Islamic Interbank Market & Sukuk by Masood Ajazi

Top 20 FREQUENT WORDS

sukuk 107 islamic 37 liquidity 32 risk 26 risks 24 spv 22 assets 21 price 17 interbank 16 issues 16 remms 16 murabaha 15 financial 14 cash 13 commodity 13 corporate 12 credit 12 libor 12 operating 12 banks 11 estate 11 finance 11 holders 11 sukuks 11

DOCUMENT KEY POINTS

islamic interbank market sukuk sukuk issuance a corporate fi s fi s their role in the islamic interinter bank market by masood aijazi cfa please read the disclaimer on page disclaimer this presentation represents the views of masood aijazi cfa not his employer national commercial bank ncb nor the conference organizer international islamic financial markets iifm ncb or iifm in any way shape or form are not responsible for contents of this presentation
any other use without proper permission is not allowed

corporate bonds � financial derivatives � options � swaps � future � repos � interbank markets � lender of last resort liquidity risk � investment firm firm s definition liquidity risk includes both � the risk of being unable to fund its portfolio of assets at appropriate maturities and rates and � the risk of being unable to liquidate a position in a timely manner at reasonable prices
� regulators definition � risk to a bank s earnings and capital arising from its inability to timely meet obligations when they come due without incurring unacceptable losses

billion were found to be in liquid assets � underutilization of financial resources � lower income and higher cost � loss of competitiveness

of participants no lender slow of last development resort in islamic key issues in financial liquidity instruments different shari a management interpretation absence of no islamic interislamic secondary bank market market credit for this diagram iifm
islamic banks assets portfolio murabahah musharakah mudarabah ijara murabaha others source iqbal munawar ausaf ahmad tariqullah khan challenges facing islamic banking jeddah irti key issues in liquidity management small no

m in ifis � investments long dated a deposits are short � massive gap asset liability mismatch � massive liquidity problem � can not borrow when there are withdrawals � excess liquidity � overwhelming use of muarabaha � sukuks oversubscribed no secondary market � shortage of instruments � lack of liquidity ironically increases demand for liquidity � liquidity vehicles cannot withstand a m injection or withdrawal � malaysia is an exception where islamic interbank market do exits believe it not
lm in ifis � commodity murabaha � commodity murabaha � commodity murabaha � commodity murabaha � deposit management � sukuk � infrastructure institutions � liquidity management center � iifm challenges of l

the customer then sells the commodities to a third party on spot basis and gets instant cash source hsbc amanah faq how commodity murabaha works sell at a profit deferred payment buy broker conventional broker a b bank a a pay spot agent receive sales proceeds at maturity receive funds from investor to pay broker a a settle investor sales proceeds less agents fees islamic bank investor funds flow principal commodity flow credit for the diagram iifm
commodity muarabah a panacea what is commodity murabaha commodity murabaha as it is generally known is sale of certain specified commodities through a metal exchange on a cost plus profit basis

million sukuk by houston texas based east cameron partners ecp � first ever shariah compliant gas backed securitization � ecp gas reserves are in shallow waters off the coast of louisiana � bsec is the arranger merrill lynch the book runner � a two tier structure � a purchaser spv in delaware to acquire the assets � an issuer spv in cayman islands to issue the sukuk use the proceeds to invest in the purchaser spv by way of a shariah compliant funding agreement � this deal claimed bsec also has two other firsts � first ever islamic securitization rated by s p � first securitization embedding shariah compliant hedges
german state sukuk a pleasant surprise � m year sukuk issued by state of saxony anhalt � saxony anhalt a new state of germany after reunification � state debts are guaranteed by federation of germany � rating of aaa by fitch and aaby standard poor s � citigroup lead manager kfh co lead manager � approval form citi islamic bank shari ah board � underlying buildings owned by ministry of finance � sale leaseback structure � spv registered in netherlands � a variable rent euribor � listed at luxembourg exchange � reason to choose sukuk � broaden the investor basis � access to different funding sources � promote the location sukuk in us �

malaysian khazanah sukuk � million issued in oct by khazanah a finance ministry sub � arranged by cimb hsbc ubs � khazanah owns a percent stake in telekom malaysia national telecom utility percent set aside for this transaction � sukuk represent interests in a trust constituted by the issuer are exchangeable into shares of telekom malaysia � world s first exchangeable effectively equity linked sukuk � sukuk pays an coupon of
� order book was oversubscribed times � shariah acceptance outside malaysia dj citi sukuk index � first global sukuk index � criteria � issue size of million � minimum maturity of one year � minimum rating of bbb baa by leading rating agencies � index at the onset was tracking only seven sukuk

malaysian sukuk controversy � lmc dj city index excludes most malaysian corporate sukuks � this is primarily due to islamic private debt securities ipds based on sale of receivables � issues backed by sale of so called debt are frowned upon by scholars in gulf pakistan but malaysian scholars have okayed them � the malaysian ipds market is by far the largest islamic corporate issuances market � at the beginning of outstanding ipds issues in the market totaled just under rm billion
no imitation of conventional � no default truly hard asset backed it can get sick but will never die � sukuk market is growing fast � most issues are over subscribed setting new records � oil revenues b in gcc in demand is mounting � successful issues listing rating in international markets us uk germany etc ksa pakistan now in the game � dubai ports customs fz convertible musharaka sukuk of

sukuk revisited � instrumental for increasing width breadth of ifi offerings � higher development costs but it could be rewarding in l

� ownership certificates sukuks are easily transferable � price guarantee based on property purchase agreement � all cash flows are known in advance to avoid gharar � there are some though minimal risks � separate legal entity units holders of the trust a

e investors to re � interbank secondary market tradability � highly rated standardized instrument � real estate backing cash flows to reduce risks � re its cfs to satisfy scholars strict requirements � stability strengths of re to offset s

remms R phase b regular operations � finance spv will lease the properties to operating spv at money market rate � operating spv will sub lease property to a quality top rated tenants � sub lease payments to cover primary lease payment spread � difference in sub lease income and primary lease costs spread will accrue as an operating surplus in operating spv � finance spv regularly collects rents and distributes to sukuk holders
remms R phase a acquisition � re advisor identifies proposes a property for acquisition � sponsors commit to purchase advisor finalizes due diligence � modalities of leasing structure established � closing formalities are completed in the name of newly established spv

� in case of losses born by funds provider only � musharaka sukuk � similar to the mudaraba � both parties provide financing to the projects � in case of losses both parties will lose proportionate to capital

types of sukuk salam sukuk � a sale seller undertakes to supply a commodity to buyer at a future date in return for an advanced price paid in full on the spot � price is in cash but the supply of the good is deferred � as a form of financing the purchaser is able to acquire assets by advance payment at a discounted price subsequently sells upon delivery � salam sukuk a type of a forward contract forbidden under shariah law unless there are strict conditions to eliminate uncertainty � it differs from istisna a sukuk in that the purchase price for assets must paid in full delivery date must be fixed
debt can t be traded according to islamic law � aaoifi issued standards for different sukuk types � other types sukuk al wakala sukuk al muzra a sukuk al musaqa sukuk al muqarasa sukuk ijara mowsufa bithimn sukuk manfaa ijara sukuk manfaa ijara mowsufa bithimn and sukuk milkiyat al khadamat

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Main Category

AlHuda Material\sukuk islamic

KeyWords

sukuk islam asset finance issu certifi financi contract bankable bond ijarah leas structur profit holder rate developed purchase risk investor

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Number of Pages

29

Published Date

2007-01-31 16:42:07

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Islamic Interbank Market & Sukuk by Masood Ajazi

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