the Wakalah contract was void. While the matt er is under appeal, onshore and off shore lawyers are reminded that it may be wise for fi nancial insti tuti ons to demand that their counterparti es enter into transacti ons through an off shore special purpose vehicle established as a subsidiary of the borrower. The transacti on should be specifi cally carried out in an off shore jurisdicti on where it is highly unlikely that such defences to non-performance in a contract would be upheld.

For example, in the BVI, the Business Companies Act specifi cally provides that, save in the case of a restricted purpose company, no act of a company or transfer of property is invalid by reason only of the fact that the company did not have the capacity, right or power to perform the act or receive the asset. This provision means that the mere fact that the company’s acti on is beyond its memorandum of associati on does not mean it is invalid; something more will be needed to render the transacti on invalid. That further element is usually knowledge by the third parti es that the matt er is beyond the capacity of the company. Hence, where a fi nancier has no knowledge that the contract being entered into by the borrower would breach its charter documents, it is unlikely that such a borrower can

invoke a non Shariah defence, assuming such a borrower is incorporated in an off shore jurisdicti on which no longer applies the common law ultra vires doctrine, and assuming that the lender has otherwise complied with the terms of the contract.

Global Sukuk volumes may weaken in 2010 due in part to a weakening in market senti ment in the wake of the Dubai debt crisis and conti nued global economic uncertainty. However, the outlook for the global Islamic fi nance market in 2010 remains positi ve. It is expected that Saudi Arabia will lead the Sukuk pipeline in 2010 as it funds infrastructure projects, and off shore companies are expected to conti nue to play an important role in the Saudi Sukuk market.

A number of commentators have noted that global Shariah compliant fund assets stagnated in 2009, remaining at almost the same level as 2008. Cayman, BVI, Bermuda and Jersey dominate off shore domicile league tables for conventi onal funds, and managers of Shariah compliant fund have been cognizant of this fact in choosing the domicile of their new funds. This past year has seen a steady increase of Shariah compliant funds domiciled in Luxembourg and it remains to be seen if this trend will conti nue given the fact that most Shariah fund investors are located in the Middle East and Asia.

Off shore jurisdicti ons contribute signifi cant value to the global fi nancial services industry and internati onal businesses. While such jurisdicti ons have come under scruti ny in the past twelve months, it is clear that many of them have responded to regulatory and market challenges, and have shown their determinati on to maintain their role in the growth of the Islamic fi nance industry.

Meeting Market Challenges (continued..)

Fawaz Elmalki and Sameer Tegally are associates at Conyers Dill & Pearman.

EADING LAWYERS2009




• Corporate

• Islamic FinanceIndividual Profi le

Sameer is an associate at Conyers Dill & Pearman (Mauriti us). He specializes in banking/fi nance (including Islamic fi nance) corporate commercial, investment funds, and trusts (including Shariah compliant funds and trusts). Sameer holds an Islamic Finance Qualifi cati on from the UK.

Sameer advises major internati onal banks, foreign government agencies and multi nati onals on corporate and fi nancing/investment structures as well as collaterals involving Mauriti us vehicles.

Prior to starti ng his legal practi ce, Sameer worked in the Legal Department of PricewaterhouseCoopers and at the Financial Services Commission, Mauriti us.

Sameer graduated with a BA (Hons) Law with Economics from the University of East London in 1998 and completed the Bar Vocati onal Course (Council of Educati on, Mauriti us) in 2000.

Arti cles

• “Internati onal Islamic Finance Vehicles” (Islamic Finance news)• “Mauriti us: Emerging Islamic Finance Hub” (Islamic Finance

news)• “Cross-border Musharakah Through a Limited Life Global

Business Company” (Islamic Finance news)• “Global Islamic Finance - Untapped Opportuniti es in Mauriti us”

(Islamic Finance news)

Sameer K TegallyAssociateEmail: [email protected]

Memberships:

• Member of the Society for Trusts & Estate Practi ti oners (STEP, UK)

• Member of the Internati onal Bar Associati on (UK)

• Member of the Mauriti us Bar Associati on.

2nd Floor, Ebene Mews57, Ebene CybercityMauriti usTel: +230 464 9090Fax: +230 464 9092Website: www.conyersdill.com

Off shore Islamic Finance


EADING LAWYERS2009



All Named Lawyers in the Category of Off shore Islamic Finance

• Fawaz ElmalkiConyers Dill & Pearman

Also Named in Shariah Investment FundsSee Full Profi le on Page 33

• Manuela BelmontesMaples & Calder

• Rod PalmerWalkers

• Sameer K. TegallyConyers Dill & Pearman



EADING LAWYERS2009



Like any other industry, it is almost impossible to comment on the Takaful and re-Takaful industry without refl ecti ng on the wider global fi nancial crisis that has shaped and infl uenced so much of the world economy over the last two years. With commentators generally agreeing that the green shoots of recovery are emerging, this is an interesti ng ti me for the Takaful and re-Takaful market to refl ect on recent performance and look to future challenges and opportuniti es.

The current shape of the marketIn spite of the global economic meltdown, which had a considerable eff ect on a number of conventi onal insurers and reinsurers, global Takaful premiums grew 29% in 2008 to US$5.3 billion. It is esti mated in the Ernst & Young World Takaful Report 2010 that such premiums will exceed US$8.9 billion in 2010. If this is correct, then the industry will have surpassed the projecti ons set out in 2009 which esti mated a premium growth to US$7.7 billion by 2012. This demonstrates how much resilience the industry has shown, parti cularly in light of the intervening fi nancial crisis.

In terms of the geographical shape of the industry, it is widely recognized that the two key markets for Takaful and re-Takaful are Malaysia and the GCC. In terms of growth, the two major trends that have emerged are the growth of Family Takaful in Malaysia and the growth of health Takaful in the GCC, where health cover has been made compulsory in a number of jurisdicti ons within the region.

However, the Takaful and re-Takaful market in Malaysia and the GCC are at very diff erent stages of development. This is probably because Malaysia is a very mature Takaful market with a well established regulatory framework and a populati on that is familiar with the concept and benefi ts of insurance. By contrast, there has traditi onally been a low penetrati on of insurance products in the GCC.

However, a number of factors have contributed to the growth of Takaful in the GCC region. These include the increasing Muslim populati on, the rise of compulsory insurance due to the eff orts of governments to encourage greater private sector involvement in pension and health provisions, and the inadequacy of conventi onal insurance to meet the demand for, and the requirements of, Shariah compliant products.

The diff erences between the Takaful market in Malaysia and the GCC is refl ected by a number of key indicators, such as technical results, investment results and risk retenti on. Taking the latt er fi rst, Takaful operators in the GCC cede between 30% and 50% of their gross premiums to re-Takaful companies or conventi onal reinsurers — a signifi cantly greater cession than the Malaysian equivalent, which stands at between 5% and 15%. It is considered that this diff erence reduces the ability of GCC operators to generate potenti ally positi ve underwriti ng results and, in seeking to generate profi tability, it causes an excessive reliance on investment returns. The trend in Malaysia of retaining more risk requires greater underwriti ng competence which is largely dependent on being able to access historical data — a key enabler in Malaysia’s mature market.

In terms of technical results, it is apparent that the claims experience in the GCC is greater than that in Malaysia, with an average claims rati o of between 40% and 60% when compared with the Malaysian equivalent of 25% to 35%. However, when more historical data becomes available as the GCC market matures, it is likely that operators in the region will build books of greater quality and diversifi cati on in order to reduce the current claims rati o.

As far as investment results are concerned, the average yield on investments for operators in the GCC are said to have fallen sharply to below 4% over

The Opportuniti es and Challenges for the Takaful and re-Takaful IndustryBy Susan Dingwall and Ffi on Flockhart

continued....

EADING LAWYERS2009



the last two years, which is likely to be refl ecti ve of the eff ects of the global fi nancial crisis. By comparison, the average yield on investments for Takaful operators in Malaysia have remained stable owing to the majority of investments being made in fi xed income securiti es that att ract limited volati lity. In 2009, Takaful operators in the GCC reconsidered their investment strategy, resulti ng in higher allocati ons to deposits compared to equiti es. This trend is likely to result in more stable investment results in the GCC going forward.

From a re-Takaful perspecti ve, growth is clearly driven by the direct Takaful market.

There is a reduced need for Takaful operators to uti lize the conventi onal reinsurance market to off -load risk, given the signifi cant increase in re-Takaful capacity over recent years, and the entry of a number of global players such as Munich Re, Hannover Re and Allianz into the market, as well as the dedicated and well established local re-Takaful operators.

Indeed, the Shariah boards of a number of Takaful operators are now insisti ng that re-Takaful capacity is uti lized which is a key driver for growth.

Opportuniti es and challengesIn line with the sustained growth of the industry in the Middle East and Asia, market commentators expect the interest in Takaful to translate into the European market. With over 15 million Muslims in Europe as well as a ready non-Muslim audience for ethical insurance products, targeti ng the European market represents a signifi cant opportunity for the growth of the Takaful and re-Takaful industry going forward.

There are a number of reasons why Europe is well placed to develop a strong Takaful sector, including the ability to set up business in one European Union member state and then enjoy passport-based rights to set up a branch or provide cross-border services in other member states. Furthermore, the European market is strongly regulated which is arguably a signifi cant factor in assisti ng the growth of the

Takaful market. For example, strong regulati on is vital to maintaining consumer confi dence, parti cularly in the current economic climate. In additi on, rati ng agencies view strong regulati on as key in determining the rati ng of an insurance company or Takaful operator and, in turn, a strong rati ng is an essenti al component for att racti ng investment and aiding growth on an internati onal level.

A number of commentators have also questi oned whether the internati onal expansion of Takaful and re-Takaful will extend to Lloyd’s of London, one of the oldest and most established conventi onal insurance and reinsurance markets. This would be a signifi cant opportunity for the expansion of the industry.

Most commentators believe that if Lloyd’s does give the green light to proceed, the syndicate is most likely to be a re-Takaful syndicate. This would, in theory, fi t the Lloyd’s model very well on the basis that it allows for the segregati on of funds (so that Takaful donati ons are not co-mingled with conventi onal premiums) and investments can be made in Shariah compliant investments.

On the other hand, some of the key challenges for the industry remain the lack of internati onal uniformity in regulati on, the availability of an appropriate spread of Shariah compliant investments as well as the current lack of retro-Takaful capacity.

The future of the industryAlthough there are challenges facing the Takaful and re-Takaful market, its comparati ve resilience during the global fi nancial crisis, combined with growing consumer demand, predict a stable and sustainable future industry growth on a global scale.

The opportunities and challenges for the Takaful and re-Takaful industry (continued..)

Susan Dingwall is a partner and Ffi on Flockhart a senior associate at Norton Rose.

EADING LAWYERS2009



All Named Lawyers in the Category of Takaful & re-Takaful

• Hiba AllamVinson & Elkins

• Peter HodginsClyde & Co

• Susan DingwallNorton Rose

EADING LAWYERS2009



All Named Lawyers in the Category of Islamic Real Estate Finance


Also Named in Islamic Banking& Finance and Islamic Project FinanceSee Full Profi le on Page 6

• Abdul-Haq MohammedTrowers & Hamlins

• Amjad HussainEvershed

• Anthony Pallett Norton Rose

• Charles ProctorBird & Bird


Also Named in Islamic Project Finance,Islamic Securiti zati on & Structured FinanceSee Full Profi le on Page 43


• Johan VogelPatt on Boggs

Also Named in Islamic Securiti zati on & Structured FinanceSee Full Profi le on Page 58

• Mohammed KamalLovells


• Norliza Mohammed Abdul Raman Saad & Associates

Also Named in Islamic Banking& FinanceSee Full Profi le on Page 16


• Paul Jarvis DentonWildeSapteAlso Named in Islamic Project Finance, Islamic Securiti zati on & Structured Finance, Islamic Transportati on FinanceSee Full Profi le on Page 54

• Philip AbbotSimmons & Simmons




• Sarah GoodenTrowers & Hamlins

INDEX BY LAWYERS

Name Page NumberAbdul Aziz Algasim, Al Gasim Law Firm 19Abdul Raman Saad, Abdul Raman Saad & Associates 6, 19, 45, 68Abdulaziz Al-Bosaily, Abdulaziz A. Al-Bosaily Law Offi ce 19, 45Abdul-Haq Mohammed, Trowers & Hamlins 68Abradat Kamalpour, Ashurst 34, 37, 38, 60 Ahmad Fikri Assegaf, Assegaf, Hamzah & Partners 25Ahmad Lutf i Abdul Mutalib, Azmi & Associates 7, 19Amar Meher, Allen & Overy 19Amjad Ali Khan, Afridi & Angell 19Amjad Hussain, Evershed 68Andri Aidham Badri, Kadir Andri & Partners 19, 25Anthony Pallett , Norton Rose 68Anzal Mohammed, Allen & Overy 19, 60Ati f Hanif, Allen & Overy 19Ayman Khaleq, Vinsons & Elkins 19, 25, 34, 38, 45, 50, 60Azizul Azmi Adnan, Wong & Partners 8, 19Bimal Desai, Allen & Overy 19, 45, 50Charles Proctor, Bird & Bird 68Chris P. Sioufi , Dewey & LeBoeuf 34Christi an Adams, Latham & Watkins 38Christopher Aylward, DentonWildeSapte 43, 45, 60, 68Christopher Lee, Christopher Lee & Co 19, 25, 34, 45, 50, 60 Craig Nethercott , Latham & Watkins 45, 50, 60 Shahrir Abdul Jalil, Shahrizat Rashid & Lee 19Davide Barzilai, Norton Rose 19, 45, 68Debashis Dey, Cliff ord Chance 60Debbie Barbour, DLA Piper 45Deepak Sadasivan, Adnan Sundra & Low 19Dian S. Kusdihardjo, MMIK Law Firm 19, 25Fara Mohammad, Norton Rose 19Faresa Jafery Ahsan, Liaquat Merchant Associates 9, 19Farmida Bi, Norton Rose 25, 60Fawaz Elmalki, Conyers, Dill & Pearman 33, 34, 63Giovanni Mofsol Muhammad, Hanafi ah Ponggawa & Partners 19Hamid Yunis, Taylor Wessing 19, 34Harnek Shoker, Freshfi elds 45, 50Helen Joni Marsinih, MMIK Law Firm 19, 25Hiba Allam, Vinson & Elkins 34, 67Hooman Sabeti -Rahmati , Allen & Overy 19, 60Hossam Abdullah, ASAR (Al-Ruwayeh & Partners) 10, 19Husam Hourani, Al Tamimi & Company 19Ian Ingram-Johnson, Allen & Overy 19, 45, 55Ian Siddell, Baker & McKenzie 19, 45, 55Imran Muft i, Lovells 19, 60Imti az Shah, Lovells 19, 25, 34Indri Pramitaswari Guritno, Hadiputrano, Hadinoto & Partners 19, 25, 38Irfan Tayebali, Mohsin Tayebaly & Co 25Isam Salah, King & Spalding 45, 50Jal Othman, Shook Lin & Bok 11, 19Jawad Ali, King & Spalding 19, 34, 45, 50Jeff rey Smith, Norton Rose 45, 50Jeremy Ingham, Trowers & Hamlin 19, 34John Vogel, Patt on Boggs 58, 60, 68John Dewar, Milbank 45, 50, 60Julian Johansen, Allen & Overy 19, 25, 45, 50Julie Alexander, Baker & McKenzie 19, 45Kazi Rahman, Wragge & Co 19Kenneth Aboud, Allen & Overy 20

Name Page NumberKevin Wong, Linklaters 25Khairul Ismail, Naqiz & Partners 12, 20Lewis Jones, Vinsons & Elkins 45, 60Lily Tan, Albar & Partners 20Loh Mei Mei, Zul Rafi que & Partners 20Lynett e Brown, Al Tamimi & Company 20, 34Manuela Belmontes, Maples & Calder 63Mark Lim, Wong & Partners 20, 44, 50Marwalis Kassim, Jeff Leong, Poon & Wong 13, 20Matt hew Sapte, DentonWildeSapte 20, 59, 60Megat Hizaini Hassan, Zaid Ibrahim & Co 20Michael J.T. McMillen, Fulbright & Jaworski 20Mohamed Hamra-Krouha, Cliff ord Chance 44Mohamed Ismail Mohamed Shariff , Skrine 20, 29 Mohamed Ridza, Mohamed Ridza & Co 20, 28, 29Mohammed Al Sheikh, Latham & Watkins 20, 45, 60Mohammed Al-Jadaan, Al-Jadaan Law Firm 20, 29, 45Mohammed Kamal, Lovells 29, 68Mohd Shuhaimi Ismail, Hisham Sobri & Kadir 14, 20Muddassir Siddiqui, DentonWildeSapte 15, 20Muneer Khan, Simmons & Simmons 20, 25, 34, 38, 45, 50, 60 Nabil A Issa, King & Spalding 29Nadim Khan, Herbert Smith 20, 50, 55, 60, 68Neale Downes, Trowers & Hamlins 20Neil Miller, Norton Rose 20, 38, 45, 55, 60Noor Meurling, Soebagjo Jati m Djarot 23, 25Norliza Mohammed, Abdul Raman Saad & Associates 16, 20, 68Oliver Agha, Agha & Shamsi 20, 29, 45, 55, 60, 68Paul Holland, DentonWildeSapte 53, 55Paul Jarvis, DentonWildeSapte 45, 54, 55, 60, 68Peter Hodgins, Clyde & Co 67Philip Abbot, Simmons & Simmons 68Philip Ireland, Maples & Calder 34Qudeer Lati f, Cliff ord Chance 20, 25, 45, 60, 68Rahail Ali, Lovells 20, 25, 45, 50, 55, 60Richard de Belder, DentonWildeSapte 17, 20Robert Fugard, Linklaters 55Robert Litt le, ASAR (Al-Ruwayeh & Partners) 24,25Robin Abraham, Cliff ord Chance 38, 45Robin Balmer, King & Spalding 45, 55, 60, 68Rod Palmer, Walkers 64Roger Wedderburn-Day, Allen & Overy 38Ronald Tan, Tay & Partners 20Rustum Shah, Lovells 25, 60Salim Nathoo, Allen & Overy 55, 60Sam Habbas, ASAR (Al-Ruwayeh & Partners) 18, 20Sameer K Tegally, Conyers, Dill & Pearman 63, 64Sarah Gooden, Trowers & Hamlins 20, 68Shauaib Mirza, Cliff ord Chance 20Sheeza Ahmed, Mandviwalla & Zafar 20, 25Shibeer Ahmed, Baker Bott s 38, 45Siraj Al Islam, Baker Bott s 38, 45Susan Dingwall, Norton Rose 67Tahir Jawed, Maples & Calder 25, 34. 64Tan Kong Yam, Kadir Andri & Partners 20Tariq Hameed, Simmons & Simmons 25Yeo Wico, Allen & Gledhill 20, 25Zubair Mir, Herbert Smith 34

Page in BOLD refers to the professional profi le

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