Islamic Private Debt Securities and Syndicated Financing

Transcription

Islamic Private Debt Securities
and Syndicated Financing
Mashitah Hj Osman
Director, Corporate Investment Banking
STRICTLY PRIVATE & CONFIDENTIAL
Introduction to Islamic Private Debt Securities
Islamic Private Debt Securities (“Islamic PDS”) or Sukuk (“Sukuk”) are securities
structured based on Islamic financing principles. Islamic PDS are similar to
conventional PDS, albeit with certain additional steps involved to incorporate the
Islamic financing principles.
Sukuk is frequently referred to as an Islamic bond, but a more accurate translation of
the Arabic word would be an Islamic Investment Certificate.
The Securities Commission Malaysia (“SC”) defines Islamic PDS as any securities
issued pursuant to any Shariah principles and concepts approved by the Shariah
Advisory Council (“SAC”) of the SC. Sukuk or its singular, Sak, is a document or
certificate which represents a value of an asset.
The Sukuk must have an intrinsic value. The Sukuk may represent debt obligations
and may be issued for a pool of receivables.
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Types of Islamic Securities Instruments and Their Features
1. Islamic Commercial Papers (“CPs”)
To meet the short term financing requirements such as for working capital
requirement;
Normally issued on a tender basis and may either be issued at a discount, at par or
premium to the face value;
CPs are issued under a Programme not exceeding 7 years; and
CPs can be issued for maturities between 1 month to 12 months.
2. Islamic Medium Term Notes (“MTNs”)
To meet the medium-term to long-term financing requirements such as for capital
expenditure requirement;
May be issued at par, discount or premium to face value;
Where MTNs are issued under a Programme which is coupled with CPs, the tenor for
such Programme must not exceed 7 years. Otherwise, the tenor restriction is not
applicable on the MTN Stand alone Programme; and
The minimum tenor of the MTNs is 1 year;
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Types of Islamic Securities Instruments and Their Features
(cont’d)
3. Islamic Bonds (“Bonds”)
To meet medium and long-term financing requirement;
Typically used for capital expenditure requirement or under a project financing
structure;
Can be issued without prospectus by way of private placement, “bought-deal” and/or
open tender basis;
The maturity is more than one (1) year and may be issued in series to match the
cashflow profile of the issuer; and
No exposure to interest/profit rate fluctuations as the interest/profit rate is locked-in
upfront.
Typical Shariah Concepts and Principles for the Islamic Securities Instruments:
1.Bai Bithaman Ajil (deferred payment sale);
2.Ijarah (leasing), Istisna’ (purchase order);
3.Mudharabah (profit-sharing); and
4.Musyarakah (profit and loss-sharing).
Page 3
Statistical Comparison : Approved Shariah Principle
Source : Securities Commission
Page 4
Statistical Comparison : Conventional Vs Islamic PDS
Source : Securities Commission
Page 5
Benefits of Islamic PDS
Issuers’ Perspective
Investors’ Perspective
Islamic Capital Market
Enhances issuer’s profile;
Tap wider investor including
conventional investors; and
Provides investors with the
opportunity to invest in an
alternative fixed income
instrument that is Shariahcompliant
with
stable
returns and at the same
time helps to diversify their
investment portfolio; and
Increases the breadth and
depth of the Islamic capital
market;
Provide
investors
the
opportunity to invest in
liquid instruments.
Creates an alternative form
of investment instruments.
More cost effective of raising
fund as the issuer is able to
deduct expenses such as
arrangement fee, rating fee, etc
from taxable income.
Stamp duty exemptions on the
legal documentation, subject
to the approved Shariah
principles.
Page 6
Global
acceptance
structure, especially to the
Middle Eastern investors;
and
Events to Issuance
Reporting
Accountant
Rating
Agency
Other Advisers
Trustee
Process/Activities
(Completion: 3 to 4 months)
- Structure Islamic PDS + Shariah Approval
Issuer
- Rating
- Submission to Securities Commission
- Information Memorandum
Due
Diligence
Arranger
Shariah
Adviser
Due Diligence
Working Group
Legal
Counsel
Page 7
Primary
Subscribers/
Investors
Secondary
Market
Trading
General Overview On Rating
¾ The cost of financing is directly correlated with the credit standing of a debt issue;
¾ A higher credit risk debt would command a higher financing cost;
¾ Debt rating is a process of assessing the likelihood of timely payment of the
principal and interest/profit over the duration of a particular debt;
¾ In essence, the rating is graded into two broad categories i.e. Investment Grade
and Non-Investment Grade; and
¾ The Investment Grade comprise ratings of AAA, AA, A and BBB, whilst the NonInvestment Grade comprise ratings of BB, B, C and D.
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Rating Considerations
Project Sponsor/Management

Integrity, experience/track records and level of commitment to meet any costoverruns, etc.
Viability of Project Cashflow

Robustness and certainty of cashflow.
Principal Project Agreements

No restriction conditions to facilitate the raising of financing via Islamic
structure. For example : Prohibition to transfer/sale the rights/assets under the
agreements.
Construction Risk

Appointment of reputable contractor to mitigate delay in completion and
variation in project costs.
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Rating Considerations (cont’d)
Operational Risk

Relates to operation and maintenance of the Project upon postcompletion.
Demand/Offtake Risk

Credit strength of the pay-master and timeliness of payment.
Issue Structure

Covenants to enhance the rating e.g. Finance Service Cover Ratio; Debt
to Equity Ratio; Order of priority in payment waterfall; Dividend restriction;
Designated Accounts; Legal Structure, etc.

Financing structure or security enhancement includes (without limitation
to) the provision of guarantee from a parent company where the financial
standing is better than the Issuer stand-alone rating.
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Examples of Existing Islamic PDS Types of Structures
There are various types of Islamic PDS/Sukuk being issued:Istisna’ Sukuk
Mudarabah Sukuk
Musharakah Sukuk
Underlying contract :
A purchase contract of an asset
whereby a buyer will place an
order to purchase the asset
which will be delivered in the
future. In other words, the buyer
will require a seller or a contractor
to deliver or construct the asset
that will be completed in the future
according to the specifications
given in the sale and purchase
contract. Both parties of the
contract will decide on the sale and
purchase prices as they wish and
the settlement can be delayed or
arranged based on the schedule of
the work completed.
A contract which is made between
two parties to finance a business
venture. The parties are a rabb almal or an investor who solely
provides the capital and a
mudharib or an entrepreneur who
solely manages the project. If the
venture is profitable, the profit will be
distributed based on a pre-agreed
ratio. In the event of a business loss,
the loss shall be borne by the provider
of the capital.
A
partnership
agreement
between two parties or more to
finance a business venture
whereby all parties contribute
capital either in the form of cash or
in kind for the purpose of financing
the business venture. Any profit
derived from the venture will be
distributed based on a pre-agreed
profit sharing ratio, but a loss will
be shared on the basis of equity
participation.
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Examples of PDS Issuance
Multi-Currency PDS
No.
Issuer
Instrument
1.
Industrial
Bank of
Korea (IBK)
Multi-currency
Conventional
and/or Islamic
MTN
Programme
2.
The ExportImport Bank
of Korea
(KEXIM)
Multi-currency
Conventional
and/or Islamic
MTN
Programme
Islamic Principle
Issue Size
Tenure
Ratings
Security
Ijarah, Istisna’,
Mudharabah
and/or
Musyarakah
Up to RM3,000
million
Up to 10
years
AAA
Unsecured
Ijarah, Istisna’,
Mudharabah
and/or
Musyarakah
Up to RM3,000
million
Up to 10
years
AAA
Unsecured
Issue Size
Tenure
Ratings
Up to RM1.0
billion
Up to 10
years
AAA
RM Denominated Conventional PDS
No.
1.
Issuer
Woori Bank
(Incorporated in Korea)
Instrument
MTN
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Security
Unsecured
Examples of PDS Issuance (con’t)
RM Denominated PDS – Guaranteed by Parent Company
No.
Issuer
Instrument
1.
Nestle
Foods (M)
Sdn Bhd
CP/MTN
Programme
2.
Toyota
Capital (M)
Sdn Bhd
MTN
Programme
Tesco
Stores (M)
Sdn Bhd
Islamic
CP/MTN
Programme
and
Conventional
CP/MTN
Programme
3.
Islamic Principle
Issue Size
Tenure
Ratings
Up to
RM700
million
7 years
AAA/P1
Nestle (M)
Berhad
Up to
RM1,200
million
10 years
AAA
Toyota Motor
Finance
(Netherlands)
BV
Up to
RM3,500
million
7 years (for
CPs) and
15 years
(for MTN)
P1 (for
CP) and
AAA
(for
MTN)
Tesco Plc
Issue Size
Tenure
Ratings
Up to RM300
million
7 years
Murabahah
N/A
Murabahah/
Musyarakah
Guarantor
RM Denominated PDS – Other Multinational Corporations
No.
1.
Issuer
Esso
Malaysia
Berhad
Instrument
CP
Programme
Islamic Principle
Murabahah
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P1
Guarantor
-
Syndicated Financing
A financing facility granted by a group of financiers.
Lead arrange by one or more financiers.
About
Syndicated
Financing
Several roles such as Bookrunner(s), Underwriting Financier(s),
Security Agent, Facility Agent etc. are accorded to the Lead
Arrangers.
Financing amount committed by each of the participating
financers may differ depending on the title.
Wide options on the structure e.g. Corporate Financing,
Investment / Acquisition/Financing, Project Financing etc.
May entail more than one facility.
Documented in a single financing agreement with common
terms and conditions.
Factors to
determine
the Obligor
Financing amount required.
Creditworthiness/ bankability.
Industry segmentation.
Customer profile.
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Syndicated Financing (con’t)
Access the
Syndicated
Financing
Market
Customer to discuss funding requirements with potential Lead
Arranger(s).
Request for financing proposal.
Select the suitable financing proposal and appoint the Lead
Arranger(s).
Work towards financial close with the Lead Arranger(s).
Financing structure tailored made to meet the funding
requirements.
Financing
Structure
¾ Term and/or revolving facility; drawdown period; bullet or
amortising payment; early settlement; single or multicurrency denominated; secured or unsecured financing;
assignment etc.
Terms and conditions need to meet the requirements of both the
customer and financiers.
Mainly domestic and international financial institutions.
Financiers
Takaful operators & insurance companies.
Pension, retirement and
governments agencies.
Page 15
pilgrimage
funds
and-quasi
Why Syndicated Financing
Difficult and large deals still get done.
Limited disclosure/ Disclosure is limited to several parties only.
Not complicated and more expedient as compared to Sukuk/ Bonds issuance.
Suitable for refinancing purposes.
Allows the company to develop banking relationship in the market place.
For customer/obligor of a lesser credit/financial standing, lower cost of borrowings
can be achieved with the parent company’s guarantee (of a stronger
credit/financial).
Page 16
Syndicated Financing – A comparison
Syndicated Financing
Sukuk/ Bond
Rating
Not required
Required
Tenor
Short to medium terms i.e. between 3 Longer maturity up to 20/ 30 years.
to 7 years
Investor
Primarily commercial banks
Pricing
Pricing determined earlier and subject Determine prior to issuance and
to agreement between the Customer subject to investors’ appetites
and banks
Process
Shorter process due to small pool of Lengthy process including regulatory
investors
and
existing
banking approval
relationship
Covenants
Maintenance based
Stamp Duty
Ad-volerem
Nominal
(Full or partial exemptions is subject to
product types and/or the approved
Shariah principles)
Typically
fund
managers
institutional investors
and
Depending on the rating, it could be
lenient for high rated Sukuk/ Bond.
Page 17
Malaysia’s Syndicated Financing Markets
Sector Breakdown of Syndicated Financing in 2010
Source: Bloomberg Finance L.P.
Page 18
Notable Transactions
USD150.0 million
Sukuk Al Ijarah
RM1.0 billion
Istisna’
RM1.5 billion
Al-Ijarah Muntahiyah
Bit-Tamlik
USD600.0 million
Sukuk Al Ijarah
RM2.2 billion
BaIDS
First Global Sukuk Inc
Sole Lead Arranger
Projek Usahasama
Transit Aliran Ringan
Joint Arranger & Shariah
Advisor
Kumpulan Guthrie Berhad
Structuring & Shariah
Advisor
Malaysia Global Sukuk Inc
Co-Arranger
KL International Airport
Berhad
Sole Lead Arranger
RM1.28 billion
BaIDS
RM752.2 million
Mudharabah Sukuk
RM200.0 million BBA CPs
RM3.0 billion BBA MTNs
RM1.5 billion
Islamic Medium Term Notes
Programme
RM200.0 million
Bai’ Murabahah Medium
Term Notes Programme
SAJ Holdings Sdn Bhd
Joint Lead Arranger/Lead
Manager & Shariah Advisor
Manfaat Tetap Sdn Bhd
Shariah Advisor
Syarikat Bekalan Air
Selangor Sdn Bhd
Joint Lead Arranger &
Shariah Advisor
Malaysia Debt Ventures
Berhad
Joint Lead Manager
TH Plantations Berhad
Shariah Advisor
Page 19
Notable Transactions (cont’d)
RM4.0 billion
Ijarah Medium Term Notes
Programme
RM4.0 billion
Sukuk Musyarakah
RM500.0 million
Bank Guaranteed
Sukuk Ijarah
RM667.5 million
Syndicated Project
Financing Facilities
RM327.0 million
Syndicated Islamic
Financing Facility
Syarikat Prasarana Negara
Berhad
Co-Manager
Plus SPV Berhad
Joint Book Runner
Aras Sejagat Sdn Bhd
Joint Lead Manager
Ranhill Powertron II Sdn
Bhd
Senior Manager
Prolintas Expressway Sdn
Bhd
Lead Arranger
USD150.0 million*
Syndicated Islamic
Financing Facility
RM330.0 million
Syndicated Islamic
Financing Facility
RM800.0.0 million
Syndicated Islamic
Financing Facilities
RM10.0 billion
Islamic Medium Term Notes
Programme
Qatar Airways Q.C.S.C
Arranger
Kedah Sato Sdn Bhd
Lead Arranger
Aura Bayu Sdn Bhd
Senior Manager
Aman Sukuk Berhad
Joint Lead Manager &
Shariah Advisor
*Ijarah deal of the year 2009 – Islamic Finance News
*Qatar deal of the year 2009 – Islamic Finance News
*Best Islamic Structured Financing – The Asset Triple A Islamic Finance Awards
2010
Page 20
‫ﻼ‬
ً ‫ﺟ ِﺰ ْﻳ‬
َ ‫ﺷ ْﻜﺮًا‬
ُ
Thank You
‫ﺴﻼَم‬
َ ‫وَا ْﻟ‬
Wassalam
Page 21