RECENT DEVELOPMENTS IN SUKUK STRUCTURING

Sukuk innovation goes unabated

World Bank - IstanbulMay 2012

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STAN

DA

RDSU

KUK

STRUCTU

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STANDARD SUKUK STRUCTURESukuk are always asset-based, sometimes asset-backed

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THE SUKUK MARKETBack on track

TH

EM

ARKET

FOR

SUKU

K

TA

BLEO

FCO

NTEN

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PROJECT SUKUK

SOVEREIGN SUKUK

SUKUK AND SECURITIZATION

MUTUALIZATION: MULTI-ISSUER SUKUK

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12

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TABLE OF CONTENTS

THE FUTURE: LBO SUKUK & SUKUK PLATFORMS 13

FRENCH PARTICIPATION SUKUK 11

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PROJECT FINANCE SUKUKBuild bridges with Shari'ah-Compliant Funds

SU

KUK

AN

DM

UTU

ELFU

ND

S

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Sukuk are backed by the cash flows from the underlying infrastructure project.

Consequently, the sorts of constraints attached to Islamic law are by definition almost all alleviated.

Economically, legally, and Islamically, infrastructure sukuk are really powerful.

Analytically, rating agencies use a methodology that is the combination of a corporate approach and a structured finance approach.

Technically, such structures are flexible enough to adapt to investors’ appetite.

Finally, tactically, one can imagine external credit enhancement mechanisms (in the form of un-consolidating guarantees)

INFRASTRUCTURE PROJECT SUKUKThe way forward for Public-Private Partnerships

TH

EM

ARKET

FOR

SUKU

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PROJECT

SUKU

KSTRU

CTURE

PROJECT SUKUK STRUCTUREAsset based, with a Corporate Guarantee

Ass

ets Equity

Bank Debt

Sukuk

ASSETCO

OpCO

Fees

BANKS

AssetCo Project Finance funding cost

SPV

AssetCofunding

cost

Yourfunding

cost

Corporate

SUKUKHOLDERS

WITH or WITHOUTShari’ah-compliant

guarantee

E.S

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PROJECT

SUKU

KSTRU

CTURE

SOVEREIGN SUKUKInvestment-Grade Issuers Vs. Non-Investment Grade Issuers

Sales & Lease-Back

(Ijara) Structure

Investment-Grade Issuers> BBB-

Non-Investment-Grade Issuers

< BBB-

« COVEREDSUKUK »*

COVERED SUKUK: a sukuk issuance by a low-rated issuer, collateralized by a pool of liquid and high-rated assets, in order to achieve better (investment-grade) ratings, and thus lower funding costs.

SeniorUnsecured

Senior Secured

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SUKUK AND SECURITIZATIONIslamic Commercial & Residential Mortgage-backed Securities

ISLAM

ICCM

BS / RMBS

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SUKUK AND RISK MUTUALIZATIONIILM is the perfect example for the public sectorThe private sector could operate the same way (SMEs, local governments)

ISUKU

KA

ND

RISKM

UTU

ALIZATIO

N

IILM

Sovereigns < AAAAAA

Sukuk

Supplies assets

Issues

Receives $

Refinances in $, at the rate of

AAA

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PARTICIPATION SUKUKThe French example: « green finance » for « green energy »

GREEN

FINA

NCE

FOR

GREEN

ENERG

YIN

FRAN

CE

ParticipativeCompany (SEP)

Investors

Green EnergyAssets (Solar Farms)

Green EnergyCompanies

ErDF

Invest

Buys assets for €

Leased assets for €

kW €

Rental payments

Extremely simple; brings 7% net rental returns; open to individual investors; focuses on the real economy; is environment-friendly

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INDUSTRIALIZING SUKUK ISSUANCESThe future: Designing a Sukuk Platform

IND

USTRIA

LIZING

SUKU

K

INVESTORS

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MORE ACTIVE USE OF LEVERAGEThe future: Shari'ah-Compliant LBOs

ISLAM

ICLEVERAG

EDBU

Y-OU

TS