quarterly sukuk review

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quarterly sukuk review
QUARTERLY
SUKUK
REVIEW
Q1, 2015 Edition
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BLOOMBERG SUKUK & ISLAMIC FINANCING LEAG TABLE 1ST QTR 2015
*Source: Bloomberg Data
LIST OF SUKUK ISSUANCE THROUGH UNDERWRITING
*Source: Bloomberg Data
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QUARTERLY
SUKUK REVIEW
Q1, 2015 Edition
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ANAKKU SDN BHD
BRIEF SUKUK DATA
Bloomberg Code/ISIN code
Series 1A: VF150040, Series 1B: VF150039,Series 1C: VF150038, Series 2A:
VG150037,Series 2B: VG150036, Series 2C: VG150035, Series 3A: VH150034,
Series 3B: VH150030, Series 3C: VH150029, Series 4A: VI150033, Series 4B:
VI150032, Series 4C: VI150031
Return Rate
Floating rate
Aqad/Contract Basis
al-Wakalah, al-Bai’, and al-Bai’ Bithaman Ajil
Involved Parties in
Sukuk Structure
Anakku Sdn Bhd ( as issuer), AmTrustee Berhad (as sukuk trustee) , Kenanga Investment
Bank Berhad (as principal advisor and lead arranger), Asia Brands Berhad, B.U.M
Marketing(Malaysia), and Audrey Sdn Bhd (as guarantors)
Shariah Advisors Involved
Datuk Dr. Mohd Daud Bakar
ISRA’S REVIEW ON ANAKKU SDN BHD
1.USE OF PROCEEDS FROM SHARIAH
COMPLIANCE ASPECTS
The proceeds from the Sukuk Programme shall be utilized
for the following purposes:
»To utilize RM30,000 to fund the trustee’s reimbursement
account as required under the Securities Commission’s
Trust Deeds Guidelines,
»To finance the investment activities, capital expenditure,
working capital requirements, other general corporate
purposes of the issuer and/or related companies.
In any case, the utilization of the proceeds of the Sukuk
Anakku shall at all times be for Shariah compliant purposes
only. The proceeds of Sukuk Anakku will be channeled to
the related companies via intercompany financings using
the Islamic principles as approved by Shariah Adviser. The
proceeds also will be utilized to purchase Shariah compliant
commodities via Bursa Suq Al-Sila’ or other commodity
trading platform as approved by the Shariah Adviser.
Since the issuer’s principal activities are halal and there is
a disclosure in the document reviewed that they will utilize
the proceeds for Shariah-compliant purposes only, therefore
there are no Shariah issues regarding this matter.
TRADABILITY OF SUKUK
The Sukuk Anakku shall be non-transferable and non-tradable
in the secondary market; also it shall not be listed on Bursa
Malaysia Securities Berhad or any other stock exchange.
Since this sukuk will be non-tradable in the secondary market,
hence there is no Shariah issue in this matter.
TRANSACTION FLOW OF THE SUKUK
»Pursuant to wakalah principle, Anakku shall enter into a
master wakalah agreement with AmTrustee Berhad on behalf
of investors pursuant to which Anakku will be appointed by
AmTrustee to be its agent for the purpose of investment in
Shariah-compliant commodity on behalf of the investors.
»Upon receiving cash from investors, the issuer shall
declare and constitute a trust (“sukuk trust”) for the benefit
of investors.
»The issuer shall appoint AmTrustee Berhad as a trustee
for the sukuk trust to manage the sukuk trust via the trust
deed based on the principle of wakalah.
»The issuer will issue Sukuk Anakku to investors to
represent the undivided interest in the sukuk trust. The
Sukuk holders shall subscribe to the Sukuk Anakku issued
by the issuer and paying in cash to sukuk trustee. At this
juncture the sukuk trust comprises cash.
»The issuer shall be appointed as transaction administrator
by sukuk trustee for the administration of the sukuk trust.
The transaction administrator shall be responsible to carry
out, monitor and administer the commodity investment
including procuring the necessary agreements and/or
arrangements relating to the commodity investment to be
duly executed prior to the issuance of the Sukuk Anakku.
»Sukuk trustee shall utilise the entire proceeds of Sukuk
Anakku to purchase Shariah-compliant commodities via
Bursa Suq Al-Sila’ or other commodity trading platform
as approved by the Shariah Adviser. Sukuk trustee may
appoint Kenanga Investment Bank Berhad to purchase
Shariah compliant commodities from identified commodity
vendors in the Bursa Suq Al-Sila’ commodity market at
a purchase price on spot basis for cash consideration.
Sukuk trustee will issue an authorization to the commodity
agent to purchase and conclude the purchase transaction
on its behalf. Upon completion of the purchase
transaction, the commodity agent shall confirm the
purchase and ownership of the commodities on behalf of
the sukuk holders.
»Sukuk trustee will then sell the commodities to the issuer
at a sale price to be paid on deferred payment basis, in
accordance with the Shariah principle of al-Bai’ Bithaman
Ajil and subject to the terms and conditions as agreed. At
this juncture the sukuk trust comprises receivables.
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Q1, 2015 Edition
»Upon completion of the purchase, the issuer then appoint
commodity agent to sell the commodities to Bursa Malaysia
Islamic Services Sdn Bhd in the Bursa Suq Al-Sila’
commodity market on spot basis for cash consideration.
The issuer will issue an authorisation to the commodity
agent to sell and conclude the sale transaction on its behalf.
»The issuer shall pay the deferred sale price on deferred
payment basis via the Sukuk trustee to the Sukuk holders.
»
The guarantors shall provide a corporate guarantee to
guarantee the full payment of the deferred sale price,
ta’widh and any other related charges, fees, expenses and
any other payment obligations of Sukuk Anakku in favour of
the security trustee upon declaration of an event of default.
UNDERLYING ASSETS/BUSINESS POSSESION
BY SUKUK HOLDER
Shariah-compliant commodities (exclude ribawi items in the
category of medium of exchange such as currency, gold,
and silver) provided through the commodity trading platform,
Bursa Suq Al-Sila’.
OVERALL SHARIAH REVIEW OF SUKUK
Overall, the sukuk structure meets the Shariah requirements
in terms of the underlying contract that governs the contractual
relationship between the parties involved in the programme
and utilisation of proceeds. As such, there is no doubt in its
Shariah compliance at all stages of the sukuk programme.
STRUCTURE DIAGRAM & CASHFLOWS
④ Issue Sukuk
SUKUK
HOLDERS
Cash
④ Subscription Amount
Commodity
1. Appoint Wakeet
② & ③ Declares and constitutes a trust & Appoint
Sukuk Trustee to manage the Sukuk Trust
ANAKKU
SDN BHD
(Issuer/
Transaction
Adminstrator)
⑤ Appoint Anakku as Transaction Administrator
⑦ Sell Commodity on Deferred Payment
AMTRUSTEE
BERHAD
(Sukuk Trustee)
⑩
Kafalah
GUARANTORS
⑨ Deferred Payment
⑧
Appoint
Commodity
Agent & Sell
Commodity on
Spot
⑥
Appoint
Commodity
Agent &
Purchase
Commodity on
Spot
Commodity
Agent
Commodity
Agent
*Source: Sukuk Offer Document
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PETRONAS GLOBAL SUKUK LTD
BRIEF SUKUK DATA
Bloomberg Code/ISIN code
USY68868AA92
Return Rate
2.707%
Aqad/Contract Basis
Wakalah bi al-istithmar
Involved Parties in
Sukuk Structure
PETRONAS Global Sukuk Ltd (as trustee, issuer, purchaser and lessor), Petroliam
Nasional Berhad (PETRONAS) (as obligor, buyer, wakil, lessee and servicing agent),
PETRONAS Penapisan (Melaka) Sdn. Bhd. (as seller)
Shariah Advisors Involved
CIMB Islamic Bank Berhad and the Shariah Board of Citi Islamic Investment Bank E.C.
CIMB Islamic Bank Berhad and the Shariah Board of Citi Islamic Investment Bank E.C.
ISRA’S REVIEW ON PETRONAS GLOBAL SUKUK LTD
USE OF PROCEEDS FROM SHARIAH
COMPLIANCE ASPECTS
The proceeds from the issuance of the certificates will be
used to purchase: (a) the leased assets from PETRONAS
and/or its subsidiaries; and (b) the commodities.
PETRONAS and/or its subsidiaries will use the proceeds
to finance capital expenditures and for general corporate
purposes which are Shariah-compliant.
Since the issuer’s principal activities are Shariah-compliant
and as clearly stated, the proceed will be used for Shariahcompliant purposes, thus, it complies with Shariah.
TRADABILITY OF SUKUK
Approval-in-principle has been obtained for (i) listing of
the certificates on, and admission to the Official List of,
the Labuan International Financial Exchange, and (ii) listing
of the certificates on, and admission to the Official List of,
Bursa Malaysia Securities Berhad under an exempt regime
and application has been made for listing of the certificates
on The Stock Exchange of Hong Kong Limited.
In term of the tradability of this sukuk, it can be said that
this sukuk is tradable subject to its compliance with AAOIFI
Shariah Standards No. 21, since the underlying assets
comprises of tangible and intangible assets. Article 3/19
states: “If its purpose and activity pertain to trading in
tangible assets, benefits and rights, trading in its shares is
permitted without taking into account the rules of sarf or
transactions in debts, with the condition that the total market
value of assets, benefits and rights should not be less than
30% of the total assets value of the corporation including all
assets, benefits, rights and cash liquidity (the corporation’s
debts, current accounts with others, and bonds it holds
which constitute debts) irrespective of their size as in such
a case these are secondary. If, however, the objective of the
corporation and its usual activity is dealing in gold, silver or
currencies (sarrafah), it is obligatory to undertake trading in
its shares in the light of the rules of sarf.”
TRANSACTION FLOW OF SUKUK
»On the closing date, the certificate holders will pay the
issue price in respect of the certificates to the trustee,
and the trustee will:
(a) Apply no more than 67 per cent of the sukuk
issue amount to purchase commodities and sell
such commodities to PETRONAS pursuant to the
commodity murabahah investment agreement. In return
for purchasing the commodities, PETRONAS will pay
the aggregate deferred sale price one business day
prior to the relevant dissolution date on the terms of the
commodity murabahah investment agreement; and
(b) Apply no less than 33 per cent of the sukuk issue
amount as the purchase price to acquire the relevant
assets from PETRONAS Penapisan (Melaka) Sdn. Bhd.
pursuant to the purchase agreement and lease such
assets to PETRONAS pursuant to the lease agreement,
and the above sukuk assets will form part of the
wakalah portfolio.
»Rentals due in respect of the leased assets under the
lease agreement would be paid by the lessee to the lessor
on each semi-annual rental payment date.
»On each periodic distribution date, the trustee will use
such rentals to pay the periodic distribution amounts
payable by the trustee under the certificates and shall be
applied by the trustee for that purpose.
»By no later than 30 days prior to the scheduled
dissolution date, the trustee will have the right under
the purchase undertaking to require PETRONAS to
purchase and accept the transfer and conveyance of all
of its interests, rights, benefits and entitlements in and
to leased assets for the exercise price equal to the lease
dissolution distribution amount. The lease dissolution
distribution amount, together with the aggregate deferred
sale price payable by PETRONAS to the trustee under
the commodity murabahah investment agreement will be
used to fund the dissolution distribution amount payable
by the trustee under the certificates.
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UNDERLYING ASSETS/BUSINESS POSSESION
BY SUKUK HOLDER
»The leased assets to be leased by the lessor to the lessee
pursuant to a Shariah-compliant lease agreement; and
»Any commodities to be purchased by the trustee to
be sold to PETRONAS pursuant to the commodity
murabahah investment agreement.
OVERALL SHARIAH REVIEW OF SUKUK
Overall, the sukuk structure meets the Shariah requirements
in terms of utilization of proceeds. However, in term of
tradability, the sukuk can only be traded if it meets the AAOIFI
requirements mentioned above.
STRUCTURE DIAGRAM & CASHFLOWS
CERTIFICATEHOLDERS
⑦⑧ Redeem
Certificates
⑦ Purchase Price
⑧ Deferred Sale Price
PETRONAS
Obligor
⑦ Purchase Undertaking
PETRONAS GLOBAL SUKUK LTD. (SPV)
Issuer/Trustee/Lessor/Principal
⑥ Sell
Commodities
Deferred Basis
⑥ 67% ≤
Proceeds
⑥ Commodity
Murabahah
Investment
Agreement
⑥ Commodities
① Proceeds
② Wakalah Agreement
⑥ Commodities
Commodity broker #1
① Declare
trust & issue
Certificates
PETRONAS
Buyer
(Commodities)
④ Pay
Rental
④ Lease
Agreement
③ Purchase
Agreement
PETRONAS
Wakeel
③ ≥33%
④ Lease
Proceeds
Assets
⑤ Servicing
Agency
③ Leased
Agreement Assets
PETRONAS
PETRONAS
Lease
subsidiary
(Leased Assets)
Seller
⑥ 67% ≤
Proceeds
Commodity broker #2
INTANGIBLE PORTION
TANGIBLE PORTION
*Source: Sukuk Offer Document
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KT KIRA SERTIFIKALARI VARLIK KIRALAMA A.Ş.
BRIEF SUKUK DATA
Bloomberg Code/ISIN code
VI150045
Return Rate
5.8 %
Aqad/Contract Basis
Wakalah bi Al-Istithmar
Involved Parties in
Sukuk Structure
KT Kira Sertifikaları Varlık Kiralama A.Ş. (as a issuer), Kuveyt Türk Katılım Bankası A.Ş.
(as a obligor) and Maybank Trustees Berhad (as trustee).
CIMB Investment Bank Berhad, Kuwait Finance House (Malaysia) Berhad and
Maybank Investment Bank Berhad (as Joint Principal Advisers).
Shariah Advisors Involved
CIMB Islamic Bank Berhad, KFH Malaysia and Maybank Islamic Berhad
ISRA’S REVIEW ON KT KIRA SERTIFIKALARI VARLIK KIRALAMA A.Ş.
USE OF SUKUK PROCEEDS FROM
SHARIAH COMPLIANCE ASPECTS
The proceeds from sukuk will be used as follow:
Issuer’s utilization:
The proceeds raised from the issuance of the sukuk
wakalah shall be utilized by the issuer to pay the purchase
price of the relevant initial assets portfolio purchased from
Kuveyt Türk on each issue date of the sukuk wakalah.
Obligor’s utilization:
The proceeds from the sale of the relevant assets portfolio
under the purchase agreement shall be utilized by Kuveyt
Türk for its general corporate and funding purposes
provided always that any such utilization shall be in
compliance with Shariah.
Regarding the issuer’s utilization, there is no determination
on the initial asset portfolio. However due to the disclosure
in the document of the review the utilization shall be in
compliance with Shariah. Hence, we can conclude that the
issuer’s utilization is Shariah compliant.
Regarding the obligor’s utilization, there is no doubt that it
is Shariah compliant. This is due to the principal activities of
the obligor is Islamic banking businesses.
TRADABILITY OF SUKUK
The Sukuk Wakalah will not be listed on any stock exchange.
Regarding the tradability of sukuk wakalah, it is clearly
mentioned in the AAOIFI Shariah Standards no 17,
Article 5/2/16 that “It is permissible to trade in Mudaraba,
Musharakah and investment agency [wakalah] certificates
after closing of subscription, allotment of the certificates
and commencement of activity with respect to the assets
and usufructs”.
TRANSACTION FLOW OF SUKUK
Each series of the sukuk wakalah will be issued from time to
time under the sukuk wakalah programme. The transaction
flow of Sukuk under the sukuk wakalah programme is
as follows:
»Declaration of trust and agency agreement between
KT Kira (the issuer) and the investors as sukuk holders.
Through this agreement, KT Kira shall act as agent in
respect of the sukuk assets for the benefit and for the
account of the sukuk holders.
»Thereby, the issuer shall issue sukuk wakalah to the sukuk
holders, and they will pay the issue price in respect of the
sukuk wakalah to KT Kira.
»KT Kira (sukuk holders agent) will enter into a purchase
agreement with Kuveyt Türk (seller) and pay such amount
to Kuveyt Türk as the purchase price payable under the
purchase agreement for the initial assets portfolio.
»Under a management agreement, KT Kira will appoint
Kuveyt Türk as the managing agent for a one-off fixed fee
in respect of the assets portfolio.
»KT Kira will lease the real estate ijarah assets to Kuveyt
Türk pursuant to a lease agreement. Rental, payable under
the lease agreement will be paid to the managing agent
for the account of KT Kira as lessor.
»The issuer will pay periodic distribution amounts solely
from the proceeds received in respect of the assets
portfolio, which include payments by Kuveyt Türk as
lessee and as managing agent under the lease agreement
and the management agreement, respectively.
»Pursuant to the purchase undertaking, Kuveyt Türk as
the obligor undertakes, at the option of the sukuk holders
agent, to purchase the assets portfolio (or part thereof)
from KT Kira at the relevant Exercise Price and execute a
sale agreement.
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»Pursuant to the sale undertaking, Kuveyt Türk has the
right to oblige the sukuk holders agent to transfer or sell
the assets portfolio (or part thereof) to Kuveyt Türk and
execute a transfer agreement or sale agreement for such
transfer or sale.
»On the scheduled termination date, the sukuk holders
agent will have the right under the purchase undertaking
to require Kuveyt Türk to purchase the assets portfolio
and pay the exercise price payable by Kuveyt Türk to
KT Kira together with the amounts realised upon the
termination of any shariah compliant investments by
the managing agent and the payment of such amounts
by Kuveyt Türk, and any portfolio principal revenues
and portfolio income revenues then held by the
managing agent, to KT Kira, in each case pursuant to
the management agreement, is intended to fund the
aggregate outstanding nominal value of the sukuk wakalah
plus all accrued and unpaid periodic distribution amounts
in respect of such sukuk wakalah payable by the issuer
under the sukuk wakalah.
UNDERLYING ASSETS/BUSINESS POSSESION
BY SUKUK HOLDER
The assets portfolio is composed by real estate ijarah
assets, ijarah assets, tangible investment sukuk and
murabahah assets. The real estate ijarah assets shall
comprise of physical assets legally and beneficially owned
by Kuveyt Turk. The ijarah assets shall comprise of certain
assets which are the subject of ijarah (lease) contracts
(including the related ijarah contracts and all rights under
such contracts) while tangible investment sukuk shall
comprise of sukuk certificates having associated with such
certificates underlying tangible assets of a value not less
than the aggregate nominal value of those certificates. The
murabahah assets shall comprise of receivables under
murabahah contracts (involving the sale of commodities
on a deferred payment basis, which deferred payment
includes a related profit amount), together with the related
murabahah contract and all rights under such contract.
OVERALL SHARIAH REVIEW OF SUKUK
Overall, the sukuk structure is Shariah-compliant as the
proceeds have been used to fund Shariah compliant
activities. In term of tradability of the sukuk, there is no
Shariah issue in regards to its permissibility to be traded.
TRANSACTION STRUCTURE FOR THE SUKUK WAKALAH PROGRAMME
INVESTORS AS SUKUKHOLDERS
Asset Movement
Cash Movement
1(ii)
Declaration
of Trust and
Agency
Agreement
1(ii)
Sukuk
Wakalah
1(ii)
Issuance
Proceeds
4
Periodic
Distribution
Amount
7
Termination
Distribution
Amount
1(ii)
Issuance
Proceeds
KUVEYT TURK
AS SELLER
1(iii)
KT KIRA AS ISSUER AND SUKUKHOLDERS’ AGENT
Assets
Portfolio
3
Rental
Proceeds
*Source: Sukuk Offer Document
Portfolio Principal
Revenues, Portfolio
2
Management Income Revenues and
Agreement Investment Revenues
5&6
and amounts realized
Lease
Exercise Price
from sale of Constituent
Agreements
Assets in respect of any
Shortfall Amount
KUVEYT TURK AS
LESSEE OF THE
REAL ESTATE IJARAH
ASSETS
KUVEYT TURK AS
MANAGING AGENT
5&6
Assets
Portfolio
KUVEYT TURK
AS OBLIGOR
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HSBC AMANAH MALAYSIA BHD
BRIEF SUKUK DATA
Bloomberg Code/ISIN code
VI150044
Return Rate
4.24%
Aqad/Contract Basis
Wakalah
Involved Parties in
Sukuk Structure
HSBC Amanah Malaysia Berhad (as issuer/principal advisor/lead arranger) and
Malaysian Trustees Berhad (as trustee)
Shariah Advisors Involved
HSBC Amanah Malaysia Berhad
ISRA’S REVIEW ON HSBC AMANAH MALAYSIA BHD
USE OF SUKUK PROCEEDS FROM SHARIAH
COMPLIANCE ASPECTS
The proceeds from the Sukuk will be utilized as working
capital in the ordinary course of HBMS’ Islamic banking
business. Since the principal activities of the issuer are
shariah-compliant, thus the use of proceeds to finance its
general business is in line with Shariah principles.
Standards No 21, since the underlying assets are comprised
of tangible and intangible assets. Article 3/19 states: “If its
purpose and activity pertain to trading in tangible assets,
benefits and rights, trading in its shares is permitted without
taking into account the rules of sarf or transactions in debts,
with the condition that the total market value of assets,
benefits and rights should not be less than 30% of the total
assets value of the corporation including all assets, benefits,
rights and cash liquidity (the corporation’s debts, current
accounts with others, and bonds it holds which constitute
debts) irrespective of their size as in such a case these
are secondary. If, however, the objective of the corporation
and its usual activity is dealing in gold, silver or currencies
(sarrafah), it is obligatory to undertake trading in its shares in
the light of the rules of sarf.”
TRADABILITY OF SUKUK
The Sukuk may be listed on one or more stock exchanges
to be determined prior to each issuance such as, Bursa
Malaysia Securities Berhad’s Exempt Regime.
In term of the tradability of this sukuk, it is tradable
internationally subject to its compliance with AAOIFI Shariah
INCEPTION
Commodities
HBMS
(As Purchaser)
HBMS
②
Master
Purchase
Agreement
Tangile Assets
10% of Sukuk
proceeds
HBMS
(As Obligor)
(3b)
Commodity
Murabahah
Agreement
Commodities
HBMS
(As Wakeel/ Issuer)
①
Wakalah
Agreement
Sukuk
proceeds
TRUSTEE
(On Behalf of
Sukukholders)
Purchase
Undertaking ⑥
BURSA
90% of the Sukuk
proceeds (3a)
Issue
Sukuk ⑤
Trust Deed ④
MATURITY
ONGOING
HBMS
(As Wakeel)
BURSA
90% of the Sukuk
proceeds
(7a)
Income from Assets as
Incentive Fee
TANGIBLE
ASSETS
HBMS
(As Purchaser)
(7b)
HBMS
(As Obligor)
Profit Component to meet
Periodic Distribution Amount
TRUSTEE
(On Behalf of
Sukukholders)
Periodic
Distribution
SUKUKHOLDERS
HBMS
(As Purchaser)
(8a) Exercise Price
(8b) Deferred Sale
Price
TRUSTEE
(On Behalf of Sukukholders)
(8c)Sukuk
Redemption
SUKUKHOLDERS
*Source: Sukuk Offer Document
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TRANSACTION FLOW OF SUKUK
The issuance of each series of the sukuk from time to
time under the Multi-Currency Sukuk Programme shall be
effected as follows:
»Pursuant to a wakalah agreement, the trustee will appoint
the issuer as a wakil (or agent) to perform services which
will include purchasing and managing the tangible assets
throughout the life of the Sukuk as well as to purchase and
sell Shariah-compliant commodities on its behalf.
»The trustee will agree to purchase from time to time via
the wakil the beneficial ownership of pre-identified and
existing tangible assets from the issuer at fair value using a
minimum of 10% of proceeds from the Sukuk to be issued.
Upon completion of the sale and purchase of the tangible
assets, the issuer shall hold the tangible assets on trust
for the trustee (on behalf of Sukuk holders), and pursuant
to the wakalah agreement, the issuer shall manage the
tangible assets for the trustee (on behalf of Sukuk holders).
»Pursuant to a master commodity murabahah agreement,
the issuer (as purchaser for itself) issues a purchase
request to the trustee requesting the trustee to sell the
commodities to the issuer and the issuer will irrevocably
undertake to purchase the commodities from the trustee.
Based on the purchase request, the trustee via the wakil
will utilize not more than 90% of the Sukuk proceeds to
purchase on spot basis the commodities from Bursa Suq
Al-Sila’ (“cost price”).
»Upon purchase of the commodities and pursuant to a
sale and purchase agreement, the wakil (on behalf of
the trustee) shall sell the commodities to the issuer (as
purchaser for itself) at a sale price which is to be paid on
a deferred basis (“deferred sale price”). Upon completion
of such purchase, the issuer shall sell the commodities to
Bursa Suq Al-Sila’ on spot basis for an amount equal to
the cost price.
»Pursuant to a trust deed, the trustee will declare a trust
for the benefit of the Sukukholders over the proceeds of
the Sukuk to be issued and all the rights, title, interest,
present and future, in the trust assets acquired with the
Sukuk proceeds.
»The issuer shall issue the Sukuk to the Sukuk holders. The
Sukuk shall represent the proportionate undivided beneficial
ownership of the Sukuk holders in the trust assets.
»Pursuant to a purchase undertaking, the issuer (as obligor)
will grant an irrevocable and unconditional undertaking to
the trustee to purchase the tangible assets at the Sukuk
maturity or upon the occurrence of an event of default for
an amount equivalent to the tangible asset purchase price
(“exercise price”).
»Income generated by the tangible assets will be retained
by the issuer as incentive fee for its services as wakil in
purchasing and managing the tangible assets under the
wakalah agreement. The profit component of the deferred
sale price will be payable by the issuer and distributed
to the Sukuk holders to meet the periodic distribution
payments (if any) under the Sukuk.
»At the Sukuk maturity or upon the occurrence of an event of
default, (a) the trustee shall invoke the purchase undertaking
and the issuer (as obligor) shall pay the exercise price to
the trustee, whereupon the beneficial ownership of the
tangible assets will revert to the issuer, and the trust in
respect thereof shall dissolve; and (b) the entire outstanding
deferred sale price shall be immediately due and payable by
the issuer to the trustee.
UNDERLYING ASSET/BUSINESS POSSESION
BY SUKUK HOLDER
The underlying assets comprise of: (a) tangible assets
which are the issuer’s Islamic financing assets as more
particularly described in the master purchase agreement
and the relevant purchase agreement in respect of a series
of the Sukuk and such other equivalent type of Islamic
financing assets of the issuer substituted therefor from time
to time in accordance with the terms of the master purchase
agreement and the relevant purchase agreement, and
(b) Shariah-compliant commodities available at Bursa Suq
al-Sila’ as approved by its shariah adviser.
OVERALL SHARIAH REVIEW OF SUKUK
Overall, the sukuk structure meets the Shariah requirements in
terms of utilization of proceeds and the underlying assets used
in the murabahah transaction are shariah-compliant asset.
However, there is two Shariah issues that may arise in this
sukuk. Firstly, in term of whether it is permissible to appoint
someone as an agent to be a purchaser and as well as a
seller at a same time. According to the Fatwa of Kuwait
Finance House, it is only permissible for the agent to sell the
identified goods to himself after the principal concluded the
selling price. Based on the prospectus reviewed, it is clear
that in this sukuk, the selling price has been predetermined
at the early of the contract. As such, there is no doubt in
its Shariah compliance. Secondly, in term of whether it is
permissible to trade the sukuk in secondary market. From
the perspective of Shariah Advisory Council (SAC) of the
Securities Commission Malaysia, it can be traded even
though the sukuk represent 90% of receivables and 10%
of tangible assets. However, the sukuk cannot be traded
according to AAOIFI Shariah Standard no. 21, Article 3/19.
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KHADRAWY LIMITED
BRIEF SUKUK DATA
Bloomberg Code/ISIN code
XS1203164782
Return Rate
2.471%
Aqad/Contract Basis
Ijarah mawsufah fi zimmah
Involved Parties in
Sukuk Structure
Khadrawy Limited (as issuer/trustee), Emirates (as delegate of trustee/lessee), Citibank
N.A, London Branch (delegate of trustee), Her Britannic Majesty’s Secretary of State
acting by the Export Credits Guarantee Department (currently operating as UK Export
Finance) (“ECGD”) (as guarantor), Khadrawy Aircraft Limited (as owner trustee),
Khadrawy Leasing Limited (as lessor),
Shariah Advisors Involved
The Shari’a Supervisory Board of Citi Islamic Investment Bank E.C., the Executive
Shariah Committee of HSBC Saudi Arabia Limited, the Shariah Committee of National
Bank of Abu Dhabi, the Shari’a Advisors of J.P. Morgan, the Shari’a Supervisory
Committee of Standard Chartered Bank and the Fatwa and Shari’a Supervision Board
of Dubai Islamic Bank.
ISRA’S REVIEW ON KHADRAWY LIMITED
USE OF SUKUK PROCEEDS FROM SHARIAH
COMPLIANCE ASPECTS
The sukuk proceeds will be utilized for purchasing certain
rights to travel pursuant to the purchase of services
agreement in consideration for payment of the available tonne
kilometers (ATKM) purchase price, as well as for procuring
the acquisition of four specified aircraft pursuant to the terms
of the procurement agreement. The rights to travel consist
of right and entitlement of trustee to travel on any airline
passenger route operated from time to time by Emirates and
all services ordinarily provided by Emirates to passengers
travelling on such route except for any services relating to the
sale of alcohol, pork or tobacco-related products.
Based on the purposes mentioned above, there is no doubt
that the use of proceeds complies with Shariah.
TRADABILITY OF SUKUK
Application has been made for the certificates to be
admitted to listing on the Official List of the UKLA and for
trading on the London Stock Exchange’s regulated market. In
addition, application has also been made for the certificates
to be admitted for listing on the official list of securities
maintained by the DFSA and for trading on NASDAQ Dubai.
Regarding the tradability of ijarah fi zimmah sukuk, it is
clearly mentioned in the AAOIFI Shariah Standards no 17,
Article 5/2/8 that “It is not permissible to trade in certificates
of ownership of usufructs of a described asset before
the asset from which usufructs is to be made available is
ascertained, except by observing the rules for disposal of
receivables. When the asset is ascertained, trading in sukuk
of usufructs of such assets may take place”.
TRANSACTION FLOW OF SUKUK
»On the closing date, the Trustee issues certificates
to certificateholders in consideration for the
issuance proceeds.
»The trustee declares a trust in favour of the
certificateholders over the issuer trust assets.
»Pursuant to the purchase of services agreement,
Emirates (as seller) sells and transfers on the closing date
to the trustee (as purchaser) all of the rights to travel in
consideration for the ATKM Purchase Price.
»The trustee shall contribute to the owner trustee the
issuance proceeds balance and all of its interest, rights,
benefits and entitlements, present and future, in and to
the rights to travel.
»Pursuant to the owner declaration of trust, the owner
trustee shall use such assets to: (a) credit the secured
proceeds account with the issuance proceeds balance;
(b) procure the acquisition of specified aircraft pursuant to
the terms of the procurement agreement using funds from
the secured proceeds account, together with the rights to
travel; (c) lease such specified aircraft to the lessor under
the relevant owner forward lease agreement and the owner
trustee shall appoint the lessor as service agent in respect
of each leased aircraft under the relevant owner service
agency agreement.
»The lessor shall sub-lease each leased aircraft to
Emirates under the relevant EK forward lease agreement
and the lessor shall appoint Emirates as service agent
in respect of each leased aircraft under the relevant EK
service agency agreement.
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STRUCTURE DIAGRAM AND CASHFLOWS
Cash Flow
Asset Flow
EMIRATES
(11) Emirates
Forward Lease of
Aircraft and EK
Service Agency
Agreement
(12) Advanced Rental
(16) Actual Rental
(31) Security
(30) Security
LESSOR SPV
(20) Aircraft
Exercise
Price
(10) Owner Forward
Lease of Aircraft
and Owner Service
Agency Agreement
(13) Advance
Rental
(24) Aircraft Sale
Undertaking
Sale of Aircraft
EMIRATES
(23)
(5) ATKM
ATKM
Purchase
Purchase
Price
Undertaking
(22) ATKM
Exercise
Price
(17) Actual
Rental
OWNER SPV
(25) Aircraft
Exercise Price
(6)
Declaration of
Owner Trust
(4) Purchase
of Rights to
Travel
(3)
Declaration
of Issuer Trust
ECA SECURITY
TRUSTEE
(29) Security
(8) Issuance
Proceeds
Balance
(9)
Procurement
(14) Delivery
Period Periodic
Profit Distribution
Amount
(26)
Periodic
Distribution
Amounts
ECGD
SECURED
PROCEEDS
AMOUNT
EMIRATES
Purchase
Price for
Aircraft
(7) Issuance
Proceeds
Delivery of
Balance and
Aircraft
Rights to
(15) Advance Rental
Travel
(18) Actual Rental
(21) Aircraft Exercise
Price
TRUSTEE
(1)
(2)
Certificates Issuance
Proceeds
(19) Aircraft Purchase Undertaking
MANUFACTURER
(27)
Dissolution Distribution Amounts/
Partial Dissolution Amounts/ Delivery
Period Partial Distribution Amounts/
Aggregate Total Loss Dissolution
Amounts/ Trust Property Distribution
Amount
(32) Security
CERTIFICATEHOLDERS
(28) ECGD
Guarantee
*Source: Sukuk Offer Document
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»Under the owner forward lease agreements, the lessor
shall be obliged to pay initial advance rental amounts:
(i) on the closing date, to the owner trustee in an amount
equal to the periodic profit distribution amount payable
under the certificates on the first periodic distribution date;
and (ii) on the relevant delivery date, an amount equal to
the equity portion of the price payable to the manufacturer
for the specified aircraft. Emirates is obliged to pay the
equivalent amount of initial advance rental amounts to the
lessor on the closing date and the relevant delivery date
under the relevant EK forward lease agreements.
»The lessor shall grant in favour of the owner trustee and
the ECA security trustee an aircraft purchase undertaking
on the occurrence of a dissolution event, to purchase all
of the owner trustee’s rights, title and interest in and under
the leased aircraft in consideration for the relevant aircraft
exercise price.
»Emirates shall grant in favour of the trustee and the ECA
security trustee an ATKM purchase undertaking, upon the
occurrence of a non-delivery event, or a dissolution event
during the delivery period, to purchase all of the trustee’s
rights, title and interest in and under the relevant portion
of rights to travel in consideration for the relevant ATKM
exercise price.
»The owner trustee shall grant in favour of Emirates an
aircraft sale undertaking to sell to Emirates all of its rights,
title and interest in and under the relevant leased aircraft
in consideration for the relevant aircraft sale undertaking
exercise price.
»Under the terms of the ECGD guarantee, upon receipt
by the guarantor of a non-payment notice from the
principal paying agent (acting on behalf of the trustee)
following the occurrence of a default, the guarantor
guarantees to pay the relevant guaranteed amount in
accordance with the terms of the ECGD guarantee
provided such amount remains unpaid as at the date of
payment under the ECGD guarantee.
4.UNDERLYING ASSET/BUSINESS POSSESION
BY SUKUK HOLDER
The underlying assets are aircrafts, and also rights and
services comprising: (i) the right and entitlement to travel
on any air passenger route operated from time to time
by Emirates; and (ii) all services ordinarily provided by
Emirates to passengers travelling on such route except
for any services relating to the sale of alcohol, pork or
tobacco-related products.
OVERALL SHARIAH REVIEW OF SUKUK
Although the preliminary information memorandum does
not explicitly mention the Shariah compliant contract used,
however it seems that it was ijarah mawsufah fi zimmah
contract used due to there being a forward lease agreement
between the parties involved in this sukuk. With regards to
the usage of the proceeds of this sukuk and their purposes,
it seems that it complies with Shariah. In term of tradability,
the sukuk can be traded after the asset is ascertained, as
mentioned in the AAOIFI Shariah Standards above. Due
to the fact that the information stated in the preliminary
information memorandum is subjected to changes, it is
difficult to give a conclusive comment on the Shariah
compliance of this sukuk. On top of that, this sukuk is yet
to be confirmed by the appointed Shariah advisers as to
whether the sukuk is in compliance with Shariah.
ISRA reviewers:
1. Dr. Shamsiah Mohamad (Senior Researcher)
2. Tawfik Azrak (Shariah Management Trainee)
3. Mohamad Ikhsan Rosli (Shariah Management Trainee)
4. Loubna Kouar (Fellowship Student)
LEARN MORE
For more information please email [email protected] To learn more about Islamic markets on the
Bloomberg Professional® service, go to ISLM <GO> or ISRA <GO>.
Disclaimer: The views expressed in this bulletin does not necessarily reflect those of International Shariah Research Academy for Islamic Finance (ISRA) and Bloomberg or its
editors. Bloomberg and International Shariah Research Academy for Islamic Finance (ISRA) are not liable for errors or any consequences arising from the use of information
contained in this bulletin. No information or opinion expressed herein constitutes a solicitation of the purchase or sale of securities or commodities.
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