1. IIFM Islamic Finance Workshop
p
6 May 2012, Muscat

2. Contents
 Introduction
 Sukuk Programmes
 Sukuk Programmes – TDIC Case Study
 Sukuk Programmes – Financial Institution Case Study
 Looking Ahead....
 Questions & Answers
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3. Introduction
 Sukuk Certificates (an overview)
 Interest-bearing instruments are not permissible under Islamic
investment principles
 Sukuk created as an alternative to corporate bonds (
p (the “Islamic
bond”)
 Intended to put investor into the same position as a holder of a
corporate bond
p
 This is typically achieved by the purchase of income generating
assets by an SPV who holds the assets and the income provided by
them on trust for the investors - the sukuk represents a beneficial
entitlement in such assets and income
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4. Introduction (Cont’d)
 The sukuk is typically structured so that investors do not have
recourse to the physical assets and upon default the assets must be
sold back to the originator pursuant to the purchase undertaking
 Similarly to corporate bonds, the investor therefore takes credit risk
on the originator who is obliged to pay the Sukuk certificateholder
irrespective of the performance of the underlying asset
 The assets are not intended to provide security for the transaction,
the sukuk being asset-based for Shari'a reasons only and most
originators having no desire to actually lose the physical asset in
question
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5. Sukuk Programmes
 A feature of the market in 2009 (and 2010)
 Essentially an uncommitted facility between a borrower (the
“issuer”) and a panel of investment banks (the “dealers”)
 The borrower may issue and the investment banks may purchase
and place Sukuk Certificates from time to time on general terms
 The Sukuk Programme enables a number of sukuk issues to be
effected through (essentially) one set of documentation
 The purpose of the Sukuk Programme is to enable sukuk issues
p p g
to be effected quickly, economically and efficiently
 The detailed terms (particularly pricing) relating to any issue of
sukuk certificates will only be agreed at the time of a p
y g particular
issue
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6. Sukuk Programmes (Cont’d)
 Sukuk Programmes have been a relatively recent development,
but they have been premised along the same lines as a
conventional b d programme
ti l bond
 Sukuk Programmes therefore mirror, as far as possible,
conventional bond programmes, except with an underlying
Shari’a t t
Sh i’ structure
 Issuers are establishing, simultaneously, conventional and sukuk
programmes
 Unlike a Sukuk Programme, a conventional bond programme has
very few supplemental documents as there is no underlying asset
transfer i.e. only Subscription Agreement and Final Terms are
typically
t i ll required i d
 Recent examples in the GCC (RAK, TDIC, Etisalat, Sharja
Islamic Bank)
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7. Sukuk Programmes – TDIC Case Study
 Tourism Development & Investment Company PJSC
 U.S.$1,450,000 Trust Certificate Issuance Programme
 First sukuk programme in Abu Dhabi
 Sukuk-al-ijara
Sukuk al ijara
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8. Sukuk Programmes – TDIC Case Study (Cont’d)
 Key principles of Ijara
 Shari’a compliant lease
 Lease rental payments “mirror” the profit payments under the
Sukuk Certificates
 Obligation to undertake capital maintenance of leased asset
remains with lessor (SPV)
 Obligation to insure the leased asset remains with the lessor
(SPV)
 Lessor appoints an agent (usually the lessee) to carry out
servicing duties pursuant to a servicing agreement
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9. Sukuk Programmes – TDIC Case Study
(
(Cont’d)
)
8

10. Sukuk Programmes – TDIC Case Study
(
(Cont’d)
)
9

11. Sukuk Programmes – TDIC Case Study
(
(Cont’d)
)
 On the issue date of the Certificates, TDIC grants a musataha
right over certain land on Saadiyat Island in consideration for an
amount equal t th proceeds received b TDIC S k k Li it d i
t l to the d i d by Sukuk Limited in
connection with the issue of the Certificates
 TDIC Sukuk Limited leases the relevant land the subject of the
musataha right t TDIC f th lif of th C tifi t
t h i ht to for the life f the Certificates. TDIC
agrees to pay lease rental payments to TDIC Sukuk Limited
which are equal to the Periodic Distribution Amounts due under
the Certificates
 TDIC Sukuk Limited appoints TDIC as its servicing agent for the
Certificates
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12. Sukuk Programmes – TDIC Case Study
(
(Cont’d)
)
 Redemption of the Certificates
 Purchase Undertaking
g
– on maturity of the Certificates or prior thereto following the
occurrence of a Dissolution Event
 Redemption Undertaking
p g
– following the occurrence of a Change of Control
– Following a Certificateholder Put
 Sale Undertaking
– in the event of certain tax gross-ups being required
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13. Sukuk Programmes – TDIC Case Study
(
(Cont’d)
)
 Substitution of the Lease Assets
 Substitution Undertaking
g
 Cancellation and buy-back of Certificates
 A novel feature of sukuk structuring
 What are the commercial objectives?
 TDIC and/or any of its subsidiaries may at any time purchase
Certificates in the open market or otherwise. Should TDIC wish to
cancel any Certificates, such cancellation is conducted in
y ,
accordance with the Master Declaration of Trust and the Redemption
Undertaking.
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14. Sukuk Programmes – TDIC Case Study
(
(Cont’d)
)
 Programme Documents
 Capital Markets Documents
p
– Dealer Agreement
– Master Declaration of Trust
– Agency Agreement
 Islamic Documents
– Master Musataha Agreement
– Master Ij
M t Ijara Agreement
A t
– Servicing Agency Agreement
– Purchase Undertaking
– Sale Undertaking
S l U d t ki
– Redemption Undertaking
– Substitution Undertaking
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15. Sukuk Programmes – TDIC Case Study
(
(Cont’d)
)
 Issuance Documents
 Capital Markets Documents
p
– Final Terms
– Subscription Agreement
– Supplemental Declaration of Trust
 Islamic Documents
– Supplemental Musataha Agreement
– Supplemental Ijara Agreement
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16. Sukuk Programmes – TDIC Case Study
(
(Cont’d)
)
 Size of Sukuk issuance is restricted by the value of the
assets transferred to the Lessee
 Once the assets have been transferred for the
purposes of a Sukuk issue, they cannot be used for
any other purpose until th S k k i
th til the Sukuk issue h matured
has t d
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17. Sukuk Restructuring
 Number of potential issues on restructuring of a sukuk
 The buy back and cancellation of a sukuk has generally not been
buy-back
permissible under the documentation
 Originator may be prohibited under Shari'a law from amending
the terms and conditions to increase coupon/provide additional
incentive
 There may be prohibitions against raising further debt
 Asset Coverage Problems
 Sukuk traditionally issued as a stand alone debt instrument and
t e e o e exchange o
therefore e c a ge for a new su u would require estab s e t o a
e sukuk ou d equ e establishment of
new sukuk programme or a new stand alone issuance
 Value of asset may have changed drastically
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18. IIFM Islamic Finance Workshop
p
6 May 2012, Muscat