YEARS OF RESEARCH
SUKUK REPORT A COMPREHENSIVE STUDY OF THE GLOBAL SUKUK MARKET
July 2021 | 10th Edition
IIFM SUKUK REPORT 2021 About IIFM
IIFM is a global standard-setting body of the Islamic Financial Services Industry (IFSI) focusing on standardisation of Shari’ah-compliant financial contracts and product templates.
IIFM is hosted by the Central Bank of Bahrain (CBB) and was established under Royal Decree No (23) Year 2002 of the Kingdom of Bahrain as a neutral and non-profit international Islamic infrastructure institution created by the collective efforts of the CBB (former- ly Bahrain Monetary Agency), Islamic Development Bank, Bank Indonesia, Bank Negara Malaysia (delegated to Labuan Financial Services Authority), Central Bank of Sudan and Brunei Darussalam Central Bank (formerly Autoriti Monetari Brunei Darussalam).
Besides the Founding and Permanent Members, IIFM Board of Directors consist of Islamic and international banks namely Kuwait Finance House, Dubai Islamic Bank, Saudi National Bank, Bank ABC Islamic, Gulf Finance House, Standard Chartered Saadiq, Credit Agricole CIB and National Bank of Kuwait.
IIFM is also supported by certain regulatory and government bodies such as State Bank of Pakistan, National Bank of Kazakhstan and DIFC Authority as well as by a number of international and regional financial institutions and other market players active in Islamic finance.
Mandate
The core mandated area of IIFM to develop standardised Shari’ah-compliant Financial Documentation, Product Confirmations and Guidelines for the Islamic Financial Services Industry (IFSI).
Value Proposition
Focus on providing well defined services to the IFSI as follows:
I. Publish practical and ready-to-use globally standardised Shari’ah-compliant Financial Documentation, Product Confirmations and related Guidance Notes which are supported with the IIFM Shari’ah Board approval “Pronouncements” as well as jurisdiction specific Legal Opinions
II. Create industry awareness and share technical knowledge on IIFM Standards by organizing specialized seminars, technical workshops and standardisation specific industry consultative meetings
III. Practical Training for Professionals on IIFM Published Standards
IV. Publish annual Sukuk Report and periodic Concept Papers on specific topics
IIFM Global Members IIFM Founding and Permanent Members Abu Dhabi Commercial Bank First Abu Dhabi Bank Abu Dhabi Islamic Bank First National Bank - Islamic Banking Ahli United Bank Gatehouse Bank Ajman Bank GFH Financial Group Al Baraka Banking Group Gulf International Bank Al Salam Bank International Islamic Trade Al Yusr Islamic Banking, Oman Arab Bank Finance Corporation Allen & Overy LLP Islamic Corporation for the Bahrain Islamic Bank Development of the Private Sector Central Bank Labuan Financial Bank ABC Islamic Islamic Development Bank of Bahrain Services Authority Bank AlJazira Ithmaar Bank Bank Indonesia Jordan Islamic Bank Bank Islam Brunei Darussalam Khaleeji Commercial Bank Bank Nizwa Khartoum Stock Exchange Bank of London and the Middle East Kuveyt Turk Participation Bank Bedford Row Capital Kuwait Finance House BNP Paribas Kuwait Finance House - Bahrain Boubyan bank Kuwait International Bank Islamic Central Bank Brunei Darussalam Central Bank Labuan Financial Services Authority Development of Sudan Central Bank of Bahrain National Bank of Fujairah Bank Central Bank of Sudan National Bank of Kazakhstan CIMB Islamic National Bank of Kuwait Citi Islamic Investment Bank NATIXIS Dubai Branch Commercial Bank of Dubai Al Islami OCBC Al-Amin Bank Berhad Crédit Agricole Corporate & Saudi National Bank Investment Bank Securities and Commodities Authori- DDCAP Limited ty, UAE Dubai International Financial Standard Chartered Saadiq Bank Brunei Darussalam Centre Authority State Bank of Pakistan Indonesia Central Bank Dubai Islamic Bank United Gulf Bank Eiger Trading Advisors Limited Ziraat Participation Bank Emirates Islamic Bank
06 IIFM SUKUK REPORT 2021
RESEARCH, DATABASE MAINTENANCE & REVIEW TEAM
07 IIFM SUKUK REPORT 2021
Disclaimer
IIFM has prepared this publication for general information purposes only and this does not constitute an invitation or solicitation to purchase, subscribe for or sell any Sukuk or to engage in, lead into, conclude or refrain from engaging in any transaction.
The information contained in this research report has been obtained from sources considered to be reliable. The Sukuk case studies presented are based on the author’s impression of the structure of the mentioned Sukuk on the basis of information derived from the prospectuses, term sheets and news briefs on the Sukuk. While every effort has been made to ensure its accuracy, IIFM or the author(s) makes no guarantee, representation or warranty as to its accuracy or completeness.
IIFM or the author(s) of articles and case studies contained herein accept no liability whatsoever for any direct, indirect, consequential, or other damages and loss arising from any use of this publication.
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Abstract
This research report examines the International and Domestic Sukuk market developments, structural preferences and other relevant factors based on verified Sukuk issuance data with particular focus on the year 2020.
Sukuk market not only maintined its positive growth trajectory but posted the best year so far in terms of Sukuk issuances which clearly put Sukuk as one of the main driving forces of the industry, despite 2020 having been a challenging year.
As always the case, the main objective of this publication is to create a deeper understanding of Sukuk market through indepth analysis of Sukuk issuances, key trends and other market developments.
Despite the initial concern about the impact of COVID-19 on Islamic capital markets, particulalry Sukuk, contrary to the initial fears the Sukuk issuances during 2020 surpassed the year 2019 issuances.
The global Sukuk market was well supported by the established and regular Sukuk issuing jurisidcitions particulalry Malaysia, Saudi Arabia, UAE, Bahrain, Indonesia, Turkey, Pakistan and Qatar while relatively new entrants namely Nigeria, Bangaldesh and few other jurisdictions or entities either increased or made debut Sukuk issuances in their domestic markets.
The report also provides an overview of changing dynamics in the Sukuk market as well as it highlights the major International and Domestic issuances during 2020. The report also provides information on the outstanding Sukuk which is important from the secondary market development perspective.
This can be used as a benchmark by all the industry stakeholders and decision makers, in particular, in new jurisdictions as well as regions which have a high concentration of the worlds Sukuk issuances such as GCC countries and Asia.
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Acknowledgement
The publication of this research report is made possible due to sponsorship support by Eiger Trading Advisors Limited, GFH Financial Group, Dubai Islamic Bank, DDCAP Group, Bank ABC Islamic, Kuwait Finance House and Labuan Financial Services Authority.
We would also like to express our gratitude and thanks to institutions for sharing their pearls of wisdom, knowledge and experiences during the course of preparation of this comprehensive research report. We are also grateful to individuals and industry stakeholders who provided insight, comments and expertise which helped us in improving the quality of this report.
Indeed, this research report would not have seen light without the support and contribution of such institutions, individuals and the industry stakeholders who provide us with invaluable information that helped us to complete this task through various stages.
We are extremely thankful in particular to Security Commission Malaysia, State Bank of Pakistan, Bank Indonesia, Central Bank of Bahrain, Brunei Darussalam Central Bank, Capital Markets Board of Turkey and Central Bank of Sudan for helping us in the Sukuk issuance data verification process.
We take this opportunity to express our profound gratitude and deep regards to the Central Bank of Bahrain (CBB) for its constant and continued support. We would also like to acknowledge IIFM Board of Directors, Founding Members and Members institutions for their unwavering and unreserved support to IIFM in its industry development endeavours. Lastly, IIFM is very much thankful to its research team for their review and valuable contribution to this research report.
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In the Name of Allah, the Most Gracious, the Most Merciful
All praise is due to Allah. Peace and Blessings be upon our Prophet Muhammad, His Family and all His Companions CHAIRMAN’S FOREWORD
Khalid Hamad Al-Hamad CHAIRMAN – IIFM
It gives me great pleasure to present to you this 10th Anniversary Edition of IIFM Sukuk Report which is made possible by the dedication of the IIFM research team, Sukuk case studies & article contributions from the leading financial institutions, the country focus reports from the member countries’ regulators and last but not least, the valuable support from all the sponsors that made the production of this report possible.
During this ten-year period, the report has become well established as a vital source of information on the global Sukuk market. As the case in previous editions, this 10th Edition contains key statistics and trend analysis on various Sukuk issuing jurisdictions which are not easily available in a consolidated form.
Furthermore, contributions in form of case studies on landmark and notable Sukuk issuances, Sukuk related articles on topics such as Environment, Social and Governance (ESG) and country focus reports provide valuable insights on the most popular Islamic capital market instrument.
The year 2020 established a new record of Sukuk (short term & long term) issuances - USD 174.60 billion - with an increase of 19.84% year-on-year. The longer tenor Sukuk issuance supported by sovereign and financial institutions coupled with an increase in short-term issuances by various issuers resulted in maintaining the upward trend of last year.
The high volatility in Sukuk issuances globally from one year to the next is reflective of the concentrated nature of the market. Over 90% of the USD 648 billion outstanding Sukuk belong to just a handful of key markets – Malaysia, Indonesia, GCC and Turkey. However, this trend is slowly changing, with high potential jurisdictions such as Pakistan, Bangladesh, Egypt Nigeria are becoming more active in Sukuk space.
Although the effects of the unprecedented situation caused by the COVID-19 pandemic continued during the year, the impact of pandemic was confined and limited to a few corporate issuers and overall Sukuk remained an attractive instrument and the positive growth trajectory continued during first half of 2021.
There is a growing and an increasing need to address the various challenges that come with the development and evolution of any financial instrument and should be addressed and tackled by creating greater transparency and standardization in documentation and practices. I sincerely hope that the issuers and investors will reap maximum benefits from the Sukuk related standards published by IIFM and other standard setting organizations in the industry.
With these humble submissions I leave you with the 10th Edition of IIFM Global Sukuk Report 2021. Happy reading, and please do let us know your feedback.
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In the Name of Allah, the Most Gracious, the Most Merciful
Praise be to the Lord of all worlds. Peace and blessings be upon our Prophet Muhammad, His family and all of His Companions CEO’S MESSAGE
Ijal Ahmed Alvi CEO – IIFM
The publication of IIFM Sukuk Report started its humble journey Ten (10) years ago and it is pleasing to note that due to the dedication of the research team and the support provided by contributors, members and sponsors has made the report much sort afer publication by the wide section of the industry participants.
This report is designed to create a better understanding of Sukuk structures, issuance trends and market developments based on a comprehensive and verified Sukuk issuance database which include all the public issuances as well as private placements by various issuers to the extent possible. Moreover, the report also provides in-depth analysis, historical trends, case studies, country reports and other information which is not readily available to all the industry’s participants free of cost.
Standardization of Sukuk documentation and its need has been much talked about topic in various industry forums and publications, IIFM has once again taken the lead and afer extensive industry consultation and IIFM Shariah Board guidance and approval, the IIFM has recently published Sukuk Al Ijarah and Sukuk Al Mudarabah Tier 1 documentation standards. IIFM intends to issue other Sukuk documentation standards to assist in the orderly development of the Sukuk market, and as the case with other IIFM standards the market participants can reap immense and enormous benefits from these Sukuk specific standards.
While standardization brings the necessary unification, efficiency and transparency required for the advancement of the Sukuk market, it is also important that the industry stakeholders provide support for continued innovation in the Sukuk market particularly in the area of Fin-tech, Environment, Social Governance (ESG) goals and Waqf focused Sukuk. These factors present a huge potential that will play a major role in the development of Sukuk market in years to come.
Finally, I am honored to lead this Sukuk research project and I extend my profound gratitude to Central Bank of Bahrain (IIFM Host), Board of Directors, the report Sponsors, Members and Contributors of articles, case studies & country focus reports for their continued support and submissions.
Special thanks to the IIFM research team and creative designer for ensuring that the report was published as planned despite continuing unprecedented situations and challenges. I sincerely hope that readers will find this 10th Edition of Sukuk report useful and a key reference point for the Sukuk market.
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CONTENT
About IIFM I
IIFM Founding and Permanent Members II
Research, Database maintenance & Review team III
Disclaimer IV
Abstract V
Acknowledgements VI
Chairman’s Foreword VII
CEO’s Message VIII
Contents IX
List of Tables X
List of Charts XI
ﻣﻘﺪﻣﺔ XII
ﻣﻠﺨﺺ ﺗﻘﺮﻳﺮ ﺻﻜﻮﻙ ﻋﺎﻡ XIII 2020
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CHAPTER 1 : CHAPTER 3: Overview Of The Global Sukuk Market SELECTED SUKUK ISSUANCES (CASE STUDIES CONTRIBUTION) 1.1 Record Breaking Sukuk Issuances
3.1 The Government of Dubai USD 1 billion Sukuk due Global Sukuk Issuances 1.2 2030 International Sukuk Issuances 1.3 3.2 The National Commercial Bank USD 1.25 Billion Additional Tier 1 Sukuk 1.4 Domestic Sukuk Issuances 3.3 Saudi Electricity Company USD 1.3 billion Dual Short Term Sukuk Market 1.5 tranche USD Green Sukuk Distribution of the Global Sukuk Issuance by 1.6 3.4 Pakistan Energy Sukuk II: A landmark PKR 200 billion Issuer Status Sukuk issuance through a book building process Anatomy of International Sukuk Issuances 1.7 3.5 Oman Sovereign Sukuk: Series 4 & Series 5 Anatomy of Domestic Sukuk Issuances 1.8 3.6 ICD Five-Year USD 600 Million Sukuk 1.9 Structural Break-up of Global Sukuk Market 1.10 Geographical Break-up of Global Sukuk Market CHAPTER 4 : 1.11 Sukuk Maturities 2020 through 2022 ARTICLE CONTRIBUTION 1.12 Sukuk Outstanding 4.1 Sukuk Silver Linings Amid Coronavirus Storm
4.2 ESG and the Islamic Capital Markets: Evolving Sukuk to CHAPTER 2 : Ensure Efective Balance of Environmental, Social and Governance Priorities IIFM Published Sukuk Standards - Al-Ijarah and 4.3 Yields & The Yield Curve - Commentary: 2020 to March Al-Mudarabah Tier1: Considerations and Significance 2021
Preamble 4.4 Sukuk Development with A View to Transformation
IIFM Template Sukuk Al Ijarah Standard Documents 4.5 Sustained Growth Lies Ahead for Sustainable Sukuk Sector Introduction 4.6 Opportunities for New Sukuk Issuers: Systemic Trends Documentation and A Drive for Democratisation
Guidelines Regarding Shari'ah Compliance 4.7 Sukuk Lead the Sustainable and Green Revolution
Structure Diagram and Principal Cashflows 4.8 Green Technology Sukuk: Shifting Gears to Finance Green Energy Supply Chain the Context and Principal Cash Flows Momentum
Summary of the Principal Transaction Documents 4.9 The Impact of the Pandemic on Global Liquidity
Key Considerations (Template Sukuk Al Ijarah Standard Documents) CHAPTER 5: IIFM Template Sukuk Al Mudarabah Tier1 Standard SUKUK MARKET IN SELECTED Documents IIFM MEMBER COUNTRIES 5.1 Government of Bahrain Sukuk Issuances Preface 5.2 Sukuk Market Developments in Malaysia Documentation 5.3 Indonesia Sukuk Market: Sustaining Growth Through Guidelines Regarding Shari'ah Compliance the Pandemic
Structure Diagram and Principal Cashflows 5.3 Brunei Darussalam Sukuk Market Development
Principal Cash Flows 5.4 Recent Developments at the Sukuk Market of Turkey
Summary of the Principal Transaction Documents 5.5 Sukuk Market in Pakistan Key Considerations Template Sukuk Al Mudarabah Tier1 Standard Documents
Conclusion
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LIST OF TABLES
TABLE PAGE
1: Selected Value Leaders - Global Sukuk Issuances and Trends (USD 500 Million or >, Tenor > 1 Year) 30
2: Landmark Fixed Rate Sukuk Issuances (USD 500 Million or >, Tenor > 1 Year) 31
3A: Total Global Short Term Sukuk Issuances – All Currencies ≤ 12 Months (Jan 2001 – Dec 2020) 38
3B: Total Global Short Term Sukuk Issuances – All Currencies ≤ 12 Months for the Year 2020 39
4A: Global Sovereign Sukuk Issuances - Selected Value Leaders (2020, USD 500 Millions or >, Tenor > 1 Year) 52
4B: Global Corporate Sukuk Issuances - Selected Value Leaders (2020, USD 200 Millions or >, Tenor > 1 Year) 53
4C: Global FIs Sukuk Issuances - Selected Value Leaders (2020, USD 150 Millions or >, Tenor > 1 Year) 53
4D: Global Quasi-Sovereign Sukuk Issuances - Selected Value Leaders (2020, USD 150 Millions or >, Tenor > 1 Year) 54
5A: Regional Break-Up of International Sukuk Issuance (Jan 2001 – Dec 2020) 55
5B: Regional Break-Up of International Issuances for the Year 2020 56
6: International Sukuk Issuances - Selected Value Leaders (2020, USD 150 Millions or >, Tenor > 1 Year) 57
7A: Regional Break-Up of Domestic Issuances (Jan 2001 – Dec 2020) 59
7B: Regional Break-Up of Domestic Issuances for the Year 2020 60
7C: Domestic Sukuk Issuances - Selected Value Leaders (2020, USD 200 Millions or >, Tenor > 1 Year) 61
8A: Regional Break-Up of Global Sukuk Issuances (Jan 2001 – Dec 2020) 80
8B: Regional Break-Up of Global Sukuk Issuances for the Year 2020 82
9A: International Sukuk Matured 2020, Amount ≥ USD 100 Million 85
9B: International Sukuk Maturing 2021, Amount > USD 100 Million 86
9C: International Sukuk Maturing 2022, Amount ≥ USD 100 Million 87
10A: Domestic Sukuk Matured 2020, Amount > USD 100 Million 88
10 B: Domestic Sukuk Maturing 2021,> USD 100 Million 90
10 C: Domestic Sukuk Maturing 2022,> USD 100 Million 92
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LIST OF CHARTS
TABLE PAGE
1A: Total Global Sukuk Issuances (Jan 2001 - Dec 2020) - All Tenors, All Currencies, in USD Millions 29
1A (I): Total Global Long-term vs Short-term Sukuk Issunaces (Jan 2001 - Dec 2020) - All Tenors, All Currencies, In Usd Millions 29
1B: Total International Sukuk Issuances - (Jan 2001 - Dec 2020) - All Tenors, All Currencies, in USD Millions 33
1B (I) : Total International Long-Term Vs Short-Term Sukuk Issuances (Jan 2001 - Dec 2020) - 34 All Tenors, All Currencies, in USD Millions
1C: Total Domestic Sukuk Issuances (Jan 2001 - Dec 2020) - All Tenors, All Currencies, in USD Millions 35
1C (I) : Total Domestic Long-Term Vs Short-Term Sukuk Issuances (Jan 2001 - Dec 2020) - All Tenors, 36 All Currencies, in USD Millions
2A: Total Global Short Term Sukuk Issuances (Jan 2001 - Dec 2020) - All Currencies, 37 enor 12 Months or Less, in USD Millions
2B: Total International Short Term Sukuk Issuance ≤ 12 Months (Jan 2001 – Dec 2020, USD Millions) 40
2C: Total Domestic Short Term Sukuk Issuance ≤ 12 Months (Jan 2001 – Dec 2020, USD Millions) 40
2D (A): Global Short Term Sukuk Issuances ≤ 12 Months, Currency Break-Up (Jan 2001- Dec 2020, Amount in USD Millions) 41
2D (B): Global Short Term Sukuk Issuances ≤ 12 Months, Currency Break-Up for the Year 2019, Amount in USD Millions 42
2D (C): Global Short Term Sukuk Issuances ≤ 12 Months, Currency Break-Up for the Year 2020, Amount in USD Millions 42
2E (A): Global Short Term Sukuk Issuances ≤ 12 Months, Issuer Type (Jan 2001- Dec 2020, Amount in USD Millions) 43
2E (B): Global Short Term Sukuk Issuances ≤ 12 Months, Issuer Type, for the Year 2019, Amount in USD Millions) 43
2E (C): Global Short Term Sukuk Issuances ≤ 12 Months, Issuer Type for the Year 2020, Amount in USD Millions) 44
2F (A): Global Short Term Sukuk Issuances ≤ 12 Months, Structure Break-Up 44 (Jan 2001- Dec 2020, Amount in USD Millions)
2F (B): Global Short Term Sukuk Issuances ≤ 12 Months, Structure Break-Up for the Year 2019, Amount in USD Millions 45
Chart 2F (C): Global Short Term Sukuk Issuances ≤ 12 Months, Structure Break-Up for the Year 2020, Amount in USD Millions 45
Chart 3A: Global Sovereign Sukuk Issuances (Jan 2001- Dec 2020) All Tenor, All Currencies, in USD Millions 46
Chart 3B: Global Corporate Sukuk Issuances (Jan 2001- Dec 2020) All Tenor, All Currencies, in USD Millions 47
Chart 3C: Global FIs Sukuk Issuances (Jan 2001- Dec 2020) All Tenor, All Currencies, in USD Millions 48
Chart 3D: Global Quasi-Sovereign Sukuk Issuances (Jan 2001- Dec 2020) All Tenor, All Currencies, in USD Millions 49
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LIST OF CHARTS Continued from previous page TABLE PAGE
3E: Domestic Sukuk Issuances by Issuer Status - All Tenors, All Currencies, in USD Millions 50
3F: International Sukuk Issuances by Issuer Status - All Tenors, All Currencies, in USD Millions 51
4A: Structural Break-Up of International Sukuk Issuances- All Tenors (USD Millions) 63
4B: Structural Break-Up of Domestic Sukuk Issuances- All Tenors (USD Millions) 65
4C: Structural Break-Up of International Sukuk Issuances by Issuer- All Tenors (USD Millions) 66
4D: Structural Break-Up of Domestic Sukuk Issuances by Issuer Status (USD Millions) 73
5A: Global Sukuk Issuances Currency Break-Up - All Tenors (Jan 2001- Dec 2020, USD Millions) 83
5B: Global Sukuk Issuances Currency Break-Up - All Tenors (Jan 2020 - Dec 2020, USD Millions) 84
Chart 6A: Total Global Sukuk Outstanding as of 31st December 2020 95
6B: Total Global Sukuk Outstanding by Issuer Status as of 31st Dec 2020 96
6C: Total Domestic Sukuk Outstanding as of 31st December 2020 96
6D: Total Domestic Sukuk Outstanding by Issuer Status as of 31st Dec 2020 97
6E: Total International Sukuk Outstanding as of 31st December 2020 97
6F: Total International Sukuk Outstanding by Issuer Status as of 31st Dec 2020 98
6G: Country Wise Breakdown of Sukuk Outstanding as of 31st Dec 2020 98
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Introduction
Not only did the sukuk market maintain its attractiveness and appeal, but the total global issuances (short-term and long-term) set another new record during 2020 compared to the previous year.
Sukuk has maintained its position as a major growth driver in the Islamic Financial Services Industry (IFSI). In addition, issuers and investors based in various established regions as well as new entrants have maintained the sukuk progression trajectory.
The key objectives of this report are to identify key trends in Sukuk issuances, domestically and internationally, as well as to highlight landmark issuances through case studies. Moreover, in order to provide direction to potential issuers & investors, the articles and country focus reports provide technical information on types of Sukuk issued for portfolio allocation or liquidity management perspective.
The accuracy and verifiable Sukuk issuance data is essential to have a meaningful analysis on Sukuk market and the Sukuk issuance data is a key element of this report. IIFM as a leading Islamic infrastructure institution is privileged to have support from regulators of major Sukuk issuance jurisdictions like Bahrain, Malaysia, Indonesia, Pakistan, Turkey, Brunei, Sudan etc., in Sukuk data verification process.
Furthermore, the approach followed by the IIFM in preparing this report, is collating data from relevant research and literature, this includes prospectuses, publications, articles, magazines, online research and information service providers. The IIFM was able to include in its database some of the Sukuk issued on the basis of private placement, particularly from Indonesia and the Gulf Cooperation Council (GCC) countries. Subsequently, the collected Sukuk issuance Data was then filtered with respect to different criteria such as chronology, geographic distribution, issuer status, country of origin, etc. and depicted in the form of charts and tables for better understanding.
This research report is divided into five stand‐alone chapters, in addition to this introduction and a conclusion as follows:
Chapter One gives an overview of worldwide Sukuk issuances over the period of January 2001 to December 2020.
Chapter Two is on “IIFM Published Sukuk Standards - Al-Ijarah and Al-Mudarabah Tier1 - Considerations and Significance”.
Chapter Three highlights selected Sukuk issuance case studies.
Chapter Four comprises articles (written and prepared by institutions and jurisdictions).
Chapter Five highlights on the Sukuk market in selected IIFM member countries.
In conclusion, this annual report on Sukuk issuances around the globe has been published by IIFM, to enable industry stakeholders -particularly governments, Islamic financial institutions, issuers & investors - to make sound decisions regarding Sukuk issuance and policy formulation. The report also aims to guide and orient those interested in the Sukuk market from a research and educational perspective as well.
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25 CHAPTER 01 OVERVIEW OF THE GLOBAL SUKUK MARKET IIFM SUKUK REPORT 2021
1.1 Sukuk Market Sustained its Appeal & Progression By: Ijlal Ahmed Alvi, Chief Executive Officer & Babar Naseer, International Islamic Financial Market (IIFM)
This Chapter is the main section of the Sukuk Report which is being put together by IIFM for the past decade and is the key source of information, analysis and emerging trends on the Global Sukuk market.
The report also aims to briefly cover the recent developments including the ongoing COVID-19 related implications though the impact on Sukuk market due to pandemic is generally limited to few Corporate Sukuk where the issuers are facing financial difficulty and considering restructuring.
Although the Global Sukuk market closed the year 2020 with a yet another new record issuances but growth rate of short-term issuances exceeded the growth of long term issuances.
The year closed at an increase of around 19.86% (USD 174.641 Billion) where the main factors for this growth trajectory were economic stimulus measures implemented by the governments, positive outlook of global economy, relatively stable to rising commodity prices including Oil, continuation of increase in Sovereign Sukuk issuances, increase in Financial Institutions issuances, issuers refinancing requirements and increase in short term as well as longer tenor issuances.
The 2021 Sukuk issuance pipeline as well as the issuances so far are indicating a stable to a reasonable year for the Sukuk market.
Furthermore, Sukuk continued to gain attention from new issuers, greater emphasis on ESG related issuances, increase in issuances by relatively new entrants such as Nigeria, Egypt as well as increasing investor base are positively contributing in the development of Sukuk market. Sukuk is now firmly established as a viable source of financing for project financing, corporate general-purpose needs, capital adequacy, budgetary and fiscal requirements of sovereign, liquidity management purpose etc.
The integration of environmental, social and governance (ESG) considerations into investment mandates is also expected to drive the development of Green & SRI Sukuk offerings. While Sukuk issuance to support financing needs of Small & Medium Enterprise (SME), Sukuk issuance via blockchain and the advent of Formosa Sukuk are providing positive impetus to the Sukuk market.
There were several events during 2020 which can be noted as landmark events such as private sector led issuance from various jurisdictions and increase in activity from countries such as Nigeria, Pakistan, Bangladesh etc. Moreover, the continued interest from well-established sovereign, quasi sovereign and financial institutions issuers such as Governments of Malaysia, Bahrain, Indonesia, Turkey, Pakistan, Oman, Saudi Arabia, United Arab Emirates, Kuwait and Islamic Development Bank which has kept the Sukuk market active.
The issuances of short-term Sukuk by a number of jurisdictions from Far East, GCC, Africa, Asia, IILM, Turkey, Bangladesh etc. enable the impressive growth of around 41.84% p.a. (USD 56.741 billion) in the short-term Sukuk issuances during 2020 as compared to 2019 (USD 40.003 billion) which provided much-needed support to Islamic financial institutions to meet their liquidity management and investment requirements.
The first half of 2021 seems to indicate that the Sukuk market will remain resilient as global economy is poised to recover from the disruption caused by the pandemic though the economic picture will be clearer once the COIVD-19 is completely eradicated.
1.2 Global Sukuk Issuances
Total global issuance (long-term & short-term) amounted to USD 174.641 billion in 2020 which is the highest value of yearly Sukuk issuances to date.
28 IIFM SUKUK REPORT 2021
As illustrated in Chart 1 A below, global Sukuk issuance has shown an increase of around 19.84% p.a. or USD 145.702 billion in 2019 to USD 174.641 billion in 2020. The steady issuance volume during 2020 was mainly due to sovereign Sukuk issuances from Asia, GCC, Africa and certain other jurisdictions while Malaysia continue to dominate the Sukuk market though share of countries like Indonesia, UAE, Saudi Arabia and Turkey increased with good volume.
CHART 1A: TOTAL GLOBAL SUKUK ISSUANCES (JAN 2001 - DEC 2020) - ALL TENORS, ALL CURRENCIES, IN USD MILLIONS
200,000 174,641 180,000 145,702 160,000 141,351 137,599 135,557 140,000 123,150 116,717 120,000 107,833 93,173 100,000 88,318 80,000 67,818 53,125 60,000 37,927 40,000 20,000 0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
2001-2008
Total Global Sukuk Issuance USD 1.42 Trillion
Source: IIFM Sukuk database
As illustrated in Chart 1A (i) below, in 2020 the short term Sukuk issuances in volume and percentage terms are more than long term issuances i.e., the short term issuances increased by around 44.50% versus long term issuances increased by around 12%.
Chart 1A (i) : TOTAL GLOBAL LONG-TERM Vs SHORT-TERM SUKUK ISSUNACES (JAN 2001 - DEC 2020) - ALL TENORS, ALL CURRENCIES, IN USD MILLIONS
140000
120000 114,461 117,905 105,695 100000 97,167 88,009 80000 72,372 72,832 65,227 64,977 60000 62,725 56,742 56,741 49,808 51,091 51,687 43,365 40000 35,264 40,003 26,891 35,141 23,340 20000 17,861 19,550 20,932 16,131 16,995 0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
2001-2008
Long Term Short Term
Total Global Sukuk Issuance USD 1.42 Trillion Source: IIFM Sukuk database
29 IIFM SUKUK REPORT 2021
The following Table 1 gives a clear picture on the selected value leaders Global Sukuk issuances during 2020:
Table 1: Selected Value Leaders - Global Sukuk Issuances and Trends (USD 500 Million or >, Tenor > 1 Year)
Issue Issuance USD Million Tenor Issuer Year Currency or Equivalent (Years) 2020 Arab National Bank USD 750 10
2020 Axiata Group Bhd USD 500 10
2020 Bahrain Mumtalakat Holding Company USD 500 7
2020 Boubyan Bank USD 750 5
2020 Central Bank of Bahrain USD 1,000 7
2020 Dubai Aerospace Enterprise USD 750 5
2020 Dubai DP World USD 1,500 Perpetual
2020 Dubai Islamic Bank USD 1,000 Perpetual
2020 Emirates Islamic Bank USD 500 5
2020 Etihad Airways (transition” Green Sukuk) USD 600 5
2020 First Abu Dhabi Bank USD 500 5
2020 Government of Indonesia USD 1,000 10
2020 Government of Indonesia IDR 3,206 4
2020 Government of Dubai USD 1,000 10
2020 Government of Malaysia MYR 2,352 19
2020 Government of Malaysia MYR 1,800 30
2020 Government of Sharjah USD 1,000 10
2020 Government of Sultanate of Oman OMR 541 6
2020 ICD Sukuk - Hilal Services USD 600 5
2020 Islamic Development Bank USD 2,000 5
2020 Islamic Development Bank - Sustainability Sukuk USD 1,500 5
2020 Masraf Al Rayan USD 750 5
2020 Ministry of Finance Saudi Arabia SAR 622 15
2020 Ministry of Finance Saudi Arabia SAR 3,972 30
2020 Ministry of Treasury and Finance of Turkey USD 500 3
2020 Ministry of Treasury and Finance of Turkey USD 1,100 2
2020 Saudi National Bank SAR 1,120 Perpetual
2020 Power Holding - Government of Pakistan PKR 1,280 10
2020 Qatar Islamic Bank USD 800 5
30 IIFM SUKUK REPORT 2021 Continued from previous page
2020 Riyad Bank USD 1,500 10
2020 Saudi Basic Industries Corporation (SABIC) SAR 500 30
2020 Saudi Electricity - Green Sukuk USD 650 10
2020 Sharjah Islamic Bank (SIB) USD 500 5
2020 Tabreed Sukuk USD 500 7
Source: IIFM Sukuk database
As per the above the hallmark issuances, the year 2020 issuances were buoyed by Sovereigns and Financial Institutions (IFIs) while Corporate and Quasi Sovereign issuances made no real headway.
A standardised mechanism for Shari‘ah-compliant foreign currency hedging, developed jointly by IIFM & ISDA, is facilitating the issuers to issue Sukuk in other jurisdictions without exposing the Sukuk holders to foreign exchange and rate of return mismatch risk. Moreover, IIFM’s recently published Sukuk Al Ijarah & Sukuk Al Mudarabah Tier 1 documentation standards will play a key role in the continued development of the Sukuk market.
The trend of fixed rate Sukuk issuances started over ten years ago has continued in 2020 and it is expected it will continue as the indication from developed countries central banks is pointing towards low to zero rates policy to spur the economies.
Following are landmark Fixed Profit Rate Sukuk Issuances during 2020:
Table 2: Landmark Fixed Rate Sukuk Issuances (USD 500 Million or >, Tenor > 1 Year)
Type of USD Issue Issuance International Rate of Tenor Issued Million or Year Issuer Currency / Domestic Sukuk Structure Return (Years) Sukuk Equivalent
2020 Arab National Bank FIs USD International Sukuk Al Murabahah 750 3.30 10
2020 Axiata Group Bhd Corporate USD International Sukuk Al Wakalah 500 2.16 10 Bahrain Mumtalakat Holding 2020 Quasi-Sovereign Hybrid Sukuk Company USD International 500 4.2 7 Hybrid Sukuk - 2020 Sovereign 1,000 3.95 Central Bank of Bahrain USD International Ijarah/Murabahah 7 Hybrid Sukuk - 2020 Quasi-Sovereign 750 3.88 5 Dubai Aerospace Enterprise USD International Ijarah/Murabahah
2020 Dubai DP World Quasi-Sovereign USD International Sukuk Al Mudharabah 1,500 6.00 Perpetual
2020 Dubai Islamic Bank FIs USD International Sukuk Al Mudharabah 1,000 4.63 Perpetual
2020 Emirates Islamic Bank FIs USD International Sukuk Al Wakalah 500 1.83 5
2020 First Abu Dhabi Bank FIs USD International Sukuk Al Wakalah 500 2.50 5
2020 Government of Indonesia Sovereign IDR Domestic Sukuk Al Ijarah 3,206 6.625% 4
2020 Government of Indonesia Sovereign USD International Sukuk Al Wakalah 1,000 2.800% 10
2020 Islamic Development Bank Quasi-Sovereign USD International Sukuk Al Wakalah 2,000 1.809 5 Islamic Development Bank - Sukuk Al Wakalah 2020 Sustainability Sukuk Quasi-Sovereign USD International 1,500 0.908 5 Ministry of Finance Hybrid Sukuk - 2020 Saudi Arabia Sovereign SAR Domestic Murabahah/Mudharabah 1,133 3.00 15 Ministry of Finance Hybrid Sukuk - 2020 Saudi Arabia Sovereign SAR Domestic Murabahah/Mudharabah 3,972 3.68 30
31 IIFM SUKUK REPORT 2021 Continued from previous page
Ministry of Treasury 2020 Sovereign USD International Sukuk Al Ijarah 500 1.50 3 and Finance of Turkey Ministry of Treasury 2020 Sovereign USD International Sukuk Al Ijarah 666 1.75 1 and Finance of Turkey Hybrid Sukuk Wakalah 2020 Qatar Islamic Bank FIs 750 1.95 5 USD International /Mudharabah
2020 Riyad Bank FIS USD International Sukuk Al Murabahah 1,500 3.17 10 Saudi Basic Industries 2020 Corporation (SABIC) Corporate SAR Domestic Hybrid Sukuk 500 3.00 30 Saudi Electricity - 2020 Green Sukuk Corporate USD International Sukuk Al Ijarah 650 2.41 10
2020 Sharjah Islamic Bank (SIB) FIs USD International Sukuk Al Ijarah 500 2.85 5
2020 Tabreed Sukuk Corporate USD International Sukuk Al Ijarah 500 2.5 7
Source: IIFM Sukuk database
32 IIFM SUKUK REPORT 2021
1.3 INTERNATIONAL SUKUK ISSUANCES
Total (long-term & short-term) international Sukuk issuances stood at USD 42.408 billion in 2020 which translate into an increase of USD 3.93 billion or positive 9.25% from 2019 level of USD 38.476 billion.
Though in terms of issuance volume the year 2020 recorded a new high but the short-term Sukuk issuances have entirely contributed to this increase while long-term issuances were unchanged from previous year.
Chart 1B: TOTAL INTERNATIONAL SUKUK ISSUANCES - (JAN 2001 - DEC 2020) - ALL TENORS, ALL CURRENCIES, IN USD MILLIONS
42,408 45,000 38,476 37,768 37,648 40,000 32,988 31,210 35,000
26,730 30,000 22,992 25,000 21,880 20,269
20,000
15,000
8,684 10,000 7,023 4,248 5,000
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
2001-2008
Total International Sukuk Issuance USD 332.32 Billion
Source: IIFM Sukuk database
The Sukuk issuances by sovereign, IFIs and to some extent by corporates and quasi sovereign mainly from GCC, Indonesia, Malaysia and Turkey have contributed an increase of volumes hence surpassing the previous year issuances.
33 IIFM SUKUK REPORT 2021
Chart 1B (i) : TOTAL INTERNATIONAL LONG-TERM Vs SHORT-TERM SUKUK ISSUNACES (JAN 2001 - DEC 2020) - ALL TENORS, ALL CURRENCIES, IN USD MILLIONS
90,000 1,977
80,000
70,000
60,000
50,000
40,000 76,014 13,322 9,850 9,030 8,110 30,000 9,300 1,018 5,800
20,000 7,576 27,798 29,446 29,086 21,975 24,878 10,000 20,930 21,910 14,304
0
2001-2012 2013 2014 2015 2016 2017 2018 2019 2020
Long Term Short Term Source: IIFM Sukuk database
The breakdown of long-term versus short-term Sukuk issuances can be assessed from the above Chart 1B (i) where in 2020 USD 29.086 Billion long-term Sukuk were issued against USD 13.322 Billion short term Sukuk issuances which is in percentage term the ratio works out to be around 68.58% versus 31.41% while in 2019 the long-term versus short-term ratio was 76.53% versus 23.47%.
During 2020 there were no Non-Local Currency Sukuk issued in a jurisdiction by a foreign issuer nor was there any Formosa Sukuk issuance.
A few milestones achieved in the international Sukuk market in the year 2020 are as follows: a) Islamic Development Bank (Sustainability Sukuk) USD 1.50 billion Sukuk Al Wakalah b) Etihad Airways (Transition Green Sukuk) USD 600 million Sukuk Al Wakalah c) DP World USD 1.50 billion Sukuk Al Mudharabah Perpetual d) Axiata Group Bhd USD 500 million Sukuk Al Wakalah e) Government of Indonesia USD 750 million Sukuk Al Wakalah tenor 30 years f) Dubai Islamic Bank USD 1.0 billion Sukuk Al Mudharabah Tier 1 Sukuk
34 IIFM SUKUK REPORT 2021
1.4 DOMESTIC SUKUK ISSUANCES
Chart 1 C below shows the domestic Sukuk issuances have increased in volume from their 2019 level of USD 107.226 billion to USD 132.233 billion or around positive 23%; the biggest chunk of this increase is coming from the Malaysian market contribution of USD 53.70 billion followed by Saudi Arabia USD 18.70 billion, Indonesia USD 23.50 billion and Turkey USD 23.00 billion.
Chart 1C: TOTAL DOMESTIC SUKUK ISSUANCES (JAN 2001 - DEC 2020) - ALL TENORS, ALL CURRENCIES, IN USD MILLIONS
140,000 132,233
117,331 120,000 112,565 107,226 103,583
100,000 90,162 84,490 81,103 79,069 80,000
57,108 60,000 48,877 45,938
40,000 30,904
20,000
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
2001-2008
Total Domestic Sukuk Issuance to date is USD 1090.59 Billion
Source: IIFM Sukuk database
If we analyze the domestic issuances ex-Malaysia, there was a rise in the domestic Sukuk issuances from the rest of the world with domestic issuances ex-Malaysia standing at approximately USD 78.4 billion in 2020 as against USD 42.00 billion in 2019. Among the major players in the domestic market outside of Malaysia are Saudi Arabia, Indonesia, Bahrain, Qatar and Turkey.
35 IIFM SUKUK REPORT 2021
Chart 1C (i) : TOTAL DOMESTIC LONG-TERM Vs SHORT-TERM SUKUK ISSUNACES (JAN 2001 - DEC 2020) - ALL TENORS, ALL CURRENCIES, IN USD MILLIONS
140,000
120,000
43,419
100,000
24,933 30,973 65,227 80,000 61,708 27,031 9,700
43,365 60,000 50,942 14,040 88,819 8,555 40,000 78,651 69,369 76,249 35,245 63,131 52,104 50,857 20,000 41,124 43,067 20,932 37,383 30,161 13,632 9,972 0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
2001-2008 Long Term Short Term
Source: IIFM Sukuk database
The breakdown of long-term versus short-term Sukuk issuances can be assessed from the above Chart 1C (i) where in 2020 USD 88.819 Billion long term Sukuk were issued against USD 43.419 Billion short term Sukuk which is in percentage term the ratio works out to be around 67.16% versus 32.88%.
A few milestones achieved in the domestic Sukuk market in the year 2020 are as follows: a) Government of Malaysia MYR 7.2 billion (USD 1.80 billion) Sukuk Al Wakalah tenor 30 years b) Saudi National Bank SAR 4.20 billion (USD 1.12 billion) Sukuk Al Mudharabah Tier 1 c) Power Holding – Government of Pakistan PKR 200 billion (USD 1.28 billion) Sukuk Al Ijarah d) Saudi Basic Industries Corporation SAR 1.875 billion (USD 500 million) Hybrid Sukuk e) Saudi Electricity (Green Sukuk) SAR 2.43 billion (USD 650 million) Hybrid Sukuk
36 IIFM SUKUK REPORT 2021
1.5 Short-Term Sukuk Market
Short term Sukuk with maturity of 1 year or less are indispensable in particular meeting liquidity management requirements of Islamic financial institutions. As shown in Chart 2A below, ‘total global short- term Sukuk issuance’ since the inception of the Sukuk market stands at USD 502.05 billion. During 2020 short-term Sukuk issuance was USD 56.741 billion against 2019 issuance of USD 40.00 billion which translate into an increase of USD 16.738 billion or increase of around 41.84% p.a. of short-term Sukuk issuances.
Chart 2A: TOTAL GLOBAL SHORT-TERM SUKUK ISSUANCES (JAN 2001 - DEC 2020) - ALL CURRENCIES, TENOR 12 MONTHS OR LESS, IN USD MILLIONS
70,000 65,227 62,725
60,000 56,742 56,741
50,000 43,365 40,003 40,000 35,264 35,141
30,000 26,891 23,340 20,932 19,550 20,000 16,131
10,000
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
2001-2008
Total Global Short-Term Sukuk Issuance USD 502.05 Billion
Source: IIFM Sukuk database
Malaysia has been the clear value leader in the short tenor Sukuk market and its market share of the total ‘global short term Sukuk issuances’ from 2001-2020 is once again slightly reduced to 79.83% (USD 400.797 Billion) against market share of 83.30% (USD 370.755 billion) for 2001-2019 period. Other regular issuers in the short-term market had been Bahrain, Brunei, Indonesia, Gambia, Sudan, UAE etc., while in case of Turkey the short-term issuances have more than doubled as compare to the previous year. Interestingly this group of issuers have formed around 20.17% of the total short-term market since the inception.
The International Islamic Liquidity Management (IILM), also based in Malaysia, started its short-term issuances in the year 2013 and during 2020 it has issued the highest number of Sukuk to date. The government of Indonesia stepped up its Sukuk issuance while Turkish Government and IFIs have stepped up pace in issuing short-term Sukuk.
37 IIFM SUKUK REPORT 2021
The following tables shows the regional break-up of total short-term Sukuk issuance since 2001:
Table 3A: Total Global Short-Term Sukuk Issuances – All Currencies ≤ 12 Months (Jan 2001 – Dec 2020)
ASIA & FAR EAST Number of Issues Amount USD Millions % of Total Value
Bangladesh 29 790 0.16%
Brunei Darussalam 195 11,830 2.36%
Indonesia 112 12,465 2.48%
Malaysia 3643 400,797 79.83%
Maldives 2 21 0.00%
Pakistan 16 399 0.08%
Singapore 3 221 0.04%
Total 4,000 426,522 85.0%
GCC & MIDDLE EAST Number of Issues Amount USD Millions % of Total Value
Bahrain 384 20,018 3.99%
Oman 1 130 0.03%
Saudi Arabia 6 1,301 0.26%
United Arab Emirates 1 100 0.02%
Yemen 1 234 0.05%
Total 393 21,782 4.3%
AFRICA Number of Issues Amount USD Millions % of Total Value
Gambia 490 413 0.08%
Sudan 26 17,419 3.47%
Total 516 17,832 3.6%
Europe & OTHERS Number of Issues Amount USD Millions % of Total Value
Turkey 578 35,916 7.15%
Total 578 35,916 7.15%
Grand Total 5,487 502,053 100%
Source: IIFM Sukuk database
Even with the advent of new issuers, Malaysia’s share of the short-term Sukuk market including IILM during 2020 remain dominant with the total market share of around 52.60% (USD 29.84 billion).
38 IIFM SUKUK REPORT 2021
Table 3B: Total Global Short-Term Sukuk Issuances – All Currencies ≤ 12 Months for the Year 2020
ASIA & FAR EAST Number of Issues Amount USD Millions % of Total Value
Bangladesh 23 731 1.29%
Brunei Darussalam 22 881 1.55%
Indonesia 15 1,886 3.32%
Malaysia 357 29,844 52.60%
Maldives 1 15 0.03%
Pakistan 2 58 0.10%
Total 420 33,414 58.9%
GCC & MIDDLE EAST Number of Issues Amount USD Millions % of Total Value
Bahrain 23 2,170 3.83%
Total 23 2,170 3.8%
AFRICA Number of Issues Amount USD Millions % of Total Value
Gambia 127 24 0.04%
Sudan 5 899 1.58%
Total 132 923 1.6%
Europe & OTHERS Number of Issues Amount USD Millions % of Total Value
Turkey 105 20,234 35.66%
Total 105 20,234 35.66%
Grand Total 680 56,741 100%
Source: IIFM Sukuk database Chart 2B on the next page shows the international short term Sukuk issuance of USD 13.322 billion during 2020.
Central Bank of Bahrain started issuing International short term Sukuk during 2001 to 2008 period and then the issuance program totally switched to domestic currency (Bahraini Dinar) issuances and short-term market was mostly domestic until 2012. During 2013, International issuances (hard currency issuances) again offered with the advent of IILM which is now regularly issuing USD based short term Sukuk for the purpose of liquidity management in various short-term tenors. The Government of Bahrain is still a prolific issuer in the short-term market, but it only issues domestic currency Sukuk like Brunei, Malaysia, Indonesia, Turkey and certain African countries.
39 IIFM SUKUK REPORT 2021
CHART 2B: TOTAL INTERNATIONAL SHORT-TERM SUKUK ISSUANCE ≤ 12 MONTHS (JAN 2001 – DEC 2020, USD MILLIONS)
14,000 13,322
12,000
9,850 10,000 9,300 9,030 8,110 7,576 8,000
5,800 6,000
4,000
1,977 2,000 1,018
0 2001-2012 2013 2014 2015 2016 2017 2018 2019 2020
Total International Short-Term Sukuk Issuance USD 65.98 Billion
Source: IIFM Sukuk database Chart 2C below shows that domestic short-term issuances where there is an improvement of USD 12.446 billion in 2020 as compared to previous year which was mainly due to issuances from Malaysia, Bahrain, Brunei, Turkey and few other jurisdictions including from Africa.
Chart 2C: TOTAL DOMESTIC SHORT TERM SUKUK ISSUANCE ≤ 12 MONTHS (JAN 2001 – DEC 2020, USD MILLIONS) 65,227 61,708 70,000
60,000 50,942
43,365 43,419 50,000
35,245 40,000 30,973 27,031 30,000 24,933 20,932 20,000 14,040 8,555 9,700 10,000
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
2001-2008 Total Domestic Short-Term Sukuk Issuance USD 436.07 Billion Source: IIFM Sukuk database
40 IIFM SUKUK REPORT 2021
Historically, in the years 2011-2014, witnessed the highest volume of domestic Short-Term Sukuk issuances and now issuance volume is again picking up which was indicated in the previous Sukuk report.
The currency wise break-up of issuances is explained in Chart 2D (A) below:
Chart 2D (A): GLOBAL SHORT-TERM SUKUK ISSUANCES ≤ 12 MONTHS, CURRENCY BREAK-UP (JAN 2001- DEC 2020, AMOUNT IN USD MILLIONS)
BHD, 17,927, 3.57% BND, 11,830, 2.36% YER, 234, 0.05% BDT, 790, 0.16% Euro, 545, 0.11% GMD, 413, 0.08% IDR, 12,365, 2.46% USD, 66,380, 13.22% MVR, 21, 0.004%
TRY, 33,563, 6.69% SGD, 440, 0.09% SDG, 17,419, 3.47% SAR, 1,263, 0.25% PKR, 399, 0.08% OMR, 130, 0.03%
MYR, 338, 336, 67.39%
Source: IIFM Sukuk database
As explained in the below Chart 2D (B) & Chart 2D (C) the global short-term market during 2019 & 2020 where Malaysian Ringgit again leads the currency break-up with market share of around 44.48% and 32.00% respectively compare to US Dollar, Turkish Lira, Indonesian Rupiah, Bahraini Dinar and others issuances.
41 IIFM SUKUK REPORT 2021
Chart 2D (B): GLOBAL SHORT-TERM SUKUK ISSUANCES ≤ 12 MONTHS, CURRENCY BREAK-UP FOR THE YEAR 2019, AMOUNT IN USD MILLIONS
BND, 692, 1.73%
BHD, 1,852, 4.63% BDT, 21, 0.05% GMD, 24, 0.06% IDR, 2,819, 7.05% USD, 9,030, 22.57%
TRY, 7,570, 18.92%
MYR, 17,795, 44.48% PKR, 200, 0.50%
Source: IIFM Sukuk database
CHART 2D (C): GLOBAL SHORT-TERM SUKUK ISSUANCES ≤ 12 MONTHS, CURRENCY BREAK-UP FOR THE YEAR 2020, AMOUNT IN USD MILLIONS
BND, 881, 2%
Euro, 545, 1% BHD, 2,056, 4% GMD, 24, 0.04%
BDT, 731, 1% IDR, 1,886, 3% MVR, 15, 0.03%
USD, 13,873, 24%
MYR, 17,894, 32%
TRY, 17,881, 31% PKR, 58, 0.10% SDG, 899, 2%
Source: IIFM Sukuk database
42 IIFM SUKUK REPORT 2021
Chart 2E (A) below presents the short-term Sukuk issuances since inception by Sovereign, Quasi Sovereign, Corporate, and Financial Institutions. Sovereign issuances maintained its lead over followed by quasi sovereign issuances which explain why support from the governments is so critical especially in the development of short-term Sukuk market.
Chart 2E (A): GLOBAL SHORT-TERM SUKUK ISSUANCES ≤ 12 MONTHS, ISSUER TYPE (JAN 2001- DEC 2020, AMOUNT IN USD MILLIONS)
Corporate, 53,571, 11%
Fls, 35,681, 7%
Quasi-Sovereign 69,241, 14%
Sovereign, 343,560, 68%
Source: IIFM Sukuk database
Chart 2E (B) & Chart 2E (C) below provides information on issuances from Sovereign, Quasi Sovereign, Corporate and IFI during 2019 and 2020 respectively:
Chart 2E (B): GLOBAL SHORT-TERM SUKUK ISSUANCES ≤ 12 MONTHS, ISSUER TYPE, FOR THE YEAR 2019, AMOUNT IN USD MILLIONS)
Sovereign, Corporate, 8,472, 21% 12,162, 30%
Quasi-Sovereign, Fls, 9,852, 25% 9,518, 24%
43 IIFM SUKUK REPORT 2021
CHART 2E (C): GLOBAL SHORT-TERM SUKUK ISSUANCES ≤ 12 MONTHS, ISSUER TYPE FOR THE YEAR 2020, AMOUNT IN USD MILLIONS)
Corporate, 7,585, 13%
Sovereign, 17,350, 31%
Fls, 18,476, 33%
Quasi-Sovereign, 13,330, 23%
Source: IIFM Sukuk database
Chart 2F (A) below provides information on structure break-up of issuances since inception where Murabahah structure maintained its leading position.
Chart 2F (A): GLOBAL SHORT-TERM SUKUK ISSUANCES ≤ 12 MONTHS, STRUCTURE BREAK-UP (JAN 2001- DEC 2020, AMOUNT IN USD MILLIONS)
Bai’ Bithaman Ajil, Hybrid Sukuk, 2,669, 0% 5,968, 1% Sukuk Al Wakalah, 80,618, 16% Hybrid Sukuk- Wakalah/Murabahah, 3,140, 1% Sukuk Al Salam, 13,478, 3% Hybrid Sukuk- Wakalah/Mudarabah, Sukuk Al Musharakah, 3,656, 1% 24,116, 5% Sukuk Al Ijarah, 55,663, 11%
Sukuk Al Mudharabah, 22,306, 4% Sukuk Al Murabahah, 290,400, 58%
Source: IIFM Sukuk database
Chart 2F (B) & Chart 2F (C) below provides information on structure break-up during the year 2019 & 2020 respectively where Wakalah structure has taken a more dominant role though generally Sukuk issued under Wakalah structure involves Ijarah and Murabahah which means that the share of Murabahah and Ijarah could be higher on overall basis.
44 IIFM SUKUK REPORT 2021
Chart 2F (B): GLOBAL SHORT-TERM SUKUK ISSUANCES ≤ 12 MONTHS, STRUCTURE BREAK-UP FOR THE YEAR 2019, AMOUNT IN USD MILLIONS
Hybrid Sukuk- Hybrid Sukuk, Wakalah/Murabahah, 801, 2% 3,133, 8%
Sukuk Al Ijarah, Sukuk Al Salam, 4,321, 11% 1,071, 3%
Sukuk Al Mudharabah, 4,219, 10%
Sukuk Al Salam, 1,071, 3% Sukuk Al Murabahah, Sukuk Al 9,490, 24% Musharakah, 615, 1%
CHART 2F (C): GLOBAL SHORT-TERM SUKUK ISSUANCES ≤ 12 MONTHS, STRUCTURE BREAK-UP FOR THE YEAR 2020, AMOUNT IN USD MILLIONS
Hybrid Sukuk, 1,911, 3%
Hybrid Sukuk- Wakalah Sukuk Al Wakalah, /Mudarabah, 3,656, 7% 14,138, 25%
Sukuk Al Salam, 2,122, 4% Sukuk Al Ijarah, 21,562, 38% Sukuk Al Musharakah, 1,259, 2%
Sukuk Al Sukuk Al Mudharabah, Murabahah, 3,614, 6% 8,479, 15%
Source: IIFM Sukuk database
45 IIFM SUKUK REPORT 2021
1.6 Distribution of the Global Sukuk Issuance by Issuer Status
As the case previous years, the sovereign Sukuk issuances are the main contributor of the global Sukuk market progression and the sovereign issuances in 2020 grew by around 19.50% to USD 88.867 billion as compare to 2019 issuances of USD 74.37 billion. The sovereign issuers led by Saudi Arabia, Indonesia, Malaysia, UAE, Turkey continue to provide a strong foundation to the Sukuk market.
As of end 2020, total sovereign Sukuk issuance since inception stands at USD 769.61 billion, which is around 50.88% of all global Sukuk issuances. Chart 3A below shows the trend of sovereign Sukuk issuances since inception:
Chart 3A: GLOBAL SOVEREIGN SUKUK ISSUANCES (JAN 2001- DEC 2020) ALL TENOR, ALL CURRENCIES, IN USD MILLIONS
100,000
90,000 88,867 87,093 83,211 80,000 74,377 70,000 67,765 68,788 67,381 62,166 60,000
50,000
40,000 41,255 36,420 34,071 33,335 30,000 24,881 20,000
10,000
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
2001-2008
Total Sovereign Sukuk Issuance USD 769.61 Billion
Source: IIFM Sukuk database
During 2020 the global sovereign issuances maintained the strong positive trend which is continuing during 1st Half of 2021 which indicates that the sovereigns are issuing Sukuk to meet their fiscal budgetary requirements though increase in oil prices may reduce the requirements of some oil producing countries.
46 IIFM SUKUK REPORT 2021
The following Chart 3B shows the global corporate issuances where there is a slight increase of only USD 0.645 million 2020 as compare to 2019.
Chart 3B: GLOBAL CORPORATE SUKUK ISSUANCES (JAN 2001- DEC 2020) ALL TENOR, ALL CURRENCIES, IN USD BILLIONS
100,000 93,256 90,000
80,000
70,000
60,000
50,000
40,000 34,585 30,000 22,348 20,000 22,729 22,039 19,817 21,703 16,052 16,835 13,899 14,731 10,000 12,675 8,856 0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
2001-2008
Total Corporate Sukuk Issuance USD 319.53 Billion
Source: IIFM Sukuk database
The corporate issuances remained lackluster during 2020 also as the case previous years and did not cross the 2013 issuance record of USD 34.60 billion. This is typical of corporate sector response even in the conventional world as they are first to cut back on spending and expansion and development projects in the wake of an economic downturn. Based on the market predictions it seems the year 2021 would once again be a difficult year for corporate issuers as the COVID-19 pandemic is continuing to surface in various countries globally which will keep the balance sheets of corporate sector under pressure.
During 2020 beside Malaysian corporates the new issuers from Indonesia also emerged while certain GCC corporates have issued Sukuk which is an encouraging sign and may bode well for issuances in next coming years.
Currently, few corporate issuers from Far East and GCC are facing difficulty and chance of restructuring, default or liquidation are quite imminent though overall the impact on the Sukuk market seems to be limited at least in the current year 2021.
47 IIFM SUKUK REPORT 2021
Chart 3C below shows the trend line for FIs (financial institutions issuances since 2001):
Chart 3C: GLOBAL FIs SUKUK ISSUANCES (JAN 2001- DEC 2020) ALL TENOR, ALL CURRENCIES, IN USD MILLIONS
40,000
35,000 33,765
30,000
25,000
20,000 18,798
15,000
10,000 10,122 8,249 8,938 5,896 6,130 5,928 5,000 4,969 4,735 3,706 1,995 0 193
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
2001-2008
Total FIs Sukuk Issuance 113.42 Billion
Source: IIFM Sukuk database
During 2020, Sukuk issuances by FIs showed strong performance and the issuance volume recorded a new high till date of USD 33.76 billion or whopping issuance increase of USD 15.00 billion or 80% p.a. as compare to 2020.
The FIs (financial institutions) are active Sukuk issuers since inception and initially the issuances were on the floating profit rate basis which suited the balance sheet management of the FIs; however, starting 2010 FIs became more active as an issuer for not only liquidity management purposes but also to meet the Basel Capital Adequacy requirements by issuing Tier 1 (Perpetual) and Tier 2 Sukuk. During the year a number of FIs based in various jurisdictions have mostly issued Tier 1 Sukuk.
48 IIFM SUKUK REPORT 2021
Chart 3D below shows the trend line for quasi-sovereign issuances since inception. The issuances are mostly from power sector, energy, aviation, financial, infrastructure development sectors while Khazanah Nasional Soverign Wealth Fund of Malaysian government is the only sovereign wealth fund which is active issuer in Sukuk market though some sovereign wealth fund may invest in the Sukuk market as per the news in the market.
Chart 3D: GLOBAL QUASI-SOVEREIGN SUKUK ISSUANCES (JAN 2001- DEC 2020) ALL TENOR, ALL CURRENCIES, IN USD MILLIONS
35,000
30,823 30,000 29,661 28,778
25,000 23,609
21,649 21,635 21,317 20,000
15,000
12,793 11,503 10,000
5,780 5,651 5,000 3,996 3,160
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
2001-2008
Total Global Quasi Sovereign Sukuk Issuance USD 220.35 Billion
Source: IIFM Sukuk database
During 2020, the quasi-sovereign issues have mainly come from the Bahrain sovereign wealth fund Mumtalakat, DanaInfra Nasional Malaysia, Dubai Aerospace Enterprise, Power Holding Government of Pakistan, Dubai DP World, and the Saudi-based Islamic Development Bank (IsDB).
IsDB lead pack of multilateral issuers while earlier World Bank, African Finance Corporation, Khazanah Nasional etc. have issued Sukuk to fund their activities while Malaysian-based International Islamic Liquidity Management Corporation is a regular and only issuer of Short-Term Int’l Sukuk.
It is interesting to note that in both the international and domestic Sukuk markets, the mix of sovereign/quasi-sovereign, corporate and FIs issuers has been following a consistent pattern and in 2020 the share of quasi-sovereign had a slight decline in issuance of USD 1.16 billion as compare to 2019.
49 IIFM SUKUK REPORT 2021
The three (3) pie charts in Chart 3E give a clear picture of domestic Sukuk issuances:
Chart 3E: DOMESTIC SUKUK ISSUANCES BY ISSUER STATUS - ALL TENORS, ALL CURRENCIES, IN USD MILLIONS
DOMESTIC SUKUK ISSUANCES Jan 2010-Dec 2018
Corporate, 136,587, 19%
Fls, 28,564, 4% Sovereign, 480,824, 67% Quasi-Sovereign, 70,665, 10%
Domestic SUKUK Issuances for the Year 2019
Corporate, 16,768 15%
Fls, 12,523 12%
Sovereign, 63,043, 59%
Quasi-Sovereign, 14,891, 14%
Domestic SUKUK Issuances for the Year 2020
Corporate, 18,498, 14%
Fls, 24,206, 18%
Sovereign, 79,145, 60% Quasi-Sovereign, 10,384, 8%
Source: IIFM Sukuk database
50 IIFM SUKUK REPORT 2021
The pie charts in Chart 3F below show the respective shares of the sovereign, quasi-sovereign, corporate and FIs issuers in the international market.
In 2020, the share of sovereign & Quasi-sovereign issuers has maintained their dominance in issuance of International Sukuk with issuance share of 68% as compare to 69.00% for the period 2010-2018 while year on year increase between 2020 and 2019 works out to be meager increase of USD 1.73 billion.
Chart 3F: INTERNATIONAL SUKUK ISSUANCES BY ISSUER STATUS - ALL TENORS, ALL CURRENCIES, IN USD MILLIONS
International Sukuk Issuances Jan 2010- Dec 2018
Corporate, 36,774, 18%
Sovereign, 64,240, 31%
Fls, 26,207, 13%
Quasi-Sovereign, 79,429, 38%
International Sukuk Issuances for the Year 2019
Corporate, 4,935, 13%
Sovereign, 11,334, 30% Fls, 6,275, 16%
Quasi-Sovereign, 15,932, 41%
51 IIFM SUKUK REPORT 2021
International Sukuk Issuances for the Year 2020
Corporate, 3,850, 9% Sovereign, 9,722, 23%
Fls, 9,559, 23%
Quasi-Sovereign, 19,277, 45%
Source: IIFM Sukuk database
It is expected that due to the tighter economic, geo-political conditions and continuation of unprecedented situation caused by COVID-19 in different parts of the world, the growth in Sukuk market will continue to be driven by sovereign and quasi-sovereign issuers with chance of strong showing again by IFIs in 2021 as well.
Following are lists of the Hallmark Sukuk Issuances in the Sovereign, Quasi-Sovereign, corporate, and FIs categories during 2019:
Table 4A: Global Sovereign Sukuk Issuances - Selected Value Leaders (2020, USD 500 Millions or >, Tenor > 1 Year)
USD Issue Issuer Issuance International Tenor Million or Year Issuer Country Currency / Domestic Sukuk Structure (Years) Equivalent
Hybrid Sukuk - 2020 Central Bank of Bahrain Bahrain USD International 1,000 7 Ijarah/Murabahah
2020 Government of Indonesia Indonesia IDR Domestic Sukuk Al Ijarah 2,854 26
2020 Government of Indonesia Indonesia USD International Sukuk Al Wakalah 750 30 United Arab 2020 Government of Dubai Sukuk Al Ijarah 1,000 10 Emirates USD International
2020 Government of Malaysia Malaysia MYR Domestic Sukuk Al Murabahah 2352 19
2020 Government of Malaysia Malaysia MYR Domestic Sukuk Al Murabahah 1800 30 United Arab 2020 Government of Sharjah Emirates USD International Sukuk Al Ijarah 1,000 10 Government of Sultanate of Oman 2020 Oman OMR Domestic Sukuk Al Ijarah 520 6 Ministry of Finance Saudi Saudi Arabia Hybrid Sukuk - 2020 Arabia SAR Domestic Murabahah/Mudharabah 622 15 Ministry of Finance Saudi Saudi Arabia Hybrid Sukuk - 2020 Arabia SAR Domestic Murabahah/Mudharabah 3,972 30 Ministry of Treasury and Turkey 2020 Finance of Turkey TRY Domestic Sukuk Al Ijarah 1,353 3
Source: IIFM Sukuk database
52 IIFM SUKUK REPORT 2021
Table 4B: Global Corporate Sukuk Issuances - Selected Value Leaders (2020, USD 200 Millions or >, Tenor > 1 Year)
USD Issue Issuer Issuance International Tenor Million or Year Issuer Country Currency / Domestic Sukuk Structure (Years) Equivalent
2020 Axiata Group Bhd Malaysia USD International Sukuk Al Wakalah 500 10
2020 Danum Capital Bhd Malaysia MYR Domestic Sukuk Al Wakalah 360 15 Dar Al Arkan Real Estate Hybrid Sukuk - 2020 Saudi Arabia 400 7 Development Company USD International Ijarah/Murabahah Etihad Airways (Transition United Arab 2020 Sukuk Al Wakalah 600 Green Sukuk) Emirates USD International 5
2020 Malaysia Rail Link Sdn. Bhd. Malaysia MYR Domestic Sukuk Al Murabahah 215 10
2020 Neo Merchants Capital Saudi Arabia SAR Domestic Sukuk Al Ijarah 267 3
2020 Sarawak Energy Bhd Malaysia MYR Domestic Sukuk Al Musharakah 300 15 Saudi Basic Industries 2020 Corporation (SABIC) Saudi Arabia SAR Domestic Hybrid Sukuk 500 30 Saudi Basic Industries 2020 Corporation (SABIC) Saudi Arabia SAR Domestic Hybrid Sukuk 500 10 Saudi Electricity - Green Saudi Arabia Sukuk Al Ijarah 2020 Sukuk USD International 650 5 Saudi Electricity - Green Saudi Arabia Sukuk Al Ijarah 2020 Sukuk USD International 650 10 United Arab 2020 Tabreed Sukuk USD International Sukuk Al Ijarah 500 7 Emirates
2020 Tenaga Nasional Bhd Malaysia MYR Domestic Hybrid Sukuk 360 20
Source: IIFM Sukuk database Table 4C: Global FIs Sukuk Issuances - Selected Value Leaders (2020, USD 150 Millions or >, Tenor > 1 Year)
USD Issue Issuer Issuance International Tenor Million or Year Issuer Country Currency / Domestic Sukuk Structure (Years) Equivalent
2020 AmBank Islamic Bhd Malaysia MYR Domestic Sukuk Al Musharakah 192 5
2020 Arab National Bank Saudi Arabia USD International Sukuk Al Murabahah 750 10
2020 Bank Islam Malaysia Bhd Malaysia MYR Domestic Sukuk Al Murabahah 168 10
2020 Banque Saudi Fransi Saudi Arabia SAR Domestic Sukuk Al Mudharabah 1,333 Perpetual Hybrid Sukuk Wakalah 2020 Boubyan Bank Kuwait USD International /Murabahah 750 5 United Arab 2020 Dubai Islamic Bank Sukuk Al Mudharabah 1,000 Perpetual Emirates USD International United Arab Hybrid Sukuk - 2020 Dubai Islamic Bank USD International 1,000 5 Emirates Ijarah/Murabahah Hybrid Sukuk Wakalah Bahrain 2020 Gulf Finance House USD International /Murabahah 500 5 United Arab 2020 First Abu Dhabi Bank Emirates USD International Sukuk Al Wakalah 500 5
2020 Khaleeji Commercial Bank Bahrain USD International Sukuk Al Mudharabah 159 Perpetual
2020 Kuwait International Bank Kuwait USD International Sukuk Al Wakalah 300 10
53 IIFM SUKUK REPORT 2021 Continued from previous page
2020 Malayan Banking Bhd Malaysia MYR Domestic Sukuk Al Murabahah 552 10 Hybrid Sukuk - 2020 Masraf Al Rayan Qatar International 750 5 USD Wakalah/Mudarabah
2020 Saudi National Bank Saudi Arabia SAR Domestic Sukuk Al Mudharabah 1,120 Perpetual Hybrid Sukuk Wakalah 2020 Qatar Islamic Bank Qatar USD International /Mudharabah 800 5
2020 Riyad Bank Saudi Arabia USD International Sukuk Al Murabahah 1,500 10
2020 Saudi British Bank (SABB) Saudi Arabia SAR Domestic Sukuk Al Murabahah 1,333 10 United Arab 2020 Sharjah Islamic Bank (SIB) Emirates USD International Sukuk Al Ijarah 500 5
2020 Warba Bank Kuwait KWD Domestic Sukuk Al Wakalah 487 5
Source: IIFM Sukuk database
Table 4D: Global Quasi-Sovereign Sukuk Issuances - Selected Value Leaders (2020, USD 150 Millions or >, Tenor > 1 Year)
USD Issue Issuer Issuance International Tenor Million or Year Issuer Country Currency / Domestic Sukuk Structure (Years) Equivalent
Bahrain Mumtalakat 2020 Bahrain USD International Hybrid Sukuk 500 7 Holding Company
2020 DanaInfra Nasional Bhd Malaysia MYR Domestic Sukuk Al Murabahah 288 30 United Arab Hybrid Sukuk - 2020 Dubai Aerospace Enterprise 750 5 Emirates USD International Ijarah/Murabahah United Arab 2020 Dubai DP World International Sukuk Al Mudharabah 1,500 Perpetual Emirates USD
2020 ICD Sukuk - Hilal Services Saudi Arabia USD International Sukuk Al Wakalah 600 5
2020 Islamic Development Bank Saudi Arabia USD International Sukuk Al Wakalah 2,000 5 Islamic Development Bank - 2020 Saudi Arabia Sukuk Al Wakalah Sustainability Sukuk USD International 1,500 5 Lembaga Pembiayaan 2020 Malaysia Sukuk Al Murabahah 204 Perumahan Sektor Awam MYR Domestic 30
2020 Padiberas Nasional Bhd Malaysia MYR Domestic Hybrid Sukuk 223.2 10 Perbadanan Tabung 2020 Pendidikan Tinggi Nasional Malaysia MYR Domestic Sukuk Al Murabahah 228 8 Power Holding 2020 Pakistan PKR Domestic Sukuk Al Ijarah 1,280 10 -Government of Pakistan
2020 Prasarana Malaysia Bhd Malaysia MYR Domestic Sukuk Al Murabahah 240 30
Source: IIFM Sukuk database
54 IIFM SUKUK REPORT 2021
1.7 Anatomy of International Sukuk Issuances
The international Sukuk market, though it forms just around 24% of overall Global Sukuk issuances since inception, is the real attraction and driver of the Sukuk market from global perspective. Denominated in USD and other stable currencies, the international Sukuk issuances are being issued in longer tenors which include up to 30 years, perpetual (generally 5-year Call Option) and eventually the industry will witness the issuance of Sukuk with 50 years tenor.
The international Sukuk with medium to long-term tenors as well as perpetual Sukuk maintained growth in volume during 2020 while the size of international short-term Sukuk mainly from IILM recorded a strong growth also as demand for HQLA type of assets are on the rise.
In recent years, sovereign and quasi-sovereign issuances are on the rise and forms bulk of Sukuk market though during 2020 IFIs issuers had a record year while corporate issuances Ex. Malaysia remained subdued.
A look at Table 5A below shows us that UAE with 27.01% has maintained its volume and value leader position in the international Sukuk market closely followed by Malaysian 25.77% while share of Saudi Arabia 19.67%, Indonesia 6.38%, Bahrain 4.69% and Turkey 5.09% is continuing to rise. Together with Saudi Arabia, Qatar, UAE, Oman & Bahrain, the five GCC countries command over 59.07% of the entire international Sukuk issuances since inception.
Table 5A Regional Break-up of International Sukuk issuance (Jan 2001 – Dec 2020)
ASIA & FAR EAST Number of Issues Amount USD Millions % of Total Value
China 1 97 0.03%
Hong Kong 5 3,196 0.96%
Indonesia 24 21,203 6.38%
Japan 3 190 0.06%
Malaysia 174 85,633 25.77%
Pakistan 4 3,600 1.08%
Singapore 4 711 0.21%
Total 215 114,630 34.49%
GCC & MIDDLE EAST Number of Issues Amount USD Millions % of Total Value
Bahrain 109 15,589 4.69%
Kuwait 21 5,177 1.56%
Oman 5 4,219 1.27%
Qatar 25 16,195 4.87%
Saudi Arabia 78 65,353 19.67%
United Arab Emirates 138 89,764 27.01%
Total 376 196,297 59.07%
55 IIFM SUKUK REPORT 2021 Continued from previous page
AFRICA Number of Issues Amount USD Millions % of Total Value
Nigeria 1 150 0.05%
South Africa 1 500 0.15%
Sudan 1 130 0.04%
Total 3 780 0.23%
Europe & OTHERS Number of Issues Amount USD Millions % of Total Value
France 1 1 0.0003%
Germany 3 206 0.06%
Luxembourg 3 280 0.08%
Turkey 33 16,917 5.09%
United Kingdom 11 1,769 0.53%
USA 5 1,367 0.41%
Kazakhstan 1 77 0.02%
Total 57 20,617 6.20%
Grand Total 651 332,325 100%
Source: IIFM Sukuk database
In 2020, as per the Table 5B below, around 57.62% of the international issuance came from 5 out of 6 GCC countries. Malaysia is active in International Sukuk issuances with a share of 29.36% followed by Turkey of 7.01% while Indonesia continue to improve its share which stood at 5.90%.
Table 5B: Regional Break-up of International Issuances for the Year 2020
ASIA & FAR EAST Number of Issues Amount USD Millions % of Total Value
Indonesia 3 2,500 5.90%
Malaysia 36 12,450 29.36%
Total 39 14,950 35.25%
GCC & MIDDLE EAST Number of Issues Amount USD Millions % of Total Value
Bahrain 6 3,159 7.45%
Kuwait 2 1,050 2.48%
Qatar 3 2,300 5.42%
Saudi Arabia 10 8,527 20.11%
United Arab Emirates 13 9,400 22.17%
Total 34 24,436 57.62%
AFRICA Number of Issues Amount USD Millions % of Total Value
Total 0 0 0.00%
56 IIFM SUKUK REPORT 2021 Continued from previous page
Europe & OTHERS Number of Issues Amount USD Millions % of Total Value
Turkey 6 2,972 7.01%
United Kingdom 1 50 0.12%
Total 7 3,022 7.01%
Grand Total 80 42,408 100%
Source: IIFM Sukuk database Table 6 below gives a list of selected value leaders of Sukuk issuances in 2020. The largest of the value leaders, that is with issuance amounts of USD 250 million or greater include sovereign, quasi-sovereign, corporate, and FI entities namely the governments of Bahrain, Indonesia, Sharjah, Turkey, Pakistan, Saudi Arabia, UAE and the Islamic Development Bank.
In 2020, the corporate & FI issuances of USD 150 million and above are Gulf Finance House, Dubai Islamic Bank, Kuwait International Bank, Boubyan Bank, Masraf Al Rayan etc.,
Table 6: International Sukuk Issuances - Selected Value Leaders (2020, USD 150 Millions or >, Tenor > 1 Year)
USD Average Issue Issuer Issuance Sukuk Type Million or Tenor Year Issuer Country Currency Sukuk Structure Equivalent (Years)
2020 Arab National Bank Saudi Arabia USD FIs Sukuk Al Murabahah 750 10
2020 Axiata Group Bhd Malaysia USD Corporate Sukuk Al Wakalah 500 10 Bahrain Mumtalakat 2020 Bahrain USD Quasi-Sovereign Hybrid Sukuk 500 7 Holding Company Hybrid Sukuk Wakalah 2020 Boubyan Bank Kuwait 750 USD FIs /Mudharabah 5 Hybrid Sukuk - 2020 Central Bank of Bahrain Bahrain Sovereign 1,000 7 USD Ijarah/Murabahah Dar Al Arkan Real Estate Hybrid Sukuk - 2020 Company Saudi Arabia USD Corporate Ijarah/Murabahah 400 7 United Arab Hybrid Sukuk - 2020 750 Dubai Aerospace Enterprise Emirates USD Quasi-Sovereign Ijarah/Murabahah 5 United Arab 2020 Dubai DP World Emirates USD Quasi-Sovereign Sukuk Al Mudharabah 1,500 Perpetual United Arab 2020 Dubai Islamic Bank Emirates USD FIs Sukuk Al Mudharabah 1,000 Perpetual United Arab 2020 Emirates Islamic Bank Emirates USD FIs Sukuk Al Wakalah 500 5 Etihad Airways (Transition United Arab 2020 USD Corporate Sukuk Al Wakalah 600 5 Green Sukuk) Emirates United Arab 2020 First Abu Dhabi Bank USD FIs Sukuk Al Wakalah 500 5 Emirates
2020 Government of Indonesia Indonesia USD Sovereign Sukuk Al Wakalah 750 30 United Arab 2020 Government of Dubai Sukuk Al Ijarah 1,000 10 Emirates USD Sovereign United Arab 2020 Government of Sharjah Sovereign Sukuk Al Ijarah 1,000 10 Emirates USD Hybrid Sukuk Wakalah 2020 Bahrain Gulf Finance House USD Corporate /Mudharabah 500 5
2020 ICD Sukuk - Hilal Services Saudi Arabia USD Quasi-Sovereign Sukuk Al Wakalah 600 5
2020 Islamic Development Bank - Saudi Arabia USD Quasi-Sovereign Sukuk Al Wakalah 1,500 5 Sustainability Sukuk
57 IIFM SUKUK REPORT 2021 Continued from previous page
2020 Khaleeji Commercial Bank Bahrain USD FIs Sukuk Al Mudharabah 159 Perpetual
2020 Kuwait International Bank Kuwait USD FIs Sukuk Al Wakalah 300 10 Hybrid Sukuk - 2020 Qatar FIs 750 5 Masraf Al Rayan USD Wakalah/Mudarabah Ministry of Treasury and 2020 Turkey Euro Sovereign 259 1 Finance of Turkey Sukuk Al Ijarah Ministry of Treasury and 2020 Turkey Finance of Turkey Euro Sovereign Sukuk Al Ijarah 286 1 Hybrid Sukuk Wakalah 2020 Qatar Islamic Bank Qatar USD FIs /Mudharabah 800 5
2020 Riyad Bank Saudi Arabia USD FIS Sukuk Al Murabahah 1,500 10 Saudi Electricity - Green 2020 Sukuk Saudi Arabia USD Corporate Sukuk Al Ijarah 650 5 United Arab 2020 Sharjah Islamic Bank (SIB) Emirates USD FIs Sukuk Al Ijarah 500 5 United Arab 2020 Tabreed Sukuk Emirates USD Corporate Sukuk Al Ijarah 500 7
Source: IIFM Sukuk database
58 IIFM SUKUK REPORT 2021
1.8 Anatomy of Domestic Sukuk Issuances
During 2020, the domestic market forms around 75.80% (USD 132.233 billion) of the entire Sukuk market. The domestic market consists of longer tenor as well as short-term Sukuk denominated in over 26 different currencies while no new entrant was added to the Sukuk market. Malaysia has continued its domination with market share of 65.50% of the total domestic Sukuk market for 2001 to 2020 period though other regular Sukuk issuance jurisdictions are increasing their market shares. In 2020, the other major domestic Sukuk issuing jurisdictions 2019 including Malaysia were Saudi Arabia, Indonesia, UAE, Turkey, Oman, Qatar where Bahrain & Brunei are the most active issuers in short term market.
There is a rise in domestic Sukuk issuance in countries other than Malaysia and jurisdictions like Indonesia, Saudi Arabia, Turkey, Bahrain are playing an active role in issuance for liquidity management, project financing, meeting budgetary requirements and other purposes. Indonesia continued to issue large size domestic Sukuk for retail investors and this model is being looked at by several other countries; moreover, Indonesia also regularly issues benchmark size project financing Sukuk with tenor up to 30 years.
Table 7A below shows a regional break-up of the domestic Sukuk issuance since inception:
Table 7A: Regional Break-up of Domestic Issuances (Jan 2001 – Dec 2020)
ASIA & FAR EAST Number of Issues Amount USD Millions % of Total Value
Bangladesh 29 790 0.072%
Brunei Darussalam 195 11,830 1.08%
Indonesia 528 103,755 9.51%
Malaysia 7,626 714,311 65.50%
Maldives 3 24 0.002%
Pakistan 113 19,192 1.76%
Singapore 12 788 0.07%
Sri Lanka 2 5 0.000%
Total 8,508 850,694 78.00%
GCC & MIDDLE EAST Number of Issues Amount USD Millions % of Total Value
Bahrain 358 23,807 2.18%
Jordan 4 483 0.04%
Kuwait 2 818 0.08%
Oman 12 3,103 0.28%
Qatar 31 19,772 1.81%
Saudi Arabia 183 109,258 10.02%
United Arab Emirates 17 8,631 0.79%
Yemen 2 253 0.02%
Total 609 166,126 15.23%
59 IIFM SUKUK REPORT 2021 Continued from previous page
AFRICA Number of Issues Amount USD Millions % of Total Value
Egypt 2 286 0.03%
Gambia 556 430 0.04%
ivory Coast 2 460 0.04%
Nigeria 5 1,099 0.10%
Mali 1 285 0.03%
Morocco 1 105 0.01%
Senegal 2 445 0.04%
Sudan 40 20,415 1.87%
Togo 1 245 0.02%
Total 610 23,770 2.18%
Europe & OTHERS Number of Issues Amount USD Millions % of Total Value
Turkey 675 49,998 4.58%
Total 675 49,998 4.58%
Grand Total 10,402 1,090,588 100%
Source: IIFM Sukuk database
Table 7B below shows a regional break-up of the domestic Sukuk issuance during 2020:
Table 7B: Regional Break-up of Domestic Issuances for the year 2020
ASIA & FAR EAST Number of Issues Amount USD Millions % of Total Value
Bangladesh 23 731 0.553%
Brunei Darussalam 22 881 0.67%
Indonesia 59 23,550 17.81%
Malaysia 674 53,747 40.65%
Maldives 1 15 0.011%
Pakistan 19 5,161 3.90%
Total 798 84,084 63.59%
GCC & MIDDLE EAST Number of Issues Amount USD Millions % of Total Value
Bahrain 24 2,502 1.89%
Kuwait 1 487 0.37%
Oman 4 1,134 0.86%
Saudi Arabia 32 18,727 14.16%
United Arab Emirates 2 307 0.23%
Total 63 23,156 17.51%
60 IIFM SUKUK REPORT 2021 Continued from previous page
AFRICA Number of Issues Amount USD Millions % of Total Value
Egypt 2 286 0.22%
Gambia 127 24 0.02%
Nigeria 1 385 0.29%
Sudan 5 899 0.68%
Total 135 1,594 1.21%
Europe & OTHERS Number of Issues Amount USD Millions % of Total Value
Turkey 117 23,399 17.70%
Total 117 23,399 17.70%
Grand Total 1,113 132,233 100%
Source: IIFM Sukuk database
As mentioned before, the domestic market comprised of longer tenor as well as short-term issuances of 12 months and under. In the year 2020, the selected domestic value leaders given in Table 7C below, were from Malaysia, Indonesia, Saudi Arabia, Bahrain, Qatar, Oman, Pakistan and Turkey.
Table 7C: Domestic Sukuk Issuances - Selected Value Leaders (2020, USD 500 Millions or >, Tenor > 1 Year)
USD Average Issue Issuer Issuance Sukuk Type Million or Tenor Year Issuer Country Currency Sukuk Structure Equivalent (Years)
2020 Banque Saudi Fransi Saudi Arabia SAR FIs Sukuk Al Mudharabah 1,333 Perpetual
2020 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 3,206 4
2020 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 2,854 26
2020 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 1,311 13
2020 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 1,364 23
2020 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 523 17
2020 Government of Malaysia Malaysia MYR Sovereign Sukuk Al Murabahah 2352 19
2020 Government of Malaysia Malaysia MYR Sovereign Sukuk Al Murabahah 1800 30 Government of Sultanate of 2020 Oman Oman OMR Sovereign Sukuk Al Ijarah 541 6
2020 Malayan Banking Bhd Malaysia MYR FIs Sukuk Al Murabahah 552 10 Ministry of Finance Saudi Hybrid Sukuk - 2020 Saudi Arabia 1,133 Arabia SAR Sovereign Murabahah/Mudharabah 15 Ministry of Finance Saudi Hybrid Sukuk - 2020 Saudi Arabia SAR Sovereign 3,972 30 Arabia Murabahah/Mudharabah Ministry of Treasury and 2020 Turkey TRY Sovereign Sukuk Al Ijarah 924 2 Finance of Turkey Ministry of Treasury and 2020 Turkey TRY Sovereign 1,353 3 Finance of Turkey Sukuk Al Ijarah Ministry of Treasury and 2020 Turkey TRY Sovereign 753 2 Finance of Turkey Sukuk Al Ijarah
2020 National Commercial Bank Saudi Arabia SAR FIs Sukuk Al Mudharabah 1,120 Perpetual
61 IIFM SUKUK REPORT 2021 Continued from previous page
Power Holding - 2020 Pakistan PKR Quasi-Sovereign Sukuk Al Ijarah 1,280 10 Government of Pakistan Saudi Basic Industries 2020 Saudi Arabia SAR Corporate Hybrid Sukuk 500 30 Corporation (SABIC)
2020 Saudi British Bank (SABB) Saudi Arabia SAR FIs Sukuk Al Murabahah 1,333 10
Source: IIFM Sukuk database
62 IIFM SUKUK REPORT 2021
1.9 Structural Break-up of Global Sukuk Market
In terms of Sukuk structures, features and participants there is generally difference between international and domestic Sukuk markets hence the requirements and popularity of various Sukuk financing structures also differs between the two markets.
As far as the international Sukuk market is concerned, Sukuk Al Wakalah, is most the popular structure for some time now. Chart 4A below shows the share of Wakalah among Sukuk issuances made up around 51.00% during 2010-2018 period. The share of Sukuk Al Ijarah continue to decline from initial years and in 2020 its share increased to 18% as compared to 11% in 2019.
The shif from Ijarah to Wakalah model started in 2015 and since then this trend has continued in 2020 where Sukuk Al Wakalah share stood at USD 21.427 billion (51%) of the total international issuances.
In 2017 the Issuance by Saudi Arabia led to the introduction of new hybrid structure consisting of Mudarabah and Murabahah; however, during the year 2020 there was no international issuance of this structure.
In 2020, there was once again issuances based on
In terms of structure the Sukuk Al Wakalah is generally issued based on combination of Ijarah with Murabahah and is like a hybrid structure. The Sukuk Al Wakalah provides flexibility in structuring and the issue of shortage of available assets is abridged.
IIFM is of the view that from the industry’s development perspective over reliance on one structure needs to be collectively assessed and addressed by the industry.
CHART 4A: STRUCTURAL BREAK-UP OF INTERNATIONAL SUKUK ISSUANCES- ALL TENORS (USD MILLIONS)
International Sukuk Issuances Jan 2010- Dec 2018
Hybrid Sukuk, 8,322, 4%
Hybrid Sukuk-Ijarah/ Hybrid Sukuk-Murabahah/ Musharakah, 351, 0.17% Mudharabah, 11,000, 5% Hybrid Sukuk-Wakalah/ Murabahah, 2,100, 1% Hybrid Sukuk-Wakalah/ Mudarabah, 1,690, 1% Hybrid Sukuk-Ijarah/ Murabahah, 4,250, 2% Islamic Exchangeable Sukuk, 1,381, 1%
Sukuk Al Ijarah, 52,351, 25%
Sukuk Al Mudharabah, Sukuk Al Wakalah, 9,655, 5% 104,884, 51% Sukuk Al Murabahah, 7,551, 4%
Sukuk Al Musharakah, 3,114, 1%
63 IIFM SUKUK REPORT 2021
International Sukuk Issuances for the Year 2019
Hybrid Sukuk-Murabahah/ Mudharabah, 3,000, 8% Hybrid Sukuk-Ijarah/ Hybrid Sukuk-Wakalah/ Murabahah, 4,600, 12% Mudarabah, 300, 1%
Sukuk Al Ijarah, 4,219, 11%
Sukuk Al Mudharabah, 3,500, 9%
Sukuk Al Murabahah, 1,100, 3% Sukuk Al Wakalah, 21,757, 56%
International Sukuk Issuances for the Year 2020
Hybrid Sukuk- Wakalah/Murabahah, Hybrid Sukuk, 1,250, 3% 500, 1% Hybrid Sukuk- Hybrid Sukuk- Ijarah/Murabahah, Wakalah/Mudarabah, 4,450, 11% 2,300, 5%
Sukuk Al Ijarah, 7,522, 18%
Sukuk Al Mudharabah, Sukuk Al Wakalah, 2,709, 6% 21,427, 51% Sukuk Al Murabahah, 2,250, 5%
Source: IIFM Sukuk database
In the domestic market, as shown in chart 4B below, Sukuk Al Murabahah has historically been the most dominant structure for Sukuk issuances even in 2020 where around USD 38.09 billion or 29% of total domestic issuances were based on the Murabahah structure. As the case in International Sukuk issuance a new hybrid Sukuk – Murabahah & Mudarabah was added by Saudi Arabia and due to large issuances the share in 2020 works out to be USD 13.70 billion or 10%.
64 IIFM SUKUK REPORT 2021
In 2020, Ijarah, Mudharabah and Wakalah are part of the structural mix which is desirable from the diversity point of view.
Chart 4B: STRUCTURAL BREAK-UP OF DOMESTIC SUKUK ISSUANCES- ALL TENORS (USD MILLIONS)
DOMESTIC SUKUK ISSUANCES Jan 2010-Dec 2018
Hybrid Sukuk, 18,263, 3% Bai’ Bithaman Ajil, 23,268, 3% Hybrid Sukuk- Wakalah/Murabahah, Hybrid Sukuk- 509, 0.07% Murabahah/Mudharabah, 36,111, 5% Sukuk Al Ijarah, 126,555, 18% Sukuk Al Wakalah, 30,964, 4% Sukuk Al Istisna’a Sukuk Al Salam, 182, 0.03% 8,653, 1% Sukuk Al Mudharabah, Sukuk Al Musharakah, 23,799, 3% 57,766, 8%
Sukuk Al Murabahah, 390,572, 55%
Domestic Sukuk Issuances for the Year 2019
Hybrid Sukuk- Murabahah/Mudharabah, Hybrid Sukuk, 1,696, 2% 18,706, 17% Hybrid Sukuk- Musharakah/Murabahah, Hybrid Sukuk-Wakalah/ 173, 0.16% Murabahah, 4,934, 5%
Sukuk Al Wakalah, Hybrid Sukuk-Ijarah/ 12,562, 12% Musharakah, 1,196, 1%
Sukuk Al Salam, Sukuk Al Ijarah, 21,236, 20% 1,071, 1%
Sukuk Al Musharakah, 1,327, 1% Sukuk Al Mudharabah, 12,121, 11%
Sukuk Al Murabahah, 32,204, 30%
65 IIFM SUKUK REPORT 2021
Domestic Sukuk Issuances for the Year 2020
Hybrid Sukuk, 5,765, 4% Hybrid Sukuk- Hybrid Sukuk- Murabahah Ijarah/Musharakah, /Mudharabah, 13,708, 10% 617, 0.47%
Hybrid Sukuk-Wakalah/ Mudarabah, 4,239, 3%
Sukuk Al Wakalah, 4,800, 4% Sukuk Al Ijarah, 53,524, 41% Sukuk Al Salam, 2,122, 2% Sukuk Al Musharakah, 2,594, 2%
Sukuk Al Murabahah, Sukuk Al Mudharabah, 38,097, 29% 6,768, 5%
Source: IIFM Sukuk database
Chart 4C below shows the structural distribution of international Sukuk issuance by the type of issuer, i.e., sovereign, quasi-sovereign, corporate and FIs issuers for the entire period covering Jan 2001-2020.
On an overall basis, the Sukuk Al Ijarah is historically been the favorite structure of international sovereign issuers with a share of 51.00 %. However, in recent years, Walakah and Ijarah are the two most prefered structures by sovereign issures where in 2020 Sukuk Al Wakalah share works out to be 26%.
Chart 4C: Structural Break-up of International Sukuk Issuances by Issuer- All Tenors (USD Millions)
Sovereign Sukuk Issuances Jan 2001-Dec 2020
Hybrid Sukuk, 2,000, 2%
Hybrid Sukuk-Murabahah/ Hybrid Sukuk, Mudharabah, 13,500, 14% Ijarah/Murabahah, 5600, 6% Hybrid Sukuk-Wakalah/ Mudarabah, 1,500, 2%
Sukuk Al Ijaran, Sukuk Al Wakalah, 47,672, 51% 21,900, 23%
Sukuk Al Salam, 1,958, 2%
Sukuk Al Murabahah, 97, 0.10%
66 IIFM SUKUK REPORT 2021
Sovereign Sukuk Issuances for the Year 2019
Hybrid Sukuk -Ijara /Murabahah, 2750, 24% Hybrid Sukuk -Murabaha /Mudharabah, 2500, 22%
Sukuk Al Ijarah, 4,084, 36% Sukuk Al Wakalah, 2,000, 18%
Sovereign Sukuk Issuances for the Year 2020
Hybrid Sukuk -Ijara /Murabahah, 2000, 20%
Sukuk Al Wakalah, 2,500, 26%
Sukuk Al Ijarah, 5,222, 54%
67 IIFM SUKUK REPORT 2021
Islamic Exchangeable Sukuk is an other innovative structure introduced by Khazanah Nasional of Malaysia has taken lead in issuing this type of Sukuk and perhaps this model could be replicated by particulalry quasi sovereign issuers in other jurisdictions also.
Chart 4C: Structural Break-up of International Sukuk Issuances by Issuer- All Tenors (USD Millions)
Quasi-Sovereign Sukuk Issuances Jan 2001-Dec 2020
Sukuk Al Murabahah, 927, 1% Sukuk Al Musharakah, 436, 0.36%
Sukuk Al Mudharabah, Sukuk Al Wakalah, 4,999, 4% 97,181, 18% Sukuk Al Ijarah, 10,200, 9%
Islamic Exchangeable Sukuk , 3,531, 3%
Hybrid Sukuk -Ijara /Murabahah, 1750, 1%
Hybrid Sukuk, 1,100, 1%
Quasi-Sovereign Sukuk Issuances for the Year 2019
Sukuk Al Mudharabah, 1,250, 8%
Sukuk Al Wakalah, 14,682, 92%
68 IIFM SUKUK REPORT 2021
Quasi-Sovereign Sukuk Issuances for the Year 2020
Hybrid Sukuk, 500, 2% Hybrid Sukuk -Ijarah /Murabahah, 750, 4%
Sukuk Al Mudharabah, 1,500, 8%
Sukuk Al Wakalah, 16,527, 86%
Chart 4C Structural Break-up of International Sukuk Issuances by Issuer- All Tenors (USD Millions)
Corporate Sukuk Issuances Jan 2001-Dec 2020
Hybrid Sukuk, Hybrid Sukuk -Wakala 1,759, 2% /Murabahah, 1880, 3% Hybrid Sukuk -Murabahah /Mudharabah, 500, 1% Hybrid Sukuk -Ijarah /Murabahah, 3900, 5%
Islamic Exchangeable Sukuk Al Wakalah, Sukuk , 4,040, 6% 17,548, 24%
Sukuk Al Musharakah, 6,578, 9% Sukuk Al Ijarah, 23,610, 33%
Sukuk Al Murabahah, 6,708, 9%
Sukuk Al Mudharabah, 5,876, 8%
69 IIFM SUKUK REPORT 2021
Corporate Sukuk Issuances for the Year 2019
Hybrid Sukuk -Murabahah /Mudharabah, 500, 10% Hybrid Sukuk -Ijarah /Murabahah, 1100, 22%
Sukuk Al Ijarah, 135, 3%
Sukuk Al Wakalah, 2,100, 43% Sukuk Al Murabahah, 1,100, 22%
Corporate Sukuk Issuances for the Year 2020
Hybrid Sukuk -Wakalah Hybrid Sukuk -Ijarah /Murabahah, 500, 13% /Murabahah, 400, 10%
Sukuk Al Wakalah, 1,100, 29% Sukuk Al Ijarah, 1,800, 47%
Sukuk Al Mudharabah, 50, 1%
70 IIFM SUKUK REPORT 2021
Chart 4C Structural Break-up of International Sukuk Issuances by Issuer- All Tenors (USD Millions)
FIs Sukuk Issuances Jan 2001-Dec 2020
Hybrid Sukuk, 4,450, 10% Hybrid Sukuk -Wakalah Hybrid Sukuk -Wakalah /Murabahah, 1470, 3% /Mudarabah, 2790, 6% Hybrid Sukuk -Ijarah /Murabahah, 2,050, 4%
Hybrid Sukuk -Ijarah /Musharakah, 351, 1% Sukuk Al Wakalah, 12,850, 28% Sukuk Al Ijarah, 3,597, 8%
Sukuk Al Musharakah, 4,793, 11% Sukuk Al Mudharabah, 9,714, 21% Sukuk Al Murabahah, 3,509, 8%
71 IIFM SUKUK REPORT 2021
FIs Sukuk Issuances for the Year 2019
Sukuk Al Mudharabah, 2,250, 36%
Sukuk Al Wakalah, 2,975, 47%
Hybrid Sukuk -Ijarah /Murabahah, 750, 12%
Hybrid Sukuk -Wakalah /Mudarabah, 300, 5%
FIs Sukuk Issuances for the Year 2020
Sukuk Al Wakalah, 1,300, 14% Hybrid Sukuk -Wakalah /Mudarabah, 2300, 24%
Sukuk Al Murabahah, 2,250, 23% Hybrid Sukuk -Wakalah /Murabahah, 750, 8%
Hybrid Sukuk -Ijarah /Murabahah, 1300, 14% Sukuk Al Mudharabah, 1,159, 12% Sukuk Al Ijarah, 500, 5%
Source: IIFM Sukuk database
72 IIFM SUKUK REPORT 2021
Similarly, as depicted in Chart 4D below, in the domestic market, on a historical basis, Murabahah continued to be the most favoured structure with all the issuers namely sovereign, quasi-sovereign, corporate and FIs. The quasi-sovereign, corporate, & FIs issuers in doemstic markets also use Musharakah, Mudharabah, Ijarah, & Wakalah quite extensively while sovereign issuers tend to use Murabahah more than any other strucure perhaps due to structuring ease or to perserve assets for possible International Sukuk issuance or ۔issuances directed towrds liquidity mamangment purpose
Saudi Arabia is one of the view jurisdictions where sovereign has used the Hybrid Sukuk or Combination Sukuk based on Mudarabah & Murabahah structure.
Chart 4D: STRUCTURAL BREAK-UP OF DOMESTIC SUKUK ISSUANCES BY ISSUER STATUS (USD MILLIONS)
Sovereign Sukuk Issuances Jan 2001-Dec 2020
Hybrid Sukuk, Bai' Bithaman Ajil, 1,738, 0.26% 22,122, 3%
Hybrid Sukuk - Sukuk Al Ijarah, Murabaha 167,655, 25% /Mudharabah, 60,982, 9% Sukuk Al Mudharabah, Sukuk Al Wakalah, 6,549, 1% 9,077, 1%
Sukuk Al Istisna'a, 19, 0.003% Sukuk Al Salam, 12,625, 2%
Sukuk Al Musharakah, Sukuk Al Murabahah, 23,832, 4% 370,783, 55%
73 IIFM SUKUK REPORT 2021
Sovereign Sukuk Issuances for the Year 2019
Hybrid Sukuk -Murabahah /Mudharabah, 18,626, 29% Sukuk Al Ijarah, 19,405, 31%
Sukuk Al Wakalah, 3,609, 6% Sukuk Al Murabahah, 20,332, 32% Sukuk Al Salam, 1,071, 2%
Sovereign Sukuk Issuances for the Year 2020
Hybrid Sukuk -Murabahah /Mudharabah, 13,438, 17%
Sukuk Al Wakalah, 606, 1% Sukuk Al Salam, 2,122, 3% Sukuk Al Ijarah, 38,305, 48% Sukuk Al Musharakah, 899, 1%
Sukuk Al Murabahah, 23,760, 30% Sukuk Al Mudharabah, 15, 0.02%
74 IIFM SUKUK REPORT 2021
CHART 4D STRUCTURAL BREAK-UP OF DOMESTIC SUKUK ISSUANCES BY ISSUER STATUS (USD MILLIONS)
Quasi-Sovereign Sukuk Issuances Jan 2001-Dec 2020
Sukuk Al Istisna'a, Sukuk Al Mudharabah, 13, 0.01% 7,688, 8%
Sukuk Al Ijarah, 6,968, 7%
Hybrid Sukuk -Ijarah Sukuk Al Murabahah, /Musharakah, 1,813, 2% 53,083, 53% Hybrid Sukuk - Wakalah /Murabahah, 626, 0.62% Hybrid Sukuk, 1,646, 2% Sukuk Al Musharakah, 20,925, 21% Bai' Bithaman Ajil, 21, 0.02%
Hybrid Sukuk -Murabahah Sukuk Al Wakalah, /Mudharabah, 3,983, 4% 3,465, 3%
Quasi-Sovereign Sukuk Issuances for the Year 2019
Hybrid Sukuk -Ijarah /Musharakah, 1,196, 8%
Sukuk Al Mudharabah, Hybrid Sukuk - Wakalah 7,089, 48% /Murabahah, 626, 4%
Sukuk Al Wakalah, 138, 1% Sukuk Al Murabahah, Sukuk Al Musharakah, 5,520, 37% 322, 2%
75 IIFM SUKUK REPORT 2021
Quasi-Sovereign Sukuk Issuances for the Year 2020
Sukuk Al Ijarah, 1,424, 14% Hybrid Sukuk -Ijarah /Musharakah, 617, 6%
Hybrid Sukuk, 672, 6%
Sukuk Al Murabahah, Sukuk Al Wakalah, 7,100, 68% 276, 3%
Sukuk Al Musharakah, 295, 3%
CHART 4D STRUCTURAL BREAK-UP OF DOMESTIC SUKUK ISSUANCES BY ISSUER STATUS (USD MILLIONS)
Corporate Sukuk Issuances Jan 2001-Dec 2020
Hybrid Sukuk, 28,545, 11% Bai' Bithaman Ajil, 11,808, 5% Islamic Exchangeable Hybrid Sukuk -Murabahah Sukuk, 408, 0.17% /Mudharabah, 350, 0.14% Hybrid Sukuk - Wakalah Hybrid Sukuk - Musharakah /Murabahah, 1,501, 1% / Murabahah, 173, 0.07% Sukuk Al Ijarah, 38,537, 16% Hybrid Sukuk -Wakalah Sukuk Al Istisna'a, /Mudarabah, 591, 0.24% 3,605, 1% Sukuk Al Wakalah, Sukuk Al Mudharabah, 16,411, 7% 27,649, 11% Sukuk Al Salam, 1, 0.001% Sukuk Al Musharakah, 50,922, 21% Sukuk Al Murabahah, 66,626, 27%
76 IIFM SUKUK REPORT 2021
Corporate Sukuk Issuances for the Year 2019
Hybrid Sukuk, Hybrid Sukuk -Murabahah 1,696, 10% /Mudharabah, 80, 1% Hybrid Sukuk - Wakalah Hybrid Sukuk - Musharakah /Murabahah, 1,065, 6% /Murabahah, 173, 1%
Sukuk Al Musharakah, Sukuk Al Ijarah, 874, 5% 1,831, 11%
Sukuk Al Wakalah, 2,096, 13%
Sukuk Al Mudharabah, 5,029, 30% Sukuk Al Murabahah, 3,926, 23%
Corporate Sukuk Issuances for the Year 2020
Hybrid Sukuk -Wakalah Hybrid Sukuk -Murabahah /Mudarabah, 591, 3% /Mudharabah, 270, 1%
Sukuk Al Wakalah, Hybrid Sukuk, 1,777, 10% 5,093, 28%
Sukuk Al Musharakah, 1,141, 6% Sukuk Al Ijarah, 789, 4%
Sukuk Al Murabahah, 4,575, 25% Sukuk Al Mudharabah, 4,262, 23%
77 IIFM SUKUK REPORT 2021
CHART 4D STRUCTURAL BREAK-UP OF DOMESTIC SUKUK ISSUANCES BY ISSUER STATUS (USD MILLIONS)
FIs Sukuk Issuances Jan 2001-Dec 2020
Hybrid Sukuk, Hybrid Sukuk - Wakalah 1,795, 3% /Murabahah, 3,316, 5%
Bai' Bithaman Ajil, 824, 1%
Sukuk Al Ijarah, 13,610, 20% Hybrid Sukuk -Murabahah /Mudharabah, 3,210, 5% Sukuk Al Mudharabah, 4,203, 6% Hybrid Sukuk -Wakalah /Mudarabah, 3,648, 5% Sukuk Al Murabahah, 15,635, 23% Sukuk Al Wakalah, 19,373, 29%
Sukuk Al Musharakah, 2,235, 3%
FIs Sukuk Issuances for the Year 2019
Hybrid Sukuk - Wakalah /Murabahah, 3,243, 26%
Sukuk Al Wakalah, 6,720, 54% Sukuk Al Mudharabah, 3, 0.03%
Sukuk Al Murabahah, 2,427, 19%
Sukuk Al Musharakah, 130, 1%
78 IIFM SUKUK REPORT 2021
FIs Sukuk Issuances for the Year 2020
Hybrid Sukuk -Wakalah /Mudarabah, 3,648, 15%
Sukuk Al Wakalah, 2,140, 9%
Sukuk Al Musharakah, Sukuk Al Ijarah, 258, 1% 13,006, 54%
Sukuk Al Murabahah, 2,662, 11%
Sukuk Al Mudharabah, 2,492, 10%
Source: IIFM Sukuk database
79 IIFM SUKUK REPORT 2021
1.10 Geographical Break-up of Global Sukuk Market
Since inception (Jan 2001 – Dec 2020) Asia continues to be the dominant player in the global Sukuk market as shown in Table 8A below, in terms of region, and the region accounts for 67.84% of global Sukuk issuances followed by GCC & ME as the second largest destination of Sukuk issuance with market share 25.47% and it continue to be one of the key regions driving the Sukuk market.
During 2020, as shown in Table 8B below, Asia continues to be the largest Sukuk issuing region with market share of around 56.71% followed by GCC & ME region with market share of 27.25%.
As of 2020 among the jurisdictions Malaysia is the market leader and a dominant player in terms of issuances with market share of 37.90. Other jurisdictions in order of their approximate share in the global market are Indonesia (14.92%), Saudi Arabia (15.61%), UAE (5.56%), Bahrain (3.20%), Qatar (1.32%) and Turkey with increasing market share of (15.10%) while Sudan is the most prolific issuer of Sukuk from Africa region with market share of (0.51%).
The number of jurisdictions who are directly or indirectly issuing Sukuk are increasing year-over-year which in turn is keeping the Sukuk market vibrant.
Table 8A: Regional Break-up of Global Sukuk Issuances (Jan 2001 – Dec 2020)
ASIA & FAR EAST Number of Issues Amount USD Millions % of Total Value
Bangladesh 29 790 0.055%
Brunei Darussalam 195 11,830 0.831%
China 1 97 0.01%
Hong kong 5 3,196 0.22%
Indonesia 552 124,958 8.78%
Japan 3 190 0.01%
Malaysia 7,800 799,945 56.22%
Maldives 3 24 0.002%
Pakistan 117 22,792 1.60%
Singapore 16 1,498 0.11%
Sri Lanka 2 5 0.0004%
Total 8,723 965,324 67.84% GCC & MIDDLE EAST Number of Issues Amount USD Millions % of Total Value
Bahrain 467 39,396 2.77%
Jordan 4 483 0.03%
Kuwait 23 5,995 0.42%
Oman 17 7,322 0.51%
Qatar 56 35,967 2.53%
Saudi Arabia 261 174,611 12.27%
80 IIFM SUKUK REPORT 2021 Continued from previous page
United Arab Emirates 155 98,395 6.92%
Yemen 2 253 0.02%
Total 985 362,423 25.47%
AFRICA Number of Issues Amount USD Millions % of Total Value
Egypt 2 286 0.02%
Gambia 556 430 0.03%
ivory Coast 2 460 0.03%
Nigeria 6 1,249 0.09%
Mali 1 285 0.02%
Morocco 1 105 0.01%
South Africa 1 500 0.04%
Senegal 2 445 0.03%
Sudan 41 20,545 1.44%
Togo 1 245 0.02%
Total 613 24,550 1.71%
Europe & OTHERS Number of Issues Amount USD Millions % of Total Value
France 1 1 0.0000%
Germany 3 206 0.01%
Luxembourg 3 280 0.02%
Kazakhstan 1 77 0.01%
Turkey 708 66,915 4.70%
United Kingdom 11 1,769 0.12%
USA 5 1,367 0.10%
Total 732 70,615 4.96%
Grand Total 11,053 1,422,911 100%
Source: IIFM Sukuk database
81 IIFM SUKUK REPORT 2021
Table 8B: Regional Break-up of Global Sukuk Issuances for the Year 2020
ASIA & FAR EAST Number of Issues Amount USD Millions % of Total Value
Bangladesh 23 731 0.419%
Brunei Darussalam 22 881 0.504%
Indonesia 62 26,050 14.92%
Malaysia 710 66,197 37.90%
Maldives 1 15 0.008%
Pakistan 19 5,161 2.96%
Total 837 99,034 56.71%
GCC & MIDDLE EAST Number of Issues Amount USD Millions % of Total Value
Bahrain 30 5,661 3.24%
Kuwait 3 1,537 0.88%
Oman 4 1,134 0.65%
Qatar 3 2,300 1.32%
Saudi Arabia 42 27,254 15.61%
United Arab Emirates 15 9,707 5.56%
Total 97 47,592 27.25%
AFRICA Number of Issues Amount USD Millions % of Total Value
Egypt 2 286 0.16%
Gambia 127 24 0.01%
Nigeria 1 385 0.22%
Sudan 5 899 0.51%
Total 135 1,594 0.91%
Europe & OTHERS Number of Issues Amount USD Millions % of Total Value
Turkey 123 26,371 15.10%
United Kingdom 1 50 0.19%
Total 124 26,421 15.10%
Grand Total 1,193 174,641 100%
82 IIFM SUKUK REPORT 2021
Chart 5A below shows a currency-wise break-up of the overall global Sukuk market. Malaysian Ringgit is the dominant currency as the Malaysian has a deep local currency domestic market with issuance of 50.55% (MYR 719.21 billion) since inception. Sukuk issuance denominated in USD works out to be 22.51% (USD 319.17 Billion) of the entire global Sukuk market. It is promising to see that Sukuk have been issued in twenty seven (27) different currencies apart from USD and the Malaysian Ringgit. As more and more sovereigns step up to provide liquidity in their local markets, we can clearly see the significance of GCC, Indonesia, Turkey, Pakistan and other Asian currencies rising over time.
CHART 5A: GLOBAL SUKUK ISSUANCES CURRENCY BREAK-UP - ALL TENORS (JAN 2001- DEC 2020, USD MILLIONS)
BHD, 23,807, 1.67% BND, 11,830, 0.83%
BDT, 790, 0.06% EGP, 286, 0.02%
GMD, 430, 0.03% AED , 8,631, 0.61% CNY, 236, 0.02% YER, 253, 0.02% Euro, 4,679, 0.33% USD, 320,267, 22.51%
CFA, 1,434, 0.10% GBP, 1,385, 0.10%
IDR, 103,755, 7.29% TRY, 49,016, 3.44%
SGD, 2,735, 0.19%
SDG, 20,415, 1.43% MAD, 105, 0.01% SAR, 109,258, 7.68% JOD, 483, 0.03%
QAR, 19,772, 1.39% MVR , 24, 0.00%
PKR , 19,192, 1.35% KWD, 818, 0.06%
NGN , 1,099, 0.08% LKR, 5, 0.00%
OMR , 3,103, 0.22% MYR, 719,216, 50.55%
Source: IIFM Sukuk database
83 IIFM SUKUK REPORT 2021
During 2020, as shown in Chart 5B below, Malaysian Ringgit maintained its number one position with share of 30.78% (MYR 53.74 Billion) followed by USD issuances of 23.97% (USD 41.86 Billion), Saudi Riyal of 10.72% (SAR 18.73 Billion), Indonesian Rupiah of 13.48% (IDR 23.55 Billion) and Turkish Lira of 13.40% (TRY 23.39 Billion).
Chart 5B: GLOBAL SUKUK ISSUANCES CURRENCY BREAK-UP - ALL TENORS (JAN 2020- DEC 2020, USD MILLIONS)
Euro, 545, 0.31% GMD, 24, 0.01%
BHD, 2,502, 1.43% BND, 881, 0.50% EGP, 286, 0.16% BDT, 731, 0.42% IDR, 23,550, 13.48% AED , 307, 0.18% KWD, 487, 0.28%
MVR , 15, 0.01%
MYR, 53,747, 30.78%
USD, 41,863, 23.97%
TRY, 23,399, 13.4%
NGN , 385, 0.22%
SDG, 899, 0.51% OMR , 1,134, 0.65%
SAR, 18,727, 10.72% PKR , 5,161, 2.96%
Source: IIFM Sukuk database
84 IIFM SUKUK REPORT 2021
1.11 Sukuk Maturities 2020 through 2022
This section provides a snapshot of Sukuk matured in the year 2020 and due to mature in the coming two years in the international and domestic markets. Depending upon the economic and market conditions, it may represent additional liquidity being made available into the system as well as hint at prospective re-issuance in the pipleline.
Tables 9A, 9B and 9C show the maturity picture in the international market. The Sukuk maturity in 2020 works out to be USD 10.50 billion while redemptions in 2021 and 2022 will be comparatively substantial at USD 16.08 billion and USD 21.77 billion respectively.
In 2020, the biggest individual Sukuk maturity come from IsDB USD 1.00 billion, Petronas USD 1.25 billion, Qatar Islamic Bank USD 0.750 billion, Dubai Islamic Bank USD 0.750 billion, Turkey EUR 0.622 billion, Government of Hong Kong USD 1.00 billion while Garuda Indonesia Sukuk maturity was extended to 2021 due to pandemic related financial difficulty.
TABLE 9A: International Sukuk Matured 2020, Amount ≥ USD 100 Million
USD Issue Issuer Tenor Maturity Currency Sukuk Type Million or Year Issuer Country Sukuk Structure (Years) Date Equivalent
Quasi- 2010 Khazanah Nasional Bhd Malaysia SGD Sukuk Al Wakalah 662 10 4-Aug-20 Sovereign United Arab 2010 National Bank of Abu Dhabi MYR FIs Sukuk Al Murabahah 161 10 28-Dec-20 Emirates
2013 First Resources Singapore MYR Corporate Sukuk Al Musharakah 239 7 6-Jun-20
2014 Government of South Africa South Africa USD Sovereign Sukuk Al Ijarah 500 5.75 24-Jun-20 Investment Corporation of United Arab Quasi- 2014 Sukuk Al Ijarah 700 6 21-May-20 Dubai (ICD) Emirates USD Sovereign Arab Petroleum Investments Quasi- Saudi Arabia 2015 Corporation - Apicorp USD Sovereign Sukuk Al Wakalah 500 5 22-Oct-20
2015 Axiata Malaysia USD Corporate Sukuk Al Wakalah 500 5 13-Nov-20 United Arab 2015 Dubai Islamic Bank Emirates USD FIs Sukuk Al Wakalah 750 5 18-May-20
2015 Garuda Indonesia Indonesia USD Corporate Sukuk Al Wakalah 500 5 29-May-20
2015 Government of Hong Kong Hong Kong USD Sovereign Hybrid Sukuk 1,000 5 28-May-20
2015 Government of Indonesia Indonesia USD Sovereign Sukuk Al Ijarah 118 5 27-Jul-20
Quasi- 2015 International Finance USA USD Sukuk Al Wakalah 100 5 9-Sep-20 Corporation (IFC) Sovereign Quasi- 2015 Islamic Development Bank Saudi Arabia USD Sukuk Al Wakalah 1,000 5 12-Mar-20 Sovereign United Arab 2015 Noor Bank USD FIs Sukuk Al Wakalah 500 5 22-Apr-20 Emirates Petroliam Nasional Bhd 2015 Malaysia USD Corporate Sukuk Al Wakalah 1,250 5 11-Mar-20 (Petronas)
2015 Qatar Islamic Bank Qatar USD FIs Sukuk Al Mudharabah 750 5 20-Oct-20
United Arab 2015 Sharjah Islamic Bank (SIB) USD FIs Sukuk Al Ijarah 500 5 17-Mar-20 Emirates Quasi- 2017 Nigeria Sukuk Al Murabahah 150 3 24-Jan-20 Africa Finance Corporation USD Sovereign
2018 Turkish Ministry of Finance Turkey EURO Sovereign Sukuk Al Ijarah 622 2 20-Dec-20
Total 10,502
Source: IIFM Sukuk database
85 IIFM SUKUK REPORT 2021
TABLE 9B: International Sukuk Maturing 2021, Amount > USD 100 Million
USD Issue Issuer Tenor Maturity Currency Sukuk Type Million or Year Issuer Country Sukuk Structure (Years) Date Equivalent
2011 Government of Malaysia Malaysia USD Sovereign Sukuk Al Wakalah 800 10 6-Jul-21 Bahrain Mumtalakat Quasi- 2014 Bahrain USD Hybrid Sukuk 600 7 25-Nov-21 Holding Company Sovereign Quasi- Islamic Exchangeable 2014 Khazanah Nasional Bhd Malaysia USD 500 7 Sovereign Sukuk 24-Sep-21 United Arab 2016 Dubai Islamic Bank USD FIs Sukuk Al Wakalah 500 5 Emirates 30-Mar-21 United Arab 2016 Emirates Islamic Bank USD FIs Sukuk Al Wakalah 750 5 24-May-21 Emirates United Arab 2016 Etihad Airways USD Corporate Sukuk Al Wakalah 1,500 5 4-Dec-21 Emirates
2016 Ezden Holding Group Qatar USD Corporate Sukuk Al Wakalah 500 5 18-May-21
2016 Government of Pakistan Pakistan USD Sovereign Sukuk Al Ijarah 1,000 5 7-Oct-21 Govt of Indonesia 2016 (Perusahaan Penerbit SSBN Indonesia USD Sovereign Sukuk Al Wakalah 750 5 29-Mar-21 Indonesia III) SNI Govt of Sharjah (Sharjah United Arab 2016 USD Sovereign Sukuk Al Ijarah 500 5 27-Jan-21 Sukuk Limited) Emirates Govt of Turkey (Hazine 2016 Mustesarligi Varlik kiralama Turkey USD Sovereign Sukuk Al Ijarah 1000 5 08-Jun-21 Anonmin sirketi) Quasi- 2016 ICD Sukuk - Hilal Services Saudi Arabia USD Sukuk Al Wakalah 300 5 13-Apr-21 Sovereign Quasi- 2016 USD Sukuk Al Wakalah 1,500 5 10-Mar-21 Islamic Development Bank Saudi Arabia Sovereign Quasi- 2016 Islamic Development Bank Saudi Arabia USD Sukuk Al Wakalah 1,200 5 3-Dec-21 Sovereign Khazanah Nasional berhad Quasi- Islamic Exchangeable 2016 Malaysia USD 398.8 5 01-Sep-21 (DANGA CAPITAL BHD) Sovereign Sukuk Khazanah Nasional berhad Quasi- 2016 Malaysia USD Sukuk Al Wakalah 750 5.1 3-Feb-21 (DANGA CAPITAL BHD) Sovereign
2016 Kuveyt Türk Turkey USD FIs Sukuk Al Wakalah 500 5 6-Nov-21
United Arab 2016 Sharjah Islamic Bank USD FIs Sukuk Al Ijarah 500 5 8-Sep-21 Emirates Hybrid Sukuk -Ijarah 2018 Al Rayan Bank United Kingdom GBP FIs 351 3 17-Feb-21 /Musharakah
2018 Government of Indonesia Indonesia USD Sovereign Sukuk Al Wakalah 100 3 15-Nov-21
Hybrid Sukuk - Wakalah 2018 Qatar islamic Bank Qatar USD FIs 100 3 29-May-21 /Murabahah
2019 Turkish Finance Ministry Turkey Euro Sovereign Sukuk Al Ijarah 1,984 2 6-Feb-21
Total 16,084
Source: IIFM Sukuk database
86 IIFM SUKUK REPORT 2021
TABLE 9C: International Sukuk Maturing 2022, Amount ≥ USD 100 Million
USD Issue Issuer Tenor Maturity Currency Sukuk Type Million or Year Issuer Country Sukuk Structure (Years) Date Equivalent
Abu Dhabi National Energy United Arab 2012 MYR Corporate Sukuk Al Murabahah 212 10 26-Feb-22 Company Emirates United Arab 2012 Government of Dubai USD Sovereign Sukuk Al Ijarah 650 10 25-Apr-22 Emirates
2012 Government of Indonesia Indonesia USD Sovereign Sukuk Al Ijarah 1,000 10 16-Nov-22
2012 Government of Qatar Qatar USD Sovereign Sukuk Al Ijarah 2,000 10 11-Jul-22 Quasi- Saudi Arabia Sukuk Al Ijarah 2012 Saudi Electricity Company USD Sovereign 1,250 10 28-Mar-22 SapuraKencana TMC Sdn 2015 Malaysia Corporate Sukuk Al Murabahah 200 7 Berhad (IMTN) USD 8-Sep-22
2016 Government of Oman Oman USD Sovereign Sukuk Al Ijarah 500 6 29-Jun-22 Quasi- Saudi Arabia 2017 Arab Petroleum Investment USD Sovereign Sukuk Al Wakalah 500 5 1-Nov-22 United Arab Hybrid Sukuk - Corporate 2017 Corporation Emirates USD Ijarah/Murabahah 500 5 20-Apr-22 Hybrid Sukuk - Corporate 2017 DAMAC (Alpha Star Holding) Saudi Arabia USD Ijarah/Murabahah 500 5 10-Apr-22 United Arab 2017 Dar Al Arkan USD FIs Sukuk Al Wakalah 1,000 5 7-Feb-22 Emirates
2017 Dubai Islamic Bank United Arab USD Corporate Sukuk Al Mudharabah 400 5 12-Jun-22 Emirates United Arab 2017 Dubai Meraas Holdings USD Corporate Sukuk Al Ijarah 400 5 5-Dec-22 Emirates
2017 Emirates REIT Qatar USD Corporate Sukuk Al Wakalah 500 5 6-Apr-22
Ezdan Sukuk Company 2017 Pakistan USD Sovereign Sukuk Al Ijarah 5 29-Nov-22 Limited 1,000 Hybrid Sukuk - 2017 Government of Pakistan Saudi Arabia USD Sovereign 4,500 5 20-Apr-22 Murabahah/Mudharabah Quasi- Government of Saudi Arabia Saudi Arabia USD Sukuk Al Wakalah 1,260 5 5-Oct-22 2017 Sovereign Quasi- 2017 Islamic Development Bank Saudi Arabia USD Sukuk Al Wakalah 1,250 5 5-Apr-22 Sovereign
2017 Islamic Development Bank Qatar USD FIs Sukuk Al Wakalah 750 5 17-May-22
2017 Qatar Islamic Bank Indonesia USD Sovereign Sukuk Al Wakalah 1,000 5 29-Mar-22
2019 Republic of Indonesia Indonesia USD Sovereign Sukuk Al Ijarah 100 3 11-Jan-22
2019 Government of Indonesia Malaysia USD Corporate Sukuk Al Wakalah 300 3 9-May-22 Serba Dinamik Holdings Turkey USD Sovereign Sukuk Al Ijarah 2,000 3 2019 Turkish Treasury 14-Feb-22 Total 21,772
Source: IIFM Sukuk database
87 IIFM SUKUK REPORT 2021
The three tables 10A, 10B and 10C below provide the maturity profile of the domestic Sukuk market. USD 23.49 billion of domestic Sukuk matured in the year 2020 while the year 2021 and 2022 will also have sizeable maturties of around USD 23.31 billion and USD 39.685 billion respectively.
The Sukuk maturities in 2020 were mainly from Far East particulalry Malaysia and GCC. Malaysia will have larger share of Sukuk maturites during 2021 and 2022 while the other jurisdictions such as Indonesia, GCC & ME, and Turkey will also have a number of Sukuk maturing during these two years as well.
TABLE 10A: Domestic Sukuk Matured 2020, Amount ≥ USD 100 Million
USD Issue Issuer Tenor Maturity Currency Sukuk Type Million or Year Issuer Country Sukuk Structure (Years) Date Equivalent
Mukah Power Generation Sdn 2006 Malaysia Corporate Sukuk Al Mudharabah 175 13.3 3-Feb-20 Bhd's (MPG) MYR Projek Lebuhraya 2006 Malaysia MYR Corporate Sukuk Al Musharakah 178 14 9-Oct-20 Utara-Selatan Berhad ( PLUS)
2007 Jimah Energy Ventures Malaysia MYR Corporate Sukuk Al Istisna'a 229 13.3 11-Sep-20
2007 Nucleus Avenue Malaysia Bhd Malaysia MYR Corporate Sukuk Al Musharakah 205 13.3 24-Aug-20
2010 Celcom Transmission Bhd Malaysia MYR Corporate Sukuk Al Ijarah 572 10 1-Sep-20 Manjung Island Energy 2011 Berhad Malaysia MYR Corporate Sukuk Al Ijarah 164 9 25-Nov-20
2012 Celcom Transmission Malaysia MYR Corporate Sukuk Al Murabahah 384 8 29-Aug-20
2012 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 104 8 28-Jun-20
2012 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 156 8 27-Apr-20
2012 Government of Malaysia Malaysia MYR Sovereign Bai' Bithaman Ajil 1,119 7.5 12-May-20 Quasi- 2012 PLUS Berhad Malaysia MYR Sovereign Sukuk Al Musharakah 159 8 12-Jan-20
2012 Tanjung Bin Power Malaysia MYR Corporate Sukuk Al Ijarah 160 8 16-Aug-20
2013 BGSM Management Sdn Bhd Malaysia MYR Corporate Sukuk Al Musharakah 113 7 27-Dec-20
2013 Cagamas Berhad Malaysia MYR Corporate Hybrid Sukuk 124 7 28-Oct-20
2013 First Resources Ltd Malaysia MYR Corporate Sukuk Al Musharakah 194 7 6-Jun-20
2013 Government of Malaysia Malaysia MYR Sovereign Sukuk Al Murabahah 806 7 19-Aug-20
2013 Malakoff Power Sdn. Bhd. Malaysia MYR Corporate Sukuk Al Murabahah 125 7 17-Dec-20 Quasi- Pelabuhan Tanjung Pelepas Malaysia MYR Sukuk Al Musharakah 129 7.25 7-Sep-20 2013 Sdn. Bhd (PTP) Sovereign Quasi- 2013 Malaysia Hybrid Sukuk 109 Pengurusan Air SPV Berhad MYR Sovereign 7 1-Jul-20
2013 Riyad Bank Saudi Arabia SAR FIs Hybrid Sukuk 1,070 7 7-Nov-20
2013 Saudi British Bank Saudi Arabia SAR FIs Sukuk Al Murabahah 400 7 18-Dec-20
2013 Savola Group Saudi Arabia SAR Corporate Hybrid Sukuk 400 7 22-Jan-20 Syarikat Prasarana Negara Quasi- 2013 Berhad (“Prasarana”) Malaysia MYR Sovereign Sukuk Al Ijarah 187 7 15-Nov-20 Pengurusan Air SPV Berhad Quasi- 2014 (PASB) Malaysia MYR Sovereign Sukuk Al Murabahah 118 6 5-Nov-20
2015 AmIslamic Bank Berhad Malaysia MYR FIs Sukuk Al Musharakah 212 5 6-Mar-20
2015 Central Bank of Bahrain (CBB) Bahrain BHD Sovereign Sukuk Al Ijarah 530 5 9-Jul-20
88 IIFM SUKUK REPORT 2021 Continued from previous page
2015 Central Bank of Bahrain (CBB) Bahrain BHD Sovereign Sukuk Al Ijarah 660 5 19-Jan-20
2015 Danga Capital Berhad Malaysia MYR Sovereign Sukuk Al Musharakah 471 5 9-Apr-20
2015 Government Investment Issue Malaysia MYR Sovereign Sukuk Al Murabahah 2,353 5.5 27-Aug-20
2015 Government of Oman Oman OMR Sovereign Sukuk Al Ijarah 647 5 4-Nov-20
2015 HSBC Amanah Malaysia Bhd Malaysia MYR Corporate Sukuk Al Wakalah 176 5 27-Mar-20 Quasi- 2015 Islamic Development Bank Saudi Arabia SAR Sovereign Sukuk Al Wakalah 514 5 12-Jun-20
2015 Ivory Coast Ivory Coast CFA Sovereign Sukuk Al Ijarah 215 5 12-Jan-20
2015 Jimah Energy Ventures Malaysia MYR Corporate Sukuk Al Murabahah 2,006 5 31-Aug-20
2015 Najran Cement Saudi Arabia SAR Corporate Sukuk Al Murabahah 107 5 15-Jul-20 Pengurusan Air SPV Berhad Quasi- 2015 (PASB) Malaysia MYR Sovereign Sukuk Al Murabahah 165 5 28-Sep-20 Prasarana Malaysia Berhad 2015 Malaysia MYR Sukuk Al Murabahah 165 5.2 24-May-20 (IMTN) Sovereign
2015 SapuraKencana Petroleum Malaysia MYR Corporate Sukuk Al Mudharabah 200 5 9-Sep-20
2015 TH Plantations Bhd (IMTN) Malaysia MYR Corporate Sukuk Al Murabahah 233 5 29-May-20
2016 Government of Malaysia Malaysia MYR Sovereign Sukuk Al Murabahah 787 3.6 10-Feb-20
2016 Maxis Broadband Sdn Bhd Malaysia MYR Corporate Sukuk Al Murabahah 112 4.1 27-Nov-20
2017 Cagamas Bhd Malaysia MYR FIs Sukuk Al Wakalah 131 3.2 18-Oct-20
2017 Cagamas Bhd Malaysia MYR FIs Sukuk Al Wakalah 119 3 18-Sep-20
2017 Central Bank of Bahrain Bahrain BHD Sovereign Sukuk Al Ijarah 331 3 17-Jul-20
2017 Government of Malaysia Malaysia MYR Sovereign Sukuk Al Mudharabah 875 3.25 24-Apr-20 Quasi- 2017 Pengurusan Air SPV Bhd Malaysia MYR Sovereign Sukuk Al Murabahah 175 3.1 6-Jul-20 Small Medium Enterprise Dev- Quasi- 2017 Sukuk Al Murabahah 100 3.1 9-Apr-20 lopment Bank Malaysia Bhd Malaysia MYR Sovereign
2018 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 103 1.6 9-Mar-20
2018 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 191 1.9 19-Mar-20
2018 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 110 1.9 5-Mar-20
2018 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 327 2 22-Mar-20
2018 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 136 2 8-Mar-20
2018 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 311 2.1 22-Mar-20
2018 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 349 2 29-Nov-20
2018 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 347 2.1 8-Mar-20
2018 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 210 2.2 25-Mar-20
2018 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 309 2.2 11-Mar-20
2018 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 107 1.4 4-Mar-20
Ministry of Treasury and 2018 Turkey TRY Sovereign Sukuk Al Ijarah 635 2 24-Dec-20 Finance of Turkey
89 IIFM SUKUK REPORT 2021 Continued from previous page
Ministry of Treasury and 2018 Turkey TRY Sovereign Sukuk Al Ijarah 613 2 21-Nov-20 Finance of Turkey Ministry of Treasury and 2018 Turkey TRY Sovereign Sukuk Al Ijarah 321 2 26-Sep-20 Finance of Turkey Ministry of Treasury and 2018 Turkey TRY Sovereign Sukuk Al Ijarah 355 2 14-Feb-20 Finance of Turkey 2018 XL Axiata Indonesia IDR Corporate Sukuk Al Ijarah 401 2 19-Sep-20
Total 23,488
Source: IIFM Sukuk database
Table 10B: Domestic Sukuk Maturing 2021,> USD 100 Million
USD Issue Issuer Tenor Maturity Currency Sukuk Type Million or Year Issuer Country Sukuk Structure (Years) Date Equivalent
Projek Lebuhraya Utara-Selatan 2006 Malaysia Corporate Sukuk Al Musharakah 184 15 8-Oct-21 Berhad ( PLUS) MYR
2006 Putrajaya Holdings Sdn Bhd Malaysia MYR Corporate Sukuk Al Murabahah 193 15 1-Jan-21
Lingkaran Trans Kota Holdings 2008 Malaysia MYR Corporate Sukuk Al Musharakah 363 13.3 14-Aug-21 Berhad - LITRAK
2008 Telekom Malaysia Malaysia MYR Corporate Sukuk Al Ijarah 152 13 2-Jan-21
2011 AmIslamic Bank Berhad Malaysia MYR FIs Sukuk Al Musharakah 192 10 30-Sep-21
2011 Bank Al Jazira Saudi Arabia SAR FIs Hybrid Sukuk 267 10 29-Mar-21
2011 Bank Muamalat Malaysia Berhad Malaysia MYR FIs Sukuk Al Musharakah 132 10 15-Jun-21
2011 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 313 10 17-Oct-21
2011 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 209 10 11-Apr-21
2011 Government of Malaysia Malaysia MYR Sovereign Sukuk Al Murabahah 492 10 23-Feb-21
2011 Government of Malaysia (GII) Malaysia MYR Sovereign Bai' Bithaman Ajil 1,344 10 28-Jul-21
2011 Government of Malaysia (GII) Malaysia MYR Sovereign Bai' Bithaman Ajil 1,180 10 28-Apr-21
2011 Manjung Island Energy Berhad Malaysia MYR Corporate Sukuk Al Ijarah 164 10 25-Nov-21
2011 Maybank Islamic Malaysia MYR FIs Sukuk Al Musharakah 330 10 31-Mar-21
2011 Pengurusan Aset Air Berhad Malaysia MYR Quasi- Sukuk Al Murabahah 137 10 11-Nov-21 Sovereign 2011 Pengurusan Aset Air Berhad Malaysia MYR Quasi- Sukuk Al Murabahah 169 10 29-Apr-21 Sovereign Quasi- 2011 Pengurusan Aset Air Berhad Malaysia MYR Sukuk Al Murabahah 164 10 8-Feb-21 Sovereign
2011 Sarawak Energy Malaysia MYR Corporate Sukuk Al Musharakah 330 10 23-Jun-21
Syarikat Prasarana Negara Quasi- 2011 Malaysia MYR Sukuk Al Ijarah 269 10 4-Aug-21 Berhad Sovereign
2012 Celcom Transmission Malaysia MYR Corporate Sukuk Al Murabahah 128 9 29-Aug-21
2012 DRB-HICOM Bhd Malaysia MYR Corporate Sukuk Al Murabahah 132 9 22-Feb-21 Quasi- 2012 PLUS Berhad Malaysia MYR Sovereign Sukuk Al Musharakah 159 9 12-Jan-21
2012 Tanjung Bin Power Malaysia MYR Corporate Sukuk Al Ijarah 102 9 16-Aug-21
2013 Government of Malaysia Malaysia MYR Sovereign Sukuk Al Murabahah 947 7.5 23-Mar-21
90 IIFM SUKUK REPORT 2021 Continued from previous page
2013 Government of Malaysia Malaysia MYR Sovereign Sukuk Al Murabahah 1,105 7.5 23-Mar-21 Quasi- 2013 Malaysia MYR Sukuk Al Musharakah 321 8 8-Mar-21 Khazanah Nasional Bhd Sovereign
2013 Malakoff Power Sdn. Bhd. Malaysia MYR Corporate Sukuk Al Murabahah 152 8 17-Dec-21
2014 Bandar Malaysia Sdn Bhd Malaysia MYR Corporate Sukuk Al Murabahah 106 7 29-Dec-21
2014 Bandar Malaysia Sdn Bhd Malaysia MYR Corporate Sukuk Al Murabahah 151 7 20-Feb-21 Bank Pembangunan Malaysia 2014 Malaysia MYR Sovereign Sukuk Al Murabahah 165 7 12-Sep-21 Berhad (16562-K) - BPMB
2014 DanaInfra Nasional Berhad Malaysia MYR Sovereign Sukuk Al Murabahah 165 7 27-Nov-21
2014 DanaInfra Nasional Berhad Malaysia MYR Sovereign Sukuk Al Murabahah 154 7 21-Apr-21
2014 Government of Malaysia Malaysia MYR Sovereign Sukuk Al Murabahah 793 7 7-Apr-21 Quasi- 2014 Khazanah Nasional Bhd Malaysia MYR Sovereign Sukuk Al Musharakah 394 7 24-Feb-21
2014 Midciti Sukuk Berhad Malaysia MYR Corporate Sukuk Al Murabahah 122 7 25-Apr-21
Perbadanan Tabung Pendidikan Quasi- 2014 Malaysia MYR Sukuk Al Murabahah 118 7 27-Aug-21 Tinggi Nasional Sovereign
2016 Bank Muamalat Malaysia Berhad Malaysia MYR FIs Sukuk Al Wakalah 112 5.1 25-Dec-21
2016 Central Bank of Jordan Jordan JOD Sovereign Sukuk Al Murabahah 105 5 22-May-21
2016 Government of Malaysia Malaysia MYR Sovereign Sukuk Al Murabahah 787 5.1 22-Sep-21
2016 Government of Malaysia Malaysia MYR Sovereign Sukuk Al Murabahah 787 5.6 26-Sep-21
2016 Government of Turkey Turkey TRY Sovereign Sukuk Al Ijarah 383 5 22-Nov-21
2016 Government of Turkey Turkey TRY Sovereign Sukuk Al Ijarah 305 5 19-Jul-21
2016 Gulf Investment Corporation G.S.C. Malaysia MYR Corporate Sukuk Al Wakalah 101 5.1 16-Apr-21
2016 Ivory Coast Sukuk ivory Coast CFA Sovereign Sukuk Al Ijarah 245 5 6-Aug-21 Lembaga Pembiayaan Perumahan Quasi- 2016 Malaysia Sukuk Al Murabahah 135 5.1 21-Oct-21 Sektor Awam MYR Sovereign
2016 Pakistan Corporate Pakistan PKR Corporate Sukuk Al Mudharabah 1,064 5 22-Sep-21
2016 Qatar Government Sukuk Qatar QAR Sovereign Sukuk Al Wakalah 137 5 16-Aug-21 Rawabi vallianz offshore Services 2016 Saudi Arabia Corporate Sukuk Al Ijarah Limited SAR 267 5 19-Feb-21
2016 Ziya Capital Berhad Malaysia MYR Corporate Sukuk Al Wakalah 142 5 8-Dec-21 Quasi- 2017 Prasarana Malaysia Bhd Malaysia MYR Sovereign Sukuk Al Murabahah 175 4 28-Dec-21
2018 Cagamas Bhd Malaysia MYR Corporate Hybrid Sukuk 182 3 10-Sep-21
2018 Cagamas Bhd Malaysia MYR Corporate Hybrid Sukuk 122 3 12-May-21
2018 Cagamas Bhd Malaysia MYR Corporate Hybrid Sukuk 243 3 29-Mar-21
2018 Cagamas Bhd Malaysia MYR Corporate Hybrid Sukuk 128 3 23-Mar-21
2018 Central Bank of Bahrain Bahrain BHD Sovereign Sukuk Al Ijarah 266 3 8-Jan-21
2018 Central Bank of Qatar Qatar QAR Sovereign Sukuk Al Wakalah 189 3 11-Nov-21
2018 Central Bank of Qatar Qatar QAR Sovereign Sukuk Al Wakalah 270 3 3-Sep-21
91 IIFM SUKUK REPORT 2021 Continued from previous page
Quasi- DanaInfra Nasional Bhd 2018 Malaysia MYR Sovereign Sukuk Al Murabahah 170 3 20-Aug-21
2018 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 153 2.5 1-May-21
2018 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 596 3 21-Mar-21
2018 Public Islamic Bank Bhd Malaysia MYR FIs Sukuk Al Murabahah 127 3 27-Jul-21
2019 Government of Indonesia - ST003 Indonesia IDR Sovereign Sukuk Al Wakalah 222 2 27-Feb-21
2019 Government of Indonesia - ST004 Indonesia IDR Sovereign Sukuk Al Wakalah 187 2 28-May-21
2019 Government of Indonesia - ST005 Indonesia IDR Sovereign Sukuk Al Wakalah 139 2 28-Aug-21
2019 Government of Indonesia - ST006 Indonesia IDR Sovereign Sukuk Al Wakalah 104 2 28-Nov-21 Ministry of Treasury and Finance 2019 of Turkey Turkey TRY Sovereign Sukuk Al Ijarah 1,292 2 1-Jan-21
Total 20,932
Source: IIFM Sukuk database
Table 10C: Domestic Sukuk Maturing 2022,> USD 100 Million
USD Issue Issuer Tenor Maturity Currency Sukuk Type Million or Year Issuer Country Sukuk Structure (Years) Date Equivalent
Alam Maritim Resources Berhad 2007 Malaysia Sukuk Al Ijarah 145 15 6-Jul-22 (AMRB) MYR Corporate
2007 MTD InfraPerdana Berhad Malaysia MYR Corporate Sukuk Al Murabahah 176 15 2-Apr-22 Quasi- 2008 Malaysia Debt Ventures Bhd Malaysia MYR Sovereign Sukuk Al Murabahah 145 13.3 26-Jan-22 Malaysia Airports Capital Berhad Quasi- 2010 (MACB) Malaysia MYR Sovereign Sukuk Al Ijarah 478 12 17-Dec-22
2012 Aman Sukuk Berhad Malaysia MYR Corporate Sukuk Al Musharakah 116 10 12-Apr-22
2012 Celcom Transmission Malaysia MYR Corporate Sukuk Al Murabahah 128 10 29-Aug-22
2012 DanaInfra Nasional Berhad Malaysia MYR Corporate Sukuk Al Murabahah 222 10 20-Jul-22 Quasi- 2012 General Authority of Civil Aviation Saudi Arabia SAR Sovereign Sukuk Al Murabahah 4,000 10 18-Jan-22
2012 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 349 10 21-Mar-22
2012 Government of Malaysia Malaysia MYR Sovereign Sukuk Al Murabahah 473 10 12-Jul-22
2012 Government of Malaysia Malaysia MYR Sovereign Bai' Bithaman Ajil 1,461 10.5 15-Nov-22
2012 Johor Corporation Malaysia MYR Corporate Sukuk Al Wakalah 564 10 14-Jun-22
2012 Khazanah Nasional Bhd Malaysia MYR Quasi- Sukuk Al Musharakah 480 10 3-Sep-22 Sovereign 2012 Kuala Lumpur Kepong Berhad Malaysia MYR Corporate Sukuk Al Ijarah 320 10 3-Sep-22
2012 Malaysian Airline System Berhad Malaysia MYR Quasi- Sukuk Al Musharakah 164 10 18-Sep-22 Sovereign Quasi- 2012 Malaysian Airline System Berhad Malaysia MYR Sukuk Al Musharakah 314 10 12-Jun-22 Sovereign
2012 Maxis Berhad Malaysia MYR Corporate Sukuk Al Musharakah 811 10 24-Feb-22
2012 Ministry of Finance Malaysia Malaysia MYR Sovereign Sukuk Al Murabahah 160 10 19-Nov-22
National Higher Education Fund Quasi- 2012 Malaysia MYR Sukuk Al Murabahah 329 10 18-Sep-22 Corporation Malaysia Sovereign National Higher Education Fund Quasi- 2012 Corporation Malaysia Malaysia MYR Sovereign Sukuk Al Murabahah 789 10 15-Jun-22
92 IIFM SUKUK REPORT 2021 Continued from previous page
Quasi- 2012 Malaysia MYR Sukuk Al Musharakah 223 10 12-Jan-22 PLUS Berhad Sovereign
2012 Sarawak Energy Bhd Malaysia MYR Corporate Sukuk Al Musharakah 385 10 19-Jan-22 Quasi- 2012 Malaysia Sukuk Al Murabahah 321 10 6-Sep-22 Syarikat Prasarana Negara Berhad MYR Sovereign
2013 BGSM Management Sdn Bhd Malaysia MYR Corporate Sukuk Al Musharakah 230 9 27-Dec-22
2013 Malakoff Power Sdn. Bhd. Malaysia MYR Corporate Sukuk Al Murabahah 104 9 17-Dec-22
2013 Malakoff Power Sdn. Bhd. Malaysia MYR Corporate Hybrid Sukuk 232 9.25 18-Apr-22
2014 Ministry of Finance (Indonesia) Indonesia IDR Sovereign Sukuk Al Ijarah 166 8 11-Feb-22
2015 Almarai Company Saudi Arabia SAR Corporate Hybrid Sukuk 427 7 17-Sep-22
2015 DanaInfra Nasional Berhad Malaysia MYR Sovereign Sukuk Al Murabahah 141 7 6-Apr-22
2015 Government Investment Issue Malaysia MYR Sovereign Sukuk Al Murabahah 2,353 7.5 15-Jul-22
2015 K Electric Pakistan PKR Corporate Sukuk Al Ijarah 216 7 31-May-22
2015 Rantau Abang Capital (IMTN) Malaysia MYR Corporate Sukuk Al Musharakah 353 7 19-Oct-22
2016 Maxis Broadband Sdn Bhd Malaysia MYR Corporate Sukuk Al Murabahah 551 5.3 29-Mar-22
2017 Bank Kerjasama Rakyat Malaysia MYR FIs Sukuk Al Murabahah 213 5.1 29-Jun-22
2017 Bank Muscat - Meethaq Sukuk Oman OMR FIs Sukuk Al Musharakah 116 5 13-Jun-22 Company LLC Quasi- 2017 Bank Pembangunan Malaysia Bhd Malaysia MYR Sukuk Al Musharakah 125 5.1 3-Mar-22 Sovereign
2017 Cagamas Bhd Malaysia MYR FIs Sukuk Al Wakalah 210 5.1 3-Nov-22
2017 Cagamas Bhd Malaysia MYR Corporate Sukuk Al Murabahah 125 5.1 28-May-22
2017 Cahya Mata Sarawak Bhd Malaysia MYR Corporate Sukuk Al Istisna'a 125 5.1 5-Jun-22 Quasi- 2017 DanaInfra Nasional Bhd Malaysia MYR Sovereign Sukuk Al Murabahah 188 5.1 25-Jun-22
2017 Gamuda Bhd Malaysia MYR Corporate Sukuk Al Murabahah 125 5.1 23-Nov-22 Quasi- 2017 GovCo Holdings Bhd Malaysia MYR Sovereign Sukuk Al Murabahah 113 5.1 28-Oct-22 Quasi- 2017 GovCo Holdings Bhd Malaysia MYR Sovereign Sukuk Al Murabahah 156 5.1 22-Mar-22
2017 Government of Malaysia Malaysia MYR Sovereign Sukuk Al Murabahah 750 4.4 29-Apr-22
2017 Government of Malaysia Malaysia MYR Sovereign Sukuk Al Murabahah 1,000 5.1 26-Feb-22 Hybrid Sukuk -Murabahah 2017 Government of Saudi Arabia Saudi Arabia SAR Sovereign /Mudharabah 648 5 25-Dec-22 Hybrid Sukuk -Murabahah 2017 Government of Saudi Arabia Saudi Arabia SAR Sovereign /Mudharabah 284 5 28-Nov-22 Hybrid Sukuk -Murabahah 2017 Government of Saudi Arabia Saudi Arabia SAR Sovereign /Mudharabah 1,121 5 23-Oct-22 Hybrid Sukuk -Murabahah 2017 Government of Saudi Arabia Saudi Arabia SAR Sovereign /Mudharabah 648 5 19-Sep-22 Hybrid Sukuk -Murabahah 2017 Government of Saudi Arabia Saudi Arabia SAR Sovereign /Mudharabah 567 5 22-Aug-22 Hybrid Sukuk -Murabahah 2017 Government of Saudi Arabia Saudi Arabia SAR Sovereign /Mudharabah 3,240 5 26-Jul-22
2017 Imtiaz Sukuk II Bhd Malaysia MYR Corporate Sukuk Al Musharakah 108 5.1 17-Oct-22 Lembaga Pembiayaan Perumahan Quasi- 2017 Sukuk Al Murabahah Sektor Awam Malaysia MYR Sovereign 125 5.1 7-Sep-22
93 IIFM SUKUK REPORT 2021 Continued from previous page
Lembaga Pembiayaan Perumahan Quasi- 2017 Malaysia MYR Sukuk Al Murabahah 200 5.1 17-May-22 Sektor Awam Sovereign
2017 Maybank Islamic Bhd Malaysia MYR FIs Sukuk Al Wakalah 500 5.1 18-Dec-22 Quasi- 2017 Malaysia Sukuk Al Murabahah 225 5.1 6-Jul-22 Pengurusan Air SPV Bhd MYR Sovereign
2017 PR1MA Corporation Malaysia Malaysia MYR Corporate Sukuk Al Murabahah 188 5.1 20-Oct-22 Quasi- 2017 Prasarana Malaysia Bhd Malaysia MYR Sovereign Sukuk Al Murabahah 125 5.1 14-Sep-22
2017 UMW Holdings Bhd Malaysia MYR Corporate Sukuk Al Ijarah 100 5.1 22-Jul-22
2018 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 216 3.5 12-Jan-22
2018 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 110 4 11-Jan-22
2018 Government of Malaysia Malaysia MYR Sovereign Sukuk Al Murabahah 925 3.3 31-Mar-22
2018 Government of Malaysia Malaysia MYR Sovereign Sukuk Al Murabahah 730 3.6 28-Mar-22
2018 Government of Malaysia Malaysia MYR Sovereign Sukuk Al Murabahah 973 4.3 15-Apr-22
2019 CIMB Group Holdings Bhd Malaysia MYR Corporate Hybrid Sukuk - Musharakah 173 3 12-Jun-22 / Murabahah 2019 Government of Indonesia- SR-011 Indonesia IDR Sovereign Sukuk Al Ijarah 1,499 3 28-Mar-22
2019 Government of Qatar Qatar QAR Sovereign Sukuk Al Wakalah 216 3 22-Sep-22
2019 Government of Qatar Qatar QAR Sovereign Sukuk Al Wakalah 297 3 19-Aug-22
Quasi- 2019 Padiberas Nasional Bhd Malaysia MYR Hybrid Sukuk - Wakalah 230 3.1 11-Aug-22 Sovereign /Murabahah Quasi- Hybrid Sukuk -Ijara 2019 Pengurusan Air SPV Bhd Malaysia MYR 115 3.1 25-Mar-22 Sovereign /Musharakah
2020 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Wakalah 379 1.9 2-Nov-22
2020 Government of Indonesia Indonesia IDR Sovereign Sukuk Al Ijarah 2,489 1.9 2-Jan-22 Ministry of Treasury and Finance Sukuk Al Ijarah 2020 of Turkey Turkey TRY Sovereign 924 2 13-May-22 Ministry of Treasury and Finance Sukuk Al Ijarah 2020 of Turkey Turkey TRY Sovereign 366 2 12-Feb-22 Ministry of Treasury and Finance Sukuk Al Ijarah 2020 of Turkey Turkey TRY Sovereign 753 2 3-Feb-22 Ministry of Treasury and Finance 2020 of Turkey Turkey TRY Sovereign Sukuk Al Ijarah 492 2 29-Jan-22 Hybrid Sukuk -Murabahah 2020 Rawabi Holding Company Saudi Arabia SAR Corporate /Mudharabah 155 2 9-Aug-22 Total 39,685
Source: IIFM Sukuk database
94 IIFM SUKUK REPORT 2021
1.12 SUKUK OUTSTANDING
On the back of record number of global Sukuk issuances during 2012 to 2020 period where 2020 is the record year so far in terms in total Sukuk (long-term & short-term) issuances, the outstanding Sukuk issuances in 2020 reached USD 648.00 billion as comapre to USD 551.44 billion in 2019 which is a clear indication of growing interest in Sukuk though supply and demand gap remains to be bridged particulary for International Sukuk but signs are encouraging.
An other interesting fact is that the share of longer tenor Sukuk is increasing since from the year 2015 while in 2020 domestic short-term Sukuk issuances from various jurisdcitions registered a record year.
Following Chart 6A provide a clear picture on outstanding Global Sukuk cover both international and domestic Sukuk:
Chart 6A: TOTAL GLOBAL SUKUK OUTSTANDING AS OF 31ST DECEMBER 2020
160,000
145,827 140,000
120,000
105,610 100,000 93,739
80,923 800,000
60,000 56,122
41,225 36,927 40,000 30,947 31,447 25,331 20,000
0 2004-2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Total Global Sukuk outstanding USD 648 Billion
Source: IIFM Sukuk database
The breakdown for sovereign, quasi sovereign, corporate and FIs works out to be 47.73%, 20.16%, 24.19% and 7.93% respectively.
95 IIFM SUKUK REPORT 2021
Chart 6B: TOTAL GLOBAL SUKUK OUTSTANDING BY ISSUER STATUS AS OF 31ST DEC 2020
Corporate, 136,082, 21%
Sovereign, FIs, 63,811, 10% 323,548, 50%
Quasi-Sovereign, 124,658, 19%
Source: IIFM Sukuk database
It is interesting to note that the domestic issuances particulalry one year or less tenor that matured in 2020 were either refinanced or new issuance took place which resulted in healthy increase in short term Sukuk issuance as compared to 2019.
Chart 6C: TOTAL DOMESTIC SUKUK OUTSTANDING AS OF 31ST DECEMBER 2020
120,000 111,859
100,000
800,000 76,164
66,191 60,000 57,168
39,815 40,000 35,525 30,551 23,710 25,084 20,000 16,781
0 2004-2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Total DOMESTIC Sukuk outstanding USD 482.84 Billion
Source: IIFM Sukuk database
96 IIFM SUKUK REPORT 2021
The outstanding split of domestic Sukuk between sovereign, quasi sovereign, corporte and FIs works out to be 50%, 19.00%, 21.00%, & 10.00% respectively.
Chart 6D: TOTAL DOMESTIC SUKUK OUTSTANDING BY ISSUER STATUS AS OF 31 DEC 2020
Corporate, 107,410, 22%
Sovereign, FIs, 36,280, 7% 254,592, 53%
Quasi-Sovereign, 84,566, 18% Source: IIFM Sukuk database
The international outstanding Sukuk pattern as depicted in Chart 6E where the outstanding Sukuk have been steadly increasing since 2016 and in 2020 there is further increase of USD 4.25 billion in 2020 as compare to 2019.
Chart 6E: TOTAL INTERNATIONAL SUKUK OUTSTANDING AS OF 31ST DECEMBER 2020
40,000
35,000 33,968
30,000 29,446 27,548
25,000 23,756
20,597 20,000
15,000
10,000 8,550 7,237 6,376 6,363 5,000
1,410 0
2004-2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Total International Sukuk outstanding USD 165.25 Billion
Source: IIFM Sukuk database
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In case of international Sukuk outstanding, the split between all soverigns & quasi sovereign versus corporate & IFIs works out to be in the range of 66 to 34.
Chart 6F: TOTAL INTERNATIONAL SUKUK OUTSTANDING BY ISSUER STATUS AS OF 31ST DEC 2020
Corporate, 28,671, 17%
Sovereign, FIs, 27,531, 17% 68,956, 42%
Quasi-Sovereign, 40,092, 24%
Source: IIFM Sukuk database
From the total volume of global Sukuk outstanding from a country perspective, 91.83% is represented by just 5 countries i.e. Malaysia 43.43%, Saudi Arabia 22.03%, Indonesia 13.81%, UAE 7.46% and Turkey 5.10%. Right behind them are Qatar 2.31%, Bahrain 1.63% and Pakistan 1.76%.
Chart 6G: COUNTRY WISE BREAKDOWN OF SUKUK OUTSTANDING AS OF 31 DEC 2020
Bahrain, 10,546, 1.63% Bangladesh, 361, 0.06%
Egypt , 286, 0.04% Gambia, 33, 0.01%
Turkey , 33,033, 5.10% Hong kong, 1,000, 0.15%
United Kingdom , 401, 0.06% Germany, 28, 0.004%
United Arab Emirates, 48,409, 7.47% Brunei Darussalam, Senegal , 245, 0.04% 265, 0.04%
Sri Lanka, 2, 0.0003% Indonesia, 89,510, 13.81%
Togo, 245, 0.04% Kuwait, 3,638, 0.56%
Sudan, 900, 0.14% Jordan, 364, 0.06%
Saudi Arabia, 142,787, 22.03% Ivory Coast , 245, 0.04%
Oman, 6,545, 1.01% Malaysia, 281,476, 43.43%
Qatar, 15,002, 2.31% Mali , 285, 0.044%
Pakistan, 11,419, 1.76% Maldives , 3, 0.00%
Nigeria, 967, 0.15% Morocco, 105, 0.02%
Source: IIFM Sukuk database
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CHAPTER 02 IIFM PUBLISHED SUKUK STANDARDS - AL-IJARAH & AL-MUDARABAH TIER 1: CONSIDERATIONS AND SIGNIFICANCE IIFM SUKUK REPORT 2021
In the Name of Allah, the Entirely Merciful, the Especially Merciful. IIFM Published Sukuk Standards - Al-Ijarah and Al-Mudarabah Tier 1: Considerations and Significance By: Ijlal Ahmed Alvi, Chief Executive Officer & Dr. Ahmed Rufai, Head of Compliance, International Islamic Financial Market (IIFM)
Preamble
Sukuk has been and continues to be a vehicle carrying the opportunity to provide resources compatible with Shari‘ah rules and principles. It market has dramatically grown to become one of the fastest emerging alternative instruments and a significant capital markets tool which is increasingly used globally by governments, government-held entities, financial institutions, corporations etc.
During year 2020 and early 2021, the International Islamic Financial Market (IIFM) has published two important Sukuk standard documents for the market, namely Template Sukuk Al Ijarah Standard Documents and Template Sukuk Al Mudarabah Tier 1 Standard Documents, in order to contribute to further sustainable progress in this important sector of the Islamic financial industry. This achievement represents the ongoing effort by IIFM to help develop the Islamic financial industry in a sustainable manner.
The Council of the Islamic Fiqh Academy of the Organization of Islamic Conference (OIC) and the rest of the relevant Islamic institutions have legitimized the issuance of Sukuk and its concept, which paved the way for an alternative source of financing to meet the needs of Islamic issuers and investors who are not allowed under the Shari‘ah rules and principles to invest in the Riba (i.e. interest) based conventional bonds.
Sukuk in general reflect participation in the underlying asset, so that what is traded is not a merely debt as each certificate must represent an undivided interest in the asset, because in the light of the prohibition of Riba under the rules and principles of Shari‘ah (i.e. Islamic law), trading in pure debt instrument is forbidden. Therefore, Sukuk are structured to achieve a desired economic objective in a manner conform to the rules, principles and spirit of Shari‘ah. Investment in tangible assets, used for productive purposes and reaping the rewards arising from those assets is the core principle of Islamic finance and it is this principle on which Sukuk securitization structures are established.
Furthermore, for a Sukuk structure to comply with the rules and principles of Shari‘ah the underlying asset must also comply with the rules and principles of Shari‘ah as well. In other words, the underlying asset must be Halal (i.e. lawful) from the Shari‘ah perspective.
This chapter aims to explain and clarify the importance of the two Sukuk standards published by IIFM to further help develop the Sukuk market through standardisation of the application and strengthening the items in the market so that the transaction is more in line with the rules and principles of Shari‘ah.
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IIFM TEMPLATE SUKUK AL IJARAH STANDARD DOCUMENTS
Introduction
On 12th October, 2020, IIFM published via webinar a suite of Template Sukuk Al Ijarah documents. The primary objective of the launch of the Template Sukuk Al Ijarah Standard Documents is to create non-jurisdictional specific templates which will ease the issuance of Sukuk Al Ijarah and such documents may be used by corporates, financial institutions, arrangers and lawyers working on Sukuk Al Ijarah transactions.
These Template Sukuk Al Ijarah Documents are English law governed documents which demonstrates the widespread use and robustness of English law as a benchmark for Sukuk issuances. However, the Sale and Purchase Agreement, the Lease Agreement and the Sale Agreements under the Purchase Undertaking and Sale Undertaking will be governed by the jurisdiction of the location of the relevant assets and will need to be considered on a transaction specific basis.
To meet the needs of market participants including issuers, arrangers and Sukuk investors, as identified through the IIFM's market consultation, the Template Sukuk Al Ijarah Documents are "asset based" documents and not "asset backed" which are to be used for a senior unsecured Sukuk Al Ijarah issuance. It should be noted that IIFM is considering the creation of "asset backed" Sukuk documentation as a future project.
The IIFM Sukuk Al Ijarah Standard Document Templates have been approved by the IIFM Shari‘ah Board and any user who proposes to use them, without any fundamental amendments, may request from IIFM a copy of the IIFM Shari‘ah Board Approval Pronouncement.
Documentation
The Template Sukuk Al Ijarah Standard Documents consist of seven documents, namely,
1- Prospectus 2- Sale and Purchase Agreement 3- Lease Agreement 4- Service Agency Agreement 5- Purchase Undertaking 6- Sale and Substitution Undertaking 7- Declaration of Trust
Guidelines Regarding Shari'ah Compliance
In order to assist market participants, the IIFM Shari'ah Board have provided the following guidelines and recommendations regarding Shari‘ah-compliance of the Template Sukuk Al Ijarah Documents:
1. Sukuk Issuances should retain the rules and principles of Shari'ah as set out in the Template Sukuk Al Ijarah Documents.
2. The proceeds from a Sukuk Issuances based on the Template Sukuk Al Ijarah Documents must be used for Shari'ah-compliant purposes.
3. The underlying assets in connection with the Issuance must be tangible (i.e. financial assets are not acceptable in this regard) and it must be Shari'ah-compliant.
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4. It is not permissible to lease in respect of forbidden (unlawful) activities (i.e. the benefit from the Ijarah must be permissible from a Shari'ah perspective).
5. No interest (whether called interest or an alternative name but which represents interest) is to be chargeable under the Template Sukuk Al Ijarah Documents.
6. A Shari'ah supervision should remain in place for the duration of the Sukuk (i.e. until maturity) and the Shari'ah supervisory committee shall be responsible in monitoring and overseeing the implementation of the Sukuk Issuance.
7. In accordance with the terms of the Lease, the Lessor shall be responsible for Takaful/insurance, major maintenance and repair and for the payment of ownership taxes. The Lessor may delegate these responsibilities to an agent. 7توج8ات إرشادية 10عية %&صدار صكوك %ا&جارة
: J : : من أجل مساعدة 7اEشارك; 7[ السوق 7ف] يتعلق VUذه ا&تفاقيات الرئيسة لصكوك %ا&جارة، 7الK تقدHا السوق اEالية %ا&سCمية الدولية 7ل<شارك; 0 0 : 7[ السوق، قدمت اoيئة الmعية للسوق اEالية اإسCمية الدولية 7التوج8ات %ا&رشادية الmعية التالية بشأن توافق هذا اEنتج مع أحdم ومبادئ 0الmيعة %ا&سCمية : : s (xU 7 (1ب التمسك و J :ا&لtام rUحdم ومبادئ 0الmيعة [ هذه 0الوrئق ف] يتعلق qUعامCت إصدار الصكوك 7 s 7 (xU 7 (2ب استخدام عائدات إصدارات صكوك %ا&جارة هذه &غراض متوافقة مع أحdم ومبادئ 0الmيعة %ا&سCمية s s ً (xU 7 (3ب أن تكون ا&صول ا&ساسية 7ف] يتعلق rU %&صدار أصو& مادية 7وغt مالية ومتوافقة مع أحdم ومبادئ 0الmيعة %ا&سCمية ً s s ً ً : (xU 7 (4ب أن يكون ا&نتفاع 0مmوعا، فxU 7 Cوز 7التأجt لCنشطة ارمة، و أن تكون ا&صول Jقاب 7للتأجt 10عا :وقانوU ] r~يع 7 s ا&حوال J (xU 7 (5ب عدم اقتضاء أية فائدة (سواء يت فائدة أو rU آخر :ولك8ا qثل فائدة) وذلك qUوجب هذه JاEعام ً (6) أن Jتب اoيئة 0الmعية طوال Jفtة الصكوك (أي JحrJ K 7 :ر ا&ستحقاق) وتكون Jمسؤو عن مراقبة تنفيذ إصدار الصكوك (7) ً ً وفقا 0لmوط عقد %ا&xU 7ار ، يكون اEؤجر مسؤو& عن التdفل / 7 :التأم; والصيانة الرئيسية %وا&صCح ودفع :ائب اEلكية. xU 7وز ل<ؤجر تفويض s s : s J هذه اEسؤوليات إ£ الوكيل. ( بعبارة أخرى: xمل 7مال¡ ا&صول ن التلف 7ال Uوا 7ز والصيانة الذاتية و ما يتعلق rU&صول من : :ال¤ائب وxوها ) Structure Diagram and Principal Cashflows
This is a simplified structure diagram of the overall Sukuk structure which should be read in conjunction with the summary of each Template Sukuk Al Ijarah Document.
Prospectus / Subscription Agreement
Certificate holders
1. Issuance of 2. Issuance 8. Periodic Certificates Proceeds Distribution Amounts
11. Dissolution Distribution Amount 6. Appointment Agency Service Agency [Company] Agreement / Agreement Issuer and Truste e [SPV LIMITED] as Service Agent Declaration of Trust 9a. Insurance Procceds / insurance 4. Purchase 7. Rental 10. Exercise Shortfall* Price Price*
Key
3. Sale of 5. Lease of 9b. Sale of Asset Flow Assets Assets Assets* Payment Flow Appoinments [Company] [Company] [Company] as Seller as Lessee as Obligor * If there is a total loss of the Assets then 9a will be applicable. If there is no total loss of the Assets then 9b and Sale and Purchase Lease Agreement Purchase 10 will be applicable. Agreement Undertaking / Sale Undertaking
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Principal Cash Flows
Payments by the Certificate holders and the Trustee
On the Closing Date, the Trustee will collect the proceeds from investors (the "Proceeds") to (i) purchase from the company (Obligor) pursuant to a sale and purchase agreement (the "Sale and Purchase Agreement"), certain specified real estate assets and buildings or other tangible leasable assets (the "Assets"); and (ii) pay an amount equal to the All Expense Reserve Amount to the Service Agent under the Service Agency Agreement. On the Closing Date, the Assets (the "Lease Assets") shall be leased by the Trustee (in such capacity, the "Lessor") to the company (Obligor) (in such capacity, the "Lessee") pursuant to a lease agreement (the "Lease Agreement") in return for periodic payment of rent by the company (Obligor) to the Trustee (the "Rental").
The Trustee will appoint the company (Obligor) as its service agent (the "Service Agent") to provide certain services in respect of the Lease Assets pursuant to a service agency agreement (the "Service Agency Agreement").
Periodic Distribution Payments
Prior to each Periodic Distribution Date in respect of the Certificates, the Rental in respect of the previous Rental Period will be paid to an account of the Trustee (the "Transaction Account") in accordance with the Lease Agreement. Such Rental shall be sufficient to fund the amounts (other than the Dissolution Amount) payable under Condition 6.2 (The Trust – Application of Proceeds from the Trust Assets) (including, but without limitation the Periodic Distribution Amounts payable by the Trustee in respect of the Certificates) and shall be applied by the Trustee for that purpose.
Dissolution Payments
On the Scheduled Dissolution Date, the Trustee will have the right under the Purchase Undertaking to require the company (Obligor) to purchase all of the Trustee's (ownership interests, rights, title, benefits and entitlements in, to and under) the Lease Assets. The exercise price payable by the company (Obligor) is intended to fund the Dissolution Amount payable by the Trustee.
The Trust may be dissolved prior to the Scheduled Dissolution Date for the following reasons: (i) redemption following a Dissolution Event; (ii) following the occurrence of a Tax Event; and (iii) upon the occurrence of a Total Loss Event.
In the case of sub-paragraphs (i) and (ii), the amounts payable by the Trustee on the Dissolution Date will be funded in a similar manner as for the payment of the Dissolution Amount. In the case of sub-paragraph (iii), the amounts payable to Certificate holders will be an amount equal to the sum of: (A) the proceeds of any insurance policies which the Service Agent has entered into for and on behalf of the Trustee in respect of the relevant Lease Assets; and/or (B) any Total Loss Shortfall Amount which the Service Agent is required to transfer to the Transaction Account by no later than the agreed day afer the occurrence of a Total Loss Event, such amount being intended to be sufficient in order to redeem the Certificates in full.
Summary of the Principal Transaction Documents (As per the client briefing provided by Clifford Chance).
Template Prospectus
The template prospectus covers the following key areas:
Structure diagram (as set out above) and principal cashflows section;
Summary of principal transaction documents; and
Risk factors relating to the Certificates and the Leased Assets as a result of the structure.
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It should be noted that this is a framework prospectus only and which should be a starting point for the development of a prospectus on a transaction specific basis. The above inclusions are the essential elements required for the Islamic structuring of a Sukuk Al Ijarah. Other items that will need to be developed on a transaction specific basis includes the disclosure sections, other risk factors sections (for example, company risk factors, country risk factors and market risk factors) and typical capital markets clauses including regulatory disclosures and listing and exchange disclaimers.
Sale and Purchase Agreement
The Sale and Purchase Agreement will be between the trustee SPV (the Trustee) (as the Purchaser) and the obligor (the Obligor) (as the Seller) and will be governed by the laws of the jurisdiction in which those assets are located (specific local law guidance will be required in this regard). Pursuant to the Sale and Purchase Agreement, the Purchaser will purchase and accept the transfer and conveyance from the Seller of all of the Seller's [ownership interests, rights, title, benefit and entitlements, present and future, in, to and under] certain assets identified in the Sale and Purchase Agreement (the Assets). The Trustee will collect the issuance proceeds (the Issuance Proceeds) from investors (the Certificateholders) and an amount equal to the Issuance Proceeds less an amount equal to the All Expense Reserve Amount (see below under the heading Service Agency Agreement for an explanation on this) will be paid by the Trustee to the Obligor as consideration for the purchase of the Assets. The phrase "[ownership interests, rights, title, benefit and entitlements, present and future, in, to and under]" is retained in square brackets as, whilst the language is intended to give the broadest application across civil law and common law jurisdictions, legal counsel in the relevant jurisdiction will need to consider the method of transfer of the Assets from the Obligor to the Trustee.
Lease Agreement
The Lease Agreement will be between the Trustee (as the Lessor) and the Obligor (as the Lessee) and the governing law of the Lease Agreement will be the same as the Sale and Purchase Agreement. Under the Lease Agreement, the Lessor will lease to the Lessee the Assets (the Lease Assets) and the Lessee will agree to pay the Lessor the rent specified in the Lease Agreement for each rental period. The rental payments due under the Lease Agreement in respect of the Lease Assets will be sufficient to pay the relevant periodic distribution amounts (the profit) to Certificateholders on each periodic distribution date.
The Lessee shall bear the entire risk of loss or damage to (the whole or part of) the Lease Assets. The Lessee shall, at its own cost and expense, be responsible for the performance of all ordinary maintenance and repair of the Lease Assets.
The Lessor shall be responsible for: (i) the performance of all major maintenance and structural repair; (ii) the payment of any proprietorship taxes; and (iii) insuring the Lease Assets, and the Lessor will instruct the Service Agent, in accordance with the terms of the Service Agency Agreement, to perform, or to procure the performance of, the major maintenance and structural repair, the payment of any proprietorship taxes and the insurance of the Lease Assets (the Services), in each case on behalf of the Lessor If a Total Loss Event occurs with respect to the Lease Assets, the lease shall automatically terminate and the Lessor will be entitled to all insurance proceeds payable pursuant to the Service Agency Agreement as a result of the Total Loss Event, together with any accrued and unpaid rental to the date on which the Total Loss Event occurred.
A Total Loss Event means:
(a) the total loss or destruction of, or damage to [70] per cent of, the Lease Assets or any event or occurrence that renders [70] per cent of the Lease Assets permanently unfit for any economic use and (but only afer taking into consideration any insurances payable or other indemnity granted by any third party in respect of the Lease Assets) the repair or remedial work in respect thereof is wholly uneconomical; or
(b) the expropriation, nationalisation, requisition, confiscation, attachment, sequestration or execution of any legal process in respect of [70] per cent of the Lease Assets.
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Therefore, to the extent there is a total loss of less than [70] per cent of the Lease Asset, then the rental payment under the Lease Agreement will continue to be paid in full. Whilst the IIFM have recommended the relevant threshold to be [70] per cent, this is retained in square brackets for each party to consider on a transaction specific basis. To the extent, the total loss is to [70] per cent or more of the Lease Asset then the Total Loss provisions of the Service Agency Agreement shall apply (see below on this).
Service Agency Agreement
The Service Agency Agreement will be between the Trustee (as the Lessor) and the Obligor (as the Service Agent) and will be governed by English law. Under the terms of the Service Agency Agreement, the Service Agent will be responsible on behalf of the Lessor for the performance of the Services.
Takaful
The Service Agent shall ensure that any insurances obtained in accordance with the terms of the Service Agency Agreement, will be on an Islamic insurance (Takaful) basis, provided that if no such Islamic insurance (Takaful) is available on commercially viable terms then the Service Agent shall obtain an approval from the relevant Shari'ah board to maintain conventional insurance.
All Expenses Reserve Amount and Service Charge Amounts The Lessor shall pay an amount equal to the All Expenses Reserve Amount (with the amount to be agreed on a transaction specific basis) to the Service Agent on the date of the Service Agency Agreement and such amount shall be funded from the Issuance Proceeds. The Service Agent shall not be permitted to incur any liability in respect of the Services which, individually or in the aggregate, would exceed the All Expenses Reserve Amount unless: (a) a request for the incurrence of additional service charge amount (the Additional Service Charge Amount) has been made by the Service Agent to the Lessor; and (b) following such request, the Lessee has agreed to pay to the Lessor an amount of additional supplementary rental equal to such Additional Service Charge Amount under the Lease Agreement.
If, during any Rental Period, the Service Agent incurs any additional Service Charge Amounts (which excludes any liabilities or payments which comprise Additional Service Charge Amounts), then it shall be responsible to pay all such liabilities for its own account and the Lessor shall have no responsibility whatsoever in connection with such liability or amounts.
The Service Agent shall, no later than three Business Days before each rental payment date (the Services Invoice Date), submit to the Lessor or its agent a consolidated invoice for all payments and liabilities incurred or paid by the Service Agent in performing the Services (the Service Charge Amounts). On the rental payment date immediately following the Service Invoice Date, the Service Agent shall be entitled to deduct an amount equal to the Service Charge Amounts specified in such consolidated invoice from the All Expense Reserve Amount by way for reimbursement of the Service Charge Amounts incurred provided that, save as provided in the Service Agency Agreement, the Service Agent shall not be entitled to any reimbursement which, in aggregate, is in excess of or would be in excess of the All Expense Reserve Amount.
Total Loss: If, following the occurrence of a Total Loss Event, the amount (if any) credited to the Transaction Account is less than the full reinstatement value (an amount equal to the aggregate of the face amount of the certificates, any accrued but unpaid periodic distribution amounts and all other amounts outstanding under the Transaction Documents) (the Full Reinstatement Value), the difference between such Full Reinstatement Value and the amount credited to the Transaction Account shall be the Total Loss Shortfall Amount.
In the event that the Service Agent fails to comply with its obligations to insure the Lease Assets for an amount at least equal to the Full Reinstatement Value and to ensure that insurance proceeds are paid into the Transaction Account within an agreed number of days of such Total Loss Event, the Service Agent (unless it proves beyond any doubt that any shortfall in the insurance proceeds is not attributable to its negligence or its failing to comply with the terms of the Service Agency Agreement relating to insurances) irrevocably and unconditionally undertakes to pay the Lessor the Total Loss Shortfall Amount.
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Purchase Undertaking
The Purchase Undertaking will be granted by the Obligor in favour of the Trustee and the delegate (the Delegate) and governed by English law. Pursuant to the Purchase Undertaking and subject to the provisions contained therein, the Trustee and/or the Delegate, as the case may be, may, by exercising their rights under the Purchase Undertaking, be able to oblige the Obligor to purchase all of the Trustee's [rights, title, ownership interests, benefits and entitlements] in and to the Lease Assets on the relevant dissolution date at the Exercise Price (an amount equal to the aggregate of the face amount of the certificates, any accrued but unpaid periodic distribution amounts and all other amounts outstanding under the Transaction Documents).
If the Exercise Price is not paid in accordance with the provisions of the Purchase Undertaking, whether as a result of a dispute or challenge in relation to the [ownership interests, right, benefits and entitlements] that the Trustee may have in, to and under the remaining Lease Assets, or any of them, or for any other reason, the Obligor undertakes that it will fully indemnify the Trustee for the purpose of redemption in full of the outstanding Certificates and, accordingly, the amount payable under any such indemnity claim will equal the Exercise Price.
Sale and Substitution Undertaking
The Sale and Substitution Undertaking will be granted by the Trustee in favour of the Company and governed by English law. Subject to the Trustee being entitled to redeem the Certificates for tax reasons in accordance with the term and conditions of the Sukuk Al Ijarah, the Obligor may, by exercising its right under the Sale and Substitution Undertaking, be able to oblige the Trustee to sell all of its [ownership interests, rights, title, benefits and entitlements in, to and under] the Lease Assets at the Exercise Price.
The Obligor will also be able to exercise its rights under the Sale and Substitution Undertaking to effect the substitution of Lease Assets, subject to any new assets being of a value equal to or greater than the value of the substituted assets.
Declaration of Trust
The Declaration of Trust will be between the Obligor, the Trustee and the delegate (the Delegate) and governed by English law. The Trust Assets will comprise, inter alia: (a) all of the Trustee's ownership rights, title, interest and benefit, present and future, in, to and under the Lease Assets;
(b) all of the Trustee's ownership rights, title, interest and benefit, present and future, in, to and under the Transaction Documents (excluding: (i) any representations given by the Obligor to the Trustee pursuant to any of the Transaction Documents and any rights which have been expressly waived by the Trustee or the Delegate in any of the Transaction Documents; and (ii) the covenant given to the Trustee pursuant to the remuneration and indemnification clause of the Declaration of Trust); and
(c) all monies standing to the credit of the Transaction Account; and all proceeds of the foregoing, which are held by the Trustee upon trust absolutely for the Certificate holders pro rata according to the face amount of Certificates held by each holder in accordance with the terms of the Declaration of Trust and the Conditions.
Shari'ah Compliance
The Trustee and the Obligor will agree in each Transaction Document that it has accepted the Shari'ah- compliant nature of the Transaction Documents to which it is a party and shall not claim that its obligations under that Transaction Document are ultra vires or not compliant with the principles of Shari'ah and shall not take any steps to bring any proceedings to challenge the Shari'ah compliance of the Transaction Documents to which it is a party.
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Governing law and enforcement
The Certificates and any non-contractual obligations arising out of or in connection with the Certificates will be governed by, and construed in accordance with, English law.
The Declaration of Trust, the Agency Agreement, the Service Agency Agreement, the Purchase Undertaking and the Sale and Substitution Undertaking and any non-contractual obligations arising out of or in connection with the same will be governed by English law.
Each of the Lease Agreement, the Sale and Purchase Agreement, each Sale Agreement entered into under the Purchase Undertaking and each Sale Agreement entered into under the Sale and Substitution Undertaking will be governed by the laws of jurisdiction agreed upon by the parties.
Waiver of interest
Each Transaction Document has an express waiver of interest and pursuant to which each Party irrevocably agrees that no interest will be payable or receivable under or in connection with each Agreement or any other Transaction Document and in the event that it is determined that any interest is payable or receivable in connection with each Agreement or any other Transaction Document, whether as a result of any judicial award or by operation of any applicable law or otherwise, such Party agrees to waive any rights it may have to claim or receive such interest and agrees that if any such interest is actually received by it, it shall promptly donate the same to a registered or otherwise officially recognised charitable organisation.
Sukuk Al Ijarah Market
The below Chart highlight the importance of Ijarah Sukuk in the development of Sukuk market and since inception the Ijarah structure is commonly used by issuers in both domestic as well as international Sukuk market. The Ijarah Sukuk is one of the preferred mode of investment by the growing number of investors.
Share of Sukuk Al Ijarah Issuances in Global Sukuk Issuances Tenor >1 Year Amounts in USD Millions (Jan 2001 - Dec 2020)
140,000
120,000 39,484 34,402 21,130 80,058 100,000 17,133 17,908 84,564 80,034 80,000 20,584 22,019 78,421 20,044 70,102
60,000 51,789 50,813 13,513 11,793 20,145
44,933 40,000 39,894 37,578 29,663
20,000 8,592 9,435
7,561 9,269
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
2001-2008 Ex- Sukuk Al Ijarah Sukuk Al Ijarah
Source: IIFM Sukuk database
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Key Considerations (Template Sukuk Al Ijarah Standard Documents)
Key Considerations Objective Year of publication
Standalone, non-hybrid issuance. To create non- 2020 jurisdictional specific, English law Ease the issuance of Sukuk Al Ijarah. benchmark suite of Islamic finance Templates for use in each specific documents for jurisdiction. Sukuk Al Ijarah.
A recognised concept of “trust” and a distinction between legal and beneficial ownership.
Asset based Sukuk not asset backed (no recourse to underlying assets).
Guidelines regarding Shari’ah compliance issued by the IIFM Shari’ah Board.
Waiver of interest.
There a number of footnotes in the documentation which do not form part of the standard but are intended to give guidance to users only.
TEMPLATE SUKUK AL MUDARABAH TIER1 STANDARD DOCUMENTS
Preface
Afer the launch of the template Sukuk Al Ijarah Standard documents in 2020, IIFM followed that up with the launch of the template Sukuk Al Mudarabah Tier1 Standard Documents in 2021. The principal objective of the launch of the template Sukuk Al Mudarabah Tier 1 Standard Documents is to facilitate and ease the issuance of perpetual Sukuk Al Mudarabah Tier 1 in a Shari‘ah-compliant manner and also to create non-jurisdictional specific templates which will ease the issuance of Sukuk Al Mudarabah Tier 1 and such documents may be used by corporates, financial institutions, arrangers and lawyers working on Sukuk Al Mudarabah Tier1 transactions.
These IIFM Template Sukuk Al Mudarabah Tier 1 Standard Documents are drafed under English law.Each user shall ensure that the IIFM Template Sukuk Al Mudarabah Tier 1 Standard Documents
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are compliant with, and enforceable in, each applicable jurisdiction on a transaction specific basis. Users should obtain their own independent legal advice when using the IIFM Template Sukuk Al Mudarabah Tier1 Standard Documents.
Users of the IIFM Template Sukuk Al Mudarabah Tier 1 Standard Documents should note that, when entering into issuances of trust certificates under or in relation to the IIFM Template Sukuk Al Mudarabah Tier 1 Standard Documents or making any amendment or addition to the IIFM Template Sukuk Al Mudarabah Tier 1 Standard Documents, they must first take all action required to satisfy themselves as to the Shari‘ah compliance of the IIFM Template Sukuk Al Mudarabah Tier 1 Standard Documents and the Issuance thereunder.
The IIFM Sukuk Al Mudarabah Tier 1 Standard Documents have been approved by the IIFM Shari‘ah Board and any user who proposes to use them, without any fundamental amendments, may request from IIFM a copy of the IIFM Shari‘ah Board Approval Pronouncement.
Documentation
The IIFM Template Sukuk Al Mudarabah Tier 1 Standard Documents comprise the following:
1- Prospectus
2- Master Mudarabah Standard Agreement
3- Declaration of Trust
Guidelines Regarding Shari'ah Compliance
1. In order to assist market participants, the IIFM Shari‘ah Board have provided the following guidelines and recommendations regarding Shari‘ah compliance of the Template Sukuk Al Mudarabah Tier 1 Standard Documents:
2. Sukuk Issuances should retain the rules and principles of Shari‘ah as set out in the Template Sukuk Al Mudarabah Tier 1 Standard Documents.
3. The proceeds from a Sukuk Issuances based on the Template Sukuk Al Mudarabah Tier 1 Standard Documents must be used for Shari‘ah compliant purposes.
4. The Sukuk Issuance must be in accordance with the Company's permissible activities and in accordance with Shari‘ah standards and regulations.
5. No interest (whether called interest or an alternative name but which represents interest) is to be chargeable under the Template Sukuk Al Mudarabah Tier1 Standard Documents.
6. A Shari‘ah supervision committee should remain in place for the duration of the Sukuk (i.e. until fully settled). s s 7توج8ات إرشادية 10عية %&صدار صكوك اEضاربة الداqة- رأس مال 0الx7 mة ا&و£
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0 : 0 s : J (1) xU 7ب التمسك و ا&لtام rUحdم ومبادئ الmيعة 7[ هذه الوrئق 7ف] يتعلق qUعامCت إصدار الصكوك s (xU 7 (2ب استخدام عائدات إصدارات صكوك اEضاربة هذه &غراض متوافقة مع أحdم ومبادئ 0الmيعة %ا&سCمية ً s (xU 7 (3ب أن يكون إصدار الصكوك وفقا &نشطة 0الmكة اEباحة ووفقا للضوابط 7واEعايt 0الmعية
111 IIFM SUKUK REPORT 2021
J (xU 7 (4ب عدم اقتضاء أية فائدة (سواء يت فائدة أو rU آخر :ولك8ا qثل فائدة) وذلك qUوجب هذه JاEعام J (5) أن تب اoيئة 0الmعية طوال Jفtة بقاء الصكوك إ£ 7 :ح; Jانs 8اVا rUلdمل
Structure Diagram and Principal Cashflows
This is a simplified structure diagram and description of the principal cash flows underlying the Certificates.
Structure Diagram
[Company] as Mudarib
3. Rab-al-Maal Mudarabah 2. Mudarabah Capital Profit and/or Agreement Liquidation Proceeds Amount
Trustee and Rab-al-Maal
Declaration 4. Periodic Distribution 1. Proceeds of Certificates of Trust Amounts and/or Dissolution Distribution Amounts
Certificate holders
Principal Cash Flows
Payments by the Certificateholders and the Trustee
On the Issue Date, the Certificateholders will pay the issue price in respect of the Certificates to the Trustee. Pursuant to the Declaration of Trust, the Trustee will declare a trust, in favour of the Certificateholders, over:
(a) the cash proceeds of the issuance of the Certificates, pending application thereof in accordance with the terms of the Transaction Documents;
(b) all of the Trustee's rights, title, interest and benefit, present and future, in, to and under the assets from time to time constituting the Mudarabah Assets (as defined below);
(c) all of the Trustee's rights, title, interest and benefit, present and future, in, to and under the Transaction Documents (other than in relation to any representations given by [Company] (acting in any capacity) pursuant to any of the Transaction Documents and the covenant given to the Trustee by [Company] pursuant to clause [•] of the Declaration of Trust); and
112 IIFM SUKUK REPORT 2021
(d) all amounts standing to the credit of the Transaction Account from time to time, and all proceeds of the foregoing (together, the "Trust Assets").
The proceeds of the issuance of the Certificates will be contributed by the Trustee (as Rab-al-Maal) to the Mudarib and shall form the initial capital of the Mudarabah (the "Mudarabah Capital") pursuant to the Mudarabah Agreement. The Mudarabah Capital will be invested, on an unrestricted co-mingling Mudarabah basis, by [Company] in its general business activities carried out through the General Mudarabah Pool and, following investment of the Mudarabah Capital, the Mudarabah Capital shall constitute pro rata undivided assets in the General Mudarabah Pool (the "Mudarabah Assets").
Periodic payments by the Trustee
Unless a Non-Payment Event or a Non-Payment Election has occurred, prior to each Periodic Distribution Date, the Mudarib shall distribute the profit generated by the Mudarabah to both the Trustee and the Mudarib in accordance with an agreed profit sharing ratio ([99] per cent to the Trustee (as Rab-al-Maal) and [1] per cent. to the Mudarib). The Trustee shall apply its share of the profit (if any) generated by the Mudarabah on each Periodic Distribution Date to pay the Periodic Distribution Amount due to the Certificateholders on such date.
Payments of Mudarabah Profit (as defined in the Mudarabah Agreement) by [Company] (as Mudarib) are at the sole discretion of [Company] (as Mudarib) and may only be made in circumstances where a Non-Payment Event has not occurred. The Mudarib shall not have any obligation to make any subsequent payment in respect of such unpaid profit (whether from its own cash resources, from the Mudarabah Reserve or otherwise).
Under the terms of the Mudarabah Agreement, the Mudarib shall be expressly entitled to co-mingle its assets with the General Mudarabah Pool assets.
Dissolution payments, redemption and variation by the Trustee and the Mudarib
The Mudarabah is a perpetual arrangement with no fixed end date. Accordingly, the Certificates are perpetual securities in respect of which there is no fixed redemption date.
Subject to certain conditions set out in clause 7.1 of the Mudarabah Agreement, [Company] (as Mudarib) may at its option liquidate the Mudarabah in whole, but not in part, on the basis of a final constructive liquidation of the Mudarabah in the following circumstances: i on the First Call Date or any Periodic Distribution Date afer the First Call Date, by giving not less than [15] nor more than [20] days' prior notice to the Trustee; or ii on any date on or afer the Issue Date (whether or not a Periodic Distribution Date), by giving not less than [15] nor more than [20] days' prior notice to the Trustee: a. upon the occurrence of a Tax Event; or b. upon the occurrence of a Capital Event.
The Trustee (but only upon the instructions of [Company] (acting in its sole discretion)) shall, upon receipt of notice in accordance with paragraph (i) above redeem all of, but not only some of, the Certificates, and upon receipt of notice in accordance with paragraph (ii) above redeem all of, but not only some of, the Certificates or vary the terms thereof, in each case by giving not less than [10] nor more than [15] days' prior notice to the Certificateholders, all as more particularly described in the Conditions, and in each case following final constructive liquidation of the Mudarabah, as described above.
[Company] (as Mudarib) and the Trustee undertake in the Mudarabah Agreement, in circumstances where the Certificates are required by [Company] to be varied upon the occurrence of a Tax Event or a Capital Event, to make such variations as are necessary to ensure that the Certificates become or, as appropriate, remain Qualifying Tier 1 Instruments.
113 IIFM SUKUK REPORT 2021
Summary of the Principal Transaction Documents
Template prospectus for Perpetual Mudarabah Sukuk Tier 1.
The proceeds of the issuance of the Certificates will be contributed by the Trustee (as Rab-al-Maal) to the Mudarib and shall form the initial capital of the Mudarabah (the "Mudarabah Capital") pursuant to the Mudaraba Agreement. The Mudarabah Capital will be invested, on an unrestricted co-mingling Mudarabah basis, by [Company] in its general business activities carried out through the General Mudarabah Pool and, following investment of the Mudarabah Capital, the Mudarabah Capital shall constitute pro rata undivided assets in the General Mudaraba Pool (the "Mudarabah Assets").
Master Mudarabah Standard Agreement for Perpetual Mudarabah Sukuk Tier 1.
Unless a Non-Payment Event or a Non-Payment Election has occurred, prior to each Periodic Distribution Date, the Mudarib shall distribute the profit generated by the Mudarabah to both the Trustee and the Mudarib in accordance with an agreed profit sharing ratio [] to the Trustee (as Rab-al-Maal) and [] per cent. to the Mudareb). The Trustee shall apply its share of the profit (if any) generated by the Mudaraba on each Periodic Distribution Date to pay the Periodic Distribution Amount due to the Certificateholders on such date.
Payments of Mudarabah Profit by [Company] (as Mudarib) are at the sole discretion of [Company] (as Mudarib) and may only be made in circumstances where a Non-Payment Event has not occurred. The Mudarib shall not have any obligation to make any subsequent payment in respect of such unpaid profit (whether from its own cash resources, from the Mudarabah Reserve or otherwise), i.e. a non-cumulative instrument.
The Mudarib shall be expressly entitled to co-mingle its assets with the General Mudarabah Pool assets.
The Mudarabah is a perpetual arrangement with no fixed end date.
[Company] (as Mudarib) may at its option liquidate the Mudarabah in whole, but not in part, on the basis of a final constructive liquidation of the Mudarabah in the following circumstances:
on the First Call Date or any Periodic Distribution Date afer the First Call Date
on any date on or afer the Issue Date (whether or not a Periodic Distribution Date):
upon the occurrence of a Tax Event; or
upon the occurrence of a Capital Event.
[Company] (as Mudarib) and the Trustee undertake in the Mudarabah Agreement, in circumstances where the Certificates are required by [Company] to be varied upon the occurrence of a Tax Event or a Capital Event, to make such variations as are necessary to ensure that the Certificates become or, as appropriate, remain Qualifying Tier 1 Instruments.
Declaration of Trust for Perpetual Mudarabah Sukuk Tier 1
The trust certificates constituted by the Declaration of Trust is the legal mechanism by which certificates (or interests in them) are issued to Certificateholders.
The form of Certificate will be appended to the Declaration of Trust on each transaction.
To be considered on a transaction specific basis whether the SPV is to be owned by a charitable trust which would be preferable, or whether the SPV would need to be owned by the Company (or the originating entity) which would may be required for public policy or legislative/taxation reasons.
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Shari'ah Compliance
Each of the [Company] and the [Trustee] agree that it has accepted the Shari'ah-compliant nature of this Agreement; and:
a) it shall not claim that any of its obligations under this Agreement (or any provision thereof) is ultra vires or not compliant with the principles of Shari'ah;
b) it shall not take any steps or bring any proceedings in any forum to challenge the Shari'ah compliance of this Agreement; and
c) to the extent permitted by law, none of its obligations under this Agreement shall in any way be diminished, abrogated, impaired, invalidated or otherwise adversely affected by any finding, declaration, pronouncement, order or judgment of any court, tribunal or other body that this Agreement is not compliant with the principles of Shari'ah.
Governing law and enforcement
The choice of governing law is important in order to obtain legal certainty in the case of a contractual dispute arising. English law remains the benchmark for Sukuk issuances.
Waiver of interest
Each Transaction Document has an express waiver of interest and pursuant to which each Party irrevocably agrees that no interest will be payable or receivable under or in connection with each Agreement or any other Transaction Document and in the event that it is determined that any interest is payable or receivable in connection with each Agreement or any other Transaction Document, whether as a result of any judicial award or by operation of any applicable law or otherwise, such Party agrees to waive any rights it may have to claim or receive such interest and agrees that if any such interest is actually received by it, it shall promptly donate the same to a registered or otherwise officially recognised charitable organisation.
Sukuk Al Mudarabah Tier 1 Market
The below Chart highlight the importance of Sukuk Al Mudarabah Tier 1 Sukuk in the development of Sukuk market since implementation of Basel III regulations and is commonly used by financial institutions in enhancing their capital base in domestic as well as international Sukuk issuances. The Sukuk Al Mudarabah Tier 1 is an attractive investment by the growing number of investors.
Global FIs Tier 1 & Tier 2 Sukuk Issuances, Tenor >1 Year Amounts in USD Millions (2012 - Dec 2020)
9,000 3,651
8,000
7,000
6,000
5,000 2,253 4,756 2,300
4,000
3,000 1,000 519 1,072 2,278 889 1,075 2,231 2,051 2,000 1,443 1,160 518 1,207 1,106 1,000 285
0
2012 2013 2014 2015 2016 2017 2018 2019 2020
Sukuk Al Murabahah Sukuk Al Mudharabah Source: IIFM Sukuk database 115 IIFM SUKUK REPORT 2021
Key Considerations Template Sukuk Al Mudarabah Tier1 Standard Documents
Key Considerations Objective Year of publication
Capital Regulations – these are dependent To create non- 2021 on the regulatory capital regime in the jurisdictional specific, relevant jurisdiction. English law benchmark suite of Co-mingling general business Mudarabah Islamic finance documents for Perpetual instrument & Subordinated Sukuk Al Mudarabah instrument / ranking.
Non Payment Event.
Non Payment Election.
Liquidation Events – limited.
No guarantee of return.
Investment Plan.
Write Down at the point of Non-Viability – regulator driven. Some jurisdictions may have conversion rights (i.e. conversion to equity).
Guidelines regarding Shari’ah compliance issued by the IIFM Shari’ah Board.
Waiver of interest.
There a number of footnotes in the documentation which do not form part of the standard but are intended to give guidance to users only.
116 IIFM SUKUK REPORT 2021
CONCLUSION
Shari'ah Approval - IIFM's Shari'ah Board has approved the IIFM Sukuk Al Ijarah Standard Document Templates and the IIFM Template Sukuk Al Mudarabah Tier 1 Standard Documents afer extensive consideration. Naturally, the approval from IIFM's Shari'ah Board does not extend to any specific transactions between the parties or to any amendments or additions made to both Documents.
It would be the responsibility of each of the parties using and entering into the Template Sukuk Al Ijarah Standard Documents and Template Sukuk Al Mudarabah Tier 1 Standard Documents to ensure that its use of the documents satisfies its own Shari'ah advisers that the relevant transactions are Shari'ah compliant and that the Template Sukuk Al Ijarah Documents and the Template Sukuk Al Mudarabah Documents are suitable for, and is being used appropriately in, the context of that party's needs.
These IIFM Sukuk Al Ijarah Standard Document Templates and the IIFM Perpetual Tier 1 Mudarabah Sukuk template standard documents have been developed by the IIFM to facilitate and ease the issuance of Sukuk Al Ijarah and Sukuk Al Mudarabah in a Shari‘ah compliant manner. Hence, IIFM hereby authorizes any Islamic financial institution and any other Islamic financial industry participant to use these published Sukuk Standard Documents (i.e. IIFM Sukuk Al Ijarah Standard Document Templates and the IIFM Perpetual Tier 1 Mudarabah Sukuk template standard documents) and its use is not restricted to IIFM members only. The IIFM Sukuk Al Ijarah Standard Document Templates and the IIFM Perpetual Tier 1 Mudarabah Sukuk template standard documents are accompanied by two things, (1) Prospectus which covers an explanation of the structure and (2) operational guidance to be implemented by potential users.
Clifford Chance acted as legal counsel to IIFM in the preparation of the Template Sukuk Al Ijarah Standard Documents and the Template Sukuk Al Mudarabah Tier1 Standard Documents.
The launch of these two Template Standard Documents will lead to greater efficiency in terms of costs and time for the issuance of Sukuk Al Ijarah and Sukuk Al Mudarabah.
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CHAPTER 03 SELECTED SUKUK ISSUANCES (CASE STUDIES CONTRIBUTION) IIFM SUKUK REPORT 2021
3.1 The Government of Dubai USD 1 billion Sukuk due 2030 By: Dubai Islamic Bank
Background
The Government of Dubai represented by the Department of Finance (Dubai DoF) on the 2nd of September, 2020 successfully completed its issuance process of a ten year Sukuk of USD 1 billion at a profit rate of 2.763 per cent. Shari’ah-compliant Sukuk being part of the dual-tranche offering, the Obligor’s first in the public debt markets since 2014, was heavily oversubscribed and achieved the lowest ever profit rate for comparable tenor. The Obligor laid out its key priorities, sensitivities and objectives upfront, which led to a highly successful issuance achieving its objectives. The funds will be used in line with the determinants of the financial policy based on the financial sustainability and continued spending on vital infrastructure projects in the emirate.
Key Features of the Issue
Issuer Dubai DOF Sukuk Limited
Obligor Government of Dubai
Issuer/Obligor Rating Unrated
Status Senior, Unsecured Regulation S
Size USD 1bn
Instrument Sukuk Al Ijarah
Tenor 10-year
Reoffer Price 100%
Profit Rate/ Coupon 2.763%
Joint Lead Managers and Dubai Islamic Bank (Sukuk only), Emirates NBD, First Abu Dhabi Bookrunners Bank, HSBC and Standard Chartered Bank
Listing Dubai Financial Market
Law English, Dubai and UAE
Transaction Highlights
1. The issuance attracted a high-quality and diversified order book (6.6x oversubscribed) comprising some of the largest and most notable global EM/Islamic investors who came in early and remained in the deal despite the aggressive tightening of 40bps from IPTs to final landing.
2. Successfully repriced the Government of Dubai curve by pricing 20bps inside its curve on reducing the Govt.’s overall cost of funding and established a new benchmark for Dubai GREs to obtain financing at tighter pricing terms
120 IIFM SUKUK REPORT 2021
3. The issuance garnered increased investor appetite as the Government of Dubai returned to the capital markets afer a 6-year hiatus. Increased investor appetite was supplemented by relatively lower debt levels as opposed to what the market had anticipated.
4. Lowest ever yield an unrated sovereign has achieved
5. The Sukuk continues to trade strongly in the secondary market, further solidifying investor appetite for Dubai sovereign paper
Order book Progression – 10-Year Sukuk
5:05pm UAE Launch : $1bn at MS+210bps 10yr Book Size: $6.5bn 8,000 4:30pm UAE Spread Set: MS+210bps 9:35pm UAE, Priced: 2.763% 7,000 2:10pm UAE Size: $1bn Guidance: MS+220bps area 10yr Book Size: $5.2bn
6,000
5,000 Size (USD ‘mil) (USD Size
4,000 Orderbook
3,000 9:00am UAE IPTs: MS+250bps area
2,000
1,000
0 9:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 21:35 UAE Time
Allocation Distribution by Geography & Investor Type – 10-Year Sukuk
4% 26%
10%
44% 16%
48% 52%
Fund Managers Banks/PBs Agencies / Ins / PF / Others Middle East UK & Europe Asia US Offshore
121 IIFM SUKUK REPORT 2021
Orderbook Statistics
Book size USD 6.6 billion
Oversubscription c. 6.6x
Pricing Strategy:
10-Year Sukuk
260
+ 250bps areas 250 - 30bps
240 ~ + 235bps ~ - 20-25bps NIP
230
+ 220bps area 220
Spread (bps) Spread - 10bps
+ 210bps 210
200
190 Dubai 2029 10Y (2030) Sukuk IPTs Price Guidance Final Spread
123 IIFM SUKUK REPORT 2021
3.2 The National Commercial Bank USD 1.25 Billion Additional Tier 1 Sukuk By: Hatem Fawzi Alzimaiti, Manager, Balance Sheet Management - Group Treasury and Abdulmohsen Al-Harthy, Manager Islamic Product Development - Shari‘ah Division, National Commercial Bank Basic Information:
The issuance represents the largest ever Additional Tier 1 (AT1) Sukuk issuance of USD 1.25 billion (SAR 4.69 billion) by a financial institution, and the lowest ever AT1 Sukuk yield, marking the National Commercial Bank (NCB) return to international debt and capital markets afer more than 15 years. Driven by the scarcity of supply from KSA FI’s, and robust demand from international investors for KSA credit, the issuance was exceptionally well received where the bank up-sized beyond its initial target, afer tightening 62.5 bps to land as the lowest priced and largest ever Additional Tier 1 Sukuk. The breadth of demand that this issuance was able to generate highlights the reach of Islamic finance, demonstrating the depth of liquidity pools that are accessible to Sukuk issuers.
Structural & technical aspects (Shari‘ah & legal perspective):
Structurally, the issuance was a Mudarabah perpetual non-call 6, with a 6 month par call option. The issue was structurally broadly the same as other recent regional issuances, qualifying as AT1 capital under Basel III, with mechanics that allow for a write-down at the point of non-viability, and where profit payments are at the full discretion of the Mudarib. Other common features included a dividend stopper, ensuring that the Rabb al-Mal is treated consistently with other equity holders, and no allowance for going-concern loss absorption.
Investor Type & Geographical Distribution:
With respect to demand, the issuance garnered interest from high-quality investors, regionally and internationally. The most notable portion of the book was allocated to fund managers, which is in contrast to other regional AT1 deals that tend to be skewed towards private banks. The degree of geographical diversification was also relatively high for a regional AT1 Sukuk, with over 50% of final allocations going to non-regional investors.
Secondary Trading:
As a public issuance, listed on the International Securities Market of the London Stock Exchange, the Sukuk are liquid and tradable in secondary markets. Since pricing, the Sukuk have performed well relative other comparable Islamic instruments.
Geography BY Investor Type
4%
11% 25%
46%
60% 39% 15%
Middle East UK & Europe Asia US Offshore Banks Private Banks Fund Managers
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High Level Structure Summary:
Issue Size USD 1.25 billion (SAR 4.69 billion)
Issuer/ Rabb al-Mal NCB TIER 1 SUKUK LIMITED
Mudarib/ Obligor The National Commercial Bank (NCB)
Obligor Rating “BBB+” with a “positive outlook” by Standard & Poor’s, “A-” with a “negative outlook” by Fitch, “A1” with a “negative outlook” by Moody’s and “A+” with a “stable outlook” by Capital Intelligence
Sukuk Structure Mudarabah
Maturity Perpetual non-call, with a par call afer 5.5 years
Ranking Upon the occurrence and continuation of any Winding-Up Proceeding, the Relevant Obligations will (i) constitute Additional Tier 1 Capital of the Bank, (ii) constitute direct, unsecured, conditional and subordinated obligations of the Bank, (iii) rank subordinate and junior to all Senior Obligations but not further or otherwise, (iv) rank pari passu with all other Pari Passu Obligations which, for the avoidance of doubt, includes and shall continue to include the Bank’s (in its capacity as Mudarib or otherwise) obligations under the Existing Tier 1 Securities and (v) rank in priority only to all Junior Obligations.
Currency USD
Issue Price 100
Profit Rate 3.50%
Issuer Call 6 years, with par call option afer 5.5 years
Dividend Stopper Distributions on, redemption or repurchase of share capital, equity securities and parity securities, until the following profit payment has been paid in full (or set aside)
Optional Early Dissolution Events and Winding-up: Redemptions (i) a failure by the Mudarib to pay an amount equivalent to principal or profit, (ii) an administrator is appointed, an order is made by any competent court or the government of the Kingdom , winding-up, liquidation or dissolution of the Bank in accordance with applicable law or the Bank applies or petitions for a winding-up
Non-Viability Loss Full or partial permanent write down Absorption
Listing The ISM (is a market designated for professional investors)
Governing Law English law & the laws of the Cayman Islands
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Structure Diagram
Mudarib
Dissolution Mudarabah Capital, Mudarabah Rabb al-Mal Mudaraba Profit Mudarabah Capital Agreement and Rabb al-Mal Final Mudaraba Profit
Trustee as Rabb al-Mal
Periodic Distribution Amounts Proceeds of Certificates Declaration and Dissolution Distribution of Trust Amount
Certificateholders
Mechanism for Mudarabah Sukuk:
1. On the issue date, the Issuer will issue certificates, the Certificateholders will pay the issue price in respect of the Certificates to the Issuer as Trustee in accordance with the principles of the Islamic Shari‘ah, the proceeds of which will be contributed to and constitute the Mudarabah Capital for a Shari‘ah-compliant Mudarabah Contract.
2. The issuer as Trustee will declare a trust in favour certificateholders, in the Declaration of Trust which document will be entered into between the Obligor, the Issuer, shall constitute the Sukuk and set out, the Trustee’s rights, title, interest and benefit, under the assets constituting Mudarabah Assets, and the Sukuk will represent an undivided ownership interest in the trust assets and all amounts standing to the credit of the Transaction Account.
3. Al Ahli Commercial Bank (As Mudarib) and the Trustee (as Rabb al-Mal) shall enter into a contract of unrestricted Mudarabah, in which the Trustee on behalf of the Sukukholders; the Mudarib will invest the proceeds of the Sukuk in its Islamic commercial activities.
4. The Mudarib will invest the capital of the Mudarabah, pursuant to the Mudarabah Agreement. The Mudarabah Capital will be co-mingled with (i) shareholders’ equity, (ii) proceeds of all current savings and investments deposit accounts with the Mudarib, and (iii) any other source of funds included in the general Mudarabah Pool and invested, on an unrestricted co-mingling Mudarabah basis, by the Bank in its general Shari‘ah compliant banking activities carried out through the Mudarabah Assets.
5. On each Periodic Distribution Date, the Mudarib shall distribute the profit generated by the Mudarabah to both the Trustee and the Mudarib in accordance with an agreed profit sharing ratio (99 per cent. to the Trustee (as Rab al-Mal) and 1 per cent. to the Mudarib). The Trustee shall apply its share of the profit (if any) generated by the Mudarabah on each Periodic Distribution Date to pay the Periodic Distribution Amount due to the Certificateholders on such date.
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6. The conditions of the Mudarabah Contract shall provide that the Mudarib shall in its own discretion have the right to elect not to pay Mudarabah profits (non-payment election) to the Trustee during any Mudarabah profit distribution period, with the exception of the final Mudarabah profits, which shall be due for payment on the day of termination of the Mudarabah.
7. The Mudarib shall have the right not to pay Mudarabah profits (event of non-payment) in the event of the occurrence of any of the circumstances agreed between the Trustee on behalf of the Sukukholders and the Mudarib, as provided for in the Mudarabah Contract.
8. In the event that Al Ahli Commercial Bank (as Mudarib) does not pay the Mudarabah profits on a date for distribution of the Mudarabah profits in consequence of an event of non-payment or an election for non-payment, neither the Trustee, the Delegate nor the Sukukholders shall have the right to make a claim against the Mudarib for payment of any Mudarabah profits during the period of the distributions, provided that such undistributed returns shall be credited to the reserve account.
9. The Sukukholders agree that in the event that Saudi Central Bank-SAMA classifies the Mudarib as being non-viable, then SAMA may determine the value of the Sukuk assets and the amount thereof that shall be deducted from the amount which would otherwise be due to the Sukukholders, in an attempt to enable the Mudarib to continue its activity, and the Sukukholders shall be entitled to the remaining value in such event.
10. On the date of final liquidation of the Sukuk there shall be a constructive liquidation of the Mudarabah assets (which shall include the assets of the Mudarabah in addition to the amounts of undistributed profits); Subject to a Non- Payment Event, the proceeds of the liquidation shall be employed to pay the capital of the Mudarabah and the periodic distributions and any shortfall therein if any; in the event that there is a surplus of capital of the Mudarabah, that surplus shall belong to the Sukukholders, and they may unilaterally grant the same or part thereof to the Mudarib as a performance incentive.
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3.3 Saudi Electricity Company USD 1.3 billion Dual tranche USD Green Sukuk By: Ahsan Ali, Head of Islamic Origination, Standard Chartered Bank
In September 2020, Saudi Electricity Company (SEC or the Company) successfully priced a USD 1.3 billion Dual tranche USD Green Sukuk across a USD 650 million 5-year tranche and a USD 650 million 10-year tranche RegS registered Sukuk. The transaction marks the first USD denominated Green Sukuk Issuance from the Kingdom of Saudi Arabia. This also establishes SEC Sukuk as the largest corporate issuance from Saudi in the year 2020, and only one of two corporate Saudi issuers to have been able to successfully price a transaction post the advent of the COVID-19 pandemic.
Issuer Saudi Electricity Global Sukuk Company 5
Obligor Saudi Electricity Company
Instrument Regulation S, Senior Unsecured Fixed Rate Green Trust Certificates
Structure Sukuk Al Ijarah
Obligor principal activities Utility service provider
Issue size & pricing 5-Y: USD 650 million @ 1.740% and 10-Y: USD 650 million @ 2.413%
Issue Tenor 5 years and 10 years
Pricing Date 10 September 2020 Standard Chartered Bank (B&D), First Abu Dhabi Bank PJSC, HSBC Bank plc, Joint Lead Managers J.P. Morgan, and MUFG Securities EMEA plc
Allen & Overy LLP (as to English Law) and Khoshaim and Associates Legal counsel for issuer (as to Saudi Law) and Walkers (Dubai) LLP (as to Cayman Islands Law)
Legal counsel for arrangers Latham & Watkins LLP (as to English Law) and Law Office of Salman Al Sudairi (as to Saudi Law)
Shari‘ah advisor Shari‘ah Boards and Committees of Standard Chartered Bank, First Abu Dhabi Bank, HSBC Saudi Arabia and JP Morgan Securities
Green Structuring Advisor HSBC and MUFG
To finance certain eligible green capital projects Purpose of issue (as described in SEC’s Green Sukuk Framework (GSF)).
Issuer Rating A2 by Moody's (stable) and A- by Fitch (stable)
Issue Rating A2 by Moody's (stable) and A- by Fitch (stable)
Listing Euronext Dublin
128 IIFM SUKUK REPORT 2021
Highlights
SEC’s Sukuk issuance represented an impressive outcome as the deal effectively achieved the following:
The first-ever USD denominated Green Issuance by a Saudi Corporate
Largest Corporate Issuance from Saudi in the year 2020
An aggressive price tightening of 30bps from Initial Price Guidance highlighting robust demand dynamics
Strong Asian participation instrumental in building early orderbook momentum in the trade and put the Issuer in a strong position to tighten pricing aggressively from IPTs to Final Landing
Final pricing 30bps inside IPTs for both tranches
Combined books closed at USD 4.7bn (3.6x oversubscribed) peaked at USD 5.4bn
Objectives
To support SEC in fulfilling their funding roadmap for 2020;
To achieve zero to negative New Issue Concession across both tranches
To attract a broad investor appetite across the region and investor types
Achieve a diversified and high-quality orderbook.
Develop their first ever green Sukuk framework to support their green initiatives.
Originator Background
SEC was created by the amalgamation of 10 local electricity firms in Saudi Arabia in 2000 and is now the MENA and GCC’s largest utility service provider. SEC has strong relationships with the Saudi government that are reinforced by SEC’s critical role in generating and providing electricity across KSA. It is indirectly owned at 81.2% by the Saudi PIF and Saudi Aramco and the majority of board members are PIF and Saudi Aramco representatives. Multifaceted government support includes dividend waivers, interest free funding, fuel procurement from Saudi Aramco, and municipal fee waivers.
As of 31st December 2019, SEC had a total generation capacity of 53,200MW and owns and operated 40 power plants throughout KSA. Its transmission network currently connects almost 99% of KSA and its distribution business covers medium and low voltage power lines, metering, billing, collection of payments and electrical service connections
The Solution: Creativity and teamwork
Deal structure
Since SEC enjoys a healthy asset base given the nature of its business, the JLMs advised the client to opt for an “Ijarah Sukuk” structure, which is widely acceptable amongst investors.
On the Closing Date of each Series, the relevant Certificateholders will pay the issue price in respect of the Certificates to the Issuer, which will hold such proceeds of the issue of the Certificates as Trustee.
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the Trustee (in its capacity as the Purchaser) will use the amount of such issue proceeds to purchase from SEC (in its capacity as the Seller) a percentage interest in the Seller’s undivided rights, title, interests, benefits and other entitlements in and to certain electricity distribution assets (the “Ijarah Assets”)
Thereafer, the Issuer/SPV leases the underlying assets to SEC against payment of rental. The rental payments to the Issuer/SPV will be used to pay the Periodic Distribution Amount due to the Sukuk holders.
SEC (in its capacity as Servicing Agent) for and on behalf of the Trustee (in its capacity as the Lessor) will be responsible for insuring the Ijarah Assets relating to each Series, paying proprietary and other taxes and performing all major maintenance and structural repairs.
SEC has provided a unilateral undertaking in favor of the Issuer/SPV to purchase the underlying assets at maturity of the Sukuk or in case of a dissolution event
The acceptability and familiarity of the Islamic structure was reflected by strong investor demand that followed the pre-marketing and marketing exercises
Roadshow and Marketing
A dual tranche Reg S standard disclosure document supported by a detailed investor presentation was developed to effectively communicate SEC’s credit story.
The transaction was announced at GCC open to capture the widest net of investors, with IPTs set at of “MS+170bps area” and “MS+200 area” for the 5-year and 10-year, respectively.
Good early momentum was generated by both GCC and Asian accounts which continued through the European morning, enabling SEC to release an aggressive Price Guidance, achieving 20bps tightening from IPTs respectively for both tranches.
Despite the aggressive pricing revision, the majority of the accounts remained committed to the transaction and the orderbook continued to grow through the European afernoon and peaked at USD 5.4bn slightly skewed towards the 5-year, allowing SEC to revise pricing a further 10bps inside for both the 5-year and the 10-year. This final move translated into pricing revisions of 30bps from IPTs each for both tranches, respectively.
Outcome and Market Impact
SEC attracted a high-quality and diversified orderbook comprising some of the largest and most notable global Green/Islamic investors who came in early and stuck with the deal despite the aggressive tightening from IPTs to final Landing.
The aggregate orderbook peaked at over USD 5.4bn which is a fantastic outcome achieved by SEC despite the heavy supply, SEC was able to capture the wave of momentum of investor’s appetite for GCC Corporate paper.
The 5-year tranche achieved a phenomenal geographical diversification with 51% or orders allocated outside MENA. while the 10-year was evenly distributed between regional/Islamic and international accounts.
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Investors by Geography and Type
3% 12% 1%
23% 17% 27%
Asia
ME 5-year 10-year Eur Tranche Tranche US Offshore By Geography By
47% 70%
4% 3% 40% 24% 18%
1% Banks/PB 5-year 10-year AM/FM Tranche Tranche CB/Agency/Corp By Type By Insurance/Other
53% 57%
Use of Proceeds:
An amount equal to such net proceeds will be separately identified and applied by SEC to finance and/or refinance in whole or in part projects (Eligible Green Projects) in the categories of (a) energy efficiency, which, as at the date of the Sukuk Prospectus, shall consist of projects for the procurement and installation of smart meters and (b) renewable energy, which, as at the date of the Sukuk Prospectus, shall consist of projects by way of capital expenditure for the construction and/or operation of the transmission and/or distribution infrastructure for connecting renewable energy sources to the grid
Summary
SEC’s issue of USD 1.3bn represents the first ever Green issuance from a Saudi corporate and the largest Saudi corporate issuance in 2020
The issue was very well acclaimed in the markets with a final orderbook peaking at USD 5.4bn in aggregate, allowing SEC to achieve all their key objectives.
The deal exceeded SEC’s expectations and clearly serves as another testament to their strong credit story
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3.4 Pakistan Energy Sukuk II: A landmark PKR 200 billion Sukuk issuance through a book building process. By: Ahmed Ali Siddiqui, SEVP & Group Head Shari‘ah Compliance – Meezan Bank, Jawad Tahsin – Vice President Shari‘ah Compliance Meezan Bank & Esha Tir Razia – Assistant Manager Shari‘ah Compliance Meezan Bank
On 21st May 2020, Meezan Bank played a leading role in the successful issuance of a landmark PKR 200 billion Pakistan Energy Sukuk II, issued through book building process. This was the second issuance in this series by the Government of Pakistan acting through its fully owned subsidiary Power Holding Limited (PHL). The Sukuk is listed at PSX and is 100% SLR eligible. Meezan Bank acted as the Joint Financial Advisor, Investment Agent, Security Trustee and Escrow Agent of the issue.
Background
On 1st March 2019, when Pakistan Energy Sukuk (PES)-I was issued, it was expected that the Sukuk issuance would ease out circular debt issue. Islamic Banks through the issuance of PES-I eased the debt burden by significantly. However, by February 2020 the debt had again accumulated to over PKR 1.8 trillion1. The high exposure on PHL made financing from commercial banks unfeasible for the government, which motivated the government to explore the second issuance under the banner of Pakistan Energy Sukuk series. This time again the Islamic Banking Industry stepped forward to solve this real issue.
The Ministry of Finance took this opportunity to further deepen the financial market by increasing the subscriber base to include non-banking investors like mutual funds, corporates, trusts and qualified individual investors. An open competitive bidding process was announced and Power Holding Public Limited (PHL) issued a formal term sheet as per which Meezan Bank Limited along with Bank Alfalah Limited and Dubai Islamic Bank (Pakistan) Limited were formally appointed as Joint Financial Advisor for the issue.
PHL engaged Mohsin Tayebali & Corporation for preparing necessary legal documentation and Sipra & Company was engaged to provide the valuation services for over 800 identified assets of 10 different DISCOS and GENCOS. National Bank of Pakistan, a wholly owned bank of Government of Pakistan, was given the task of book building.
On 21st May 2020, afer successful book building process, PES-II was issued for PKR 199,966,800,000/- at KIBOR – 10bps resulting in significant savings of approximately PKR 18 billion2 to the Government of Pakistan over the period of next 10 years.
Key Features of the Issue
Issuer Power Holding Public Limited (100% owned by the Government of Pakistan)
Purpose To fulfil the financing requirements including but not limited to settlement of part of prevailing circular debt related to Power Sector. Joint Financial Advisor Meezan Bank Limited, Bank Alfalah Islamic, Dubai Islamic Bank (JFA) (Pakistan) Limited
Shari‘ah Advisor Mufi Sajjad Zafar
Investment Agent Meezan Bank Limited
Security Trustee Meezan Bank Limited
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Escrow Agent Bank Meezan Bank Limited
Banker to the Issue National Bank Limited
Book Runner National Bank Limited & its subsidiary Taurus Securities Limited
Legal Counsel Mohsin Tayebali & Company
Valuator Sipra and Co.
Local/ foreign financial institutions, corporates, funds, security brokers, Eligible Investors eligible investors
Issue Size 199,966,800,000
Face Value of Sukuk PKR 5000/-
Transaction Mode Ijarah (Sale and Lease Back)
Issue Date 21st May 2020
Tenor 10 years
Pricing 6MK - 0.10% (determined through book building process)
Profit/ Rental Semi-annual Payment Frequency
Tradability The Sukuk is listed in Pakistan Stock Exchange while custody is held by CDC
Graphical Structure
1. Financiers appoint an IFI as investment Agent Financiers Investment Agent
5. Investment Agent and 2. Investment Agent and Obligor enters into Obligor enters into Payment Agreement Musharakah Agreement 6. Obligor gives 3. Investment Agent and Undertaking to Purchase. Obligor executes Asset 4. Companies exexute Purchase Agreement 7. At maturity, Obligor and Declaration of Trust in favour of Investment Agent executes Investment Agent Sale Agreement for sale of assests to Obligor.
DISCOs/GENCOs Ministry of Energy/PHPL “Companies” “Obligor”
Prerequisites: Other Provisions: 1. Government of Pakistan Guarantee for payment of Rentals. 1. Substitution of Assets through 2. NOC for sale to be obtained by Obligor from each company. separate sale of assets. 3. Creation of security interest/change over te underiyng 2. Payment of rental and principal transacton assets. to be made at SBP counter.
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Overview of the Shari‘ah Structure
The Shari‘ah Structure of the PES-II was similar as that of PES-I and was approved by Mufi Sajjad Zafar. Meezan Bank team also provided Shari‘ah support to the Shari‘ah Advisor. Overview of the structure is as follows:
1. Sukuk Subscription and Investment Agency Agreement: The Investors will appoint one of the participating banks (namely Meezan Bank Limited) as their Investment Agent by executing Sukuk Subscription and Investment Agency Agreement for the purpose of participating in Sukuk.
2. Authorization Agreement: This Agreement will be entered into between the Investment Agent, Companies and Issuer, pursuant to which the Companies will record that they are wholly owned by GoP and upon instruction of GoP they authorize PHPL (wholly owned by GoP) to sell the Assets to the Investors for the purposes of the Sukuk Issue, contain certain negative and positive covenants. Investment Agent will also authorize the company to hold legal title on behalf of Investors as joint co-owner. Each Company will also agree with the Investment Agent that they will continue to hold the legal title of the co-owned Assets on behalf of and for the benefit of the Investors. This will be registered with the Securities and Exchange Commission of Pakistan by each of the Companies.
3. Master Facility Agreement: Master Facility Agreement will be executed between Issuer and Investment Agent to create co-ownership over the identified Assets. Master Facility Agreement will contain the terms and conditions under which co-ownership will be established upon execution of Asset Purchase Agreement.
4. Asset Purchase Agreement: At the time of disbursement, an Asset Purchase Agreement will be signed between the Investment Agent (acting on behalf of Investors) and Issuer. If required, the Asset Purchase Agreement will also be acknowledged by authorized representatives of GENCOs/DISCOs. Letter of Possession will be executed for handing over by seller and taking possession of the Assets by the Investment Agent.
5. Ijarah Agreement: Afer execution of Asset Purchase Agreement, Issuer and Investment Agent will execute Ijarah Agreement under which Investment Agent will lease the undivided share of Investors in the Assets to Issuer.
6. Trust Deed: A Trust Deed will be executed by Issuer and the Trustee pursuant to which the Sukuk will be governed and the security interest and the rights and benefits of the Investors will be vested in the Trustee.
7. Substitution of Assets: Upon request of the Issuer and on the sole discretion of the Investors at that time, specific part of the Underlying Transaction Assets can be substituted with other Assets of the same value by executing the agreements/documents advised by the Legal Counsel and Shari‘ah Advisor at that time.
8. Purchase Undertaking: Afer execution of Ijarah Agreement, the Issuer, on behalf of the Companies, will give a unilateral undertaking to purchase all the outstanding ownership of the Investors at a Buyout price upon maturity and/or at any Event of Default and Termination under the Sukuk Agreements. The Buy-out price will be equal to the face value of the Sukuk Issue. Issuer will also undertake to pay any amount outstanding or overdue under any of the Financing documents. Transfer of Ownership under this Undertaking will be evidenced by the execution of Sale Contract at that time.
Unique Features of the Sukuk
Largest SLR eligible Sukuk issuance through a 100% Shari‘ah compliant book building process at Pakistan Stock Exchange: It was the first of its kind transaction in which approximately PKR 200 bn were raised through competitive bidding through a wide subscriber base.
Solved real issue: PES-II solved a real issue faced by the country i.e. eased the debt burden and resulted in cost saving for the Government.
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Revision in Pakistan Energy Sukuk rules: For PES-II the Pakistan Energy Sukuk rules were revised and restated to allow a wide variety of investors including qualified individuals to participate in the bidding process
Voluntary & leading role of Meezan Bank: Meezan Bank played the role of Joint Financial Advisor, Investment Agent, Security Trustee and Escrow Agent as well as provided Shari‘ah Support for the transaction on voluntary basis, without charging fee from the Government of Pakistan.
Escrow Mechanism: The rental payments of the Sukuk are accumulated in an Escrow Account, which is funded by Central Power Purchasing Agency (CPPA) daily through one of its electricity bills collection accounts. The escrow account is filled 30 days before the rental payment date in order to ensure timely rental payment to Sukuk holders.
Important considerations in the issuance of PES-II
Due to its huge issue size and one of its kind bidding process, important considerations were given to some issues listed below, in order to ensure successful issuance of PES-II.
Additional Legal Requirements
In addition to the legal requirements pertaining to any Sukuk issuance transaction, the following additional legal requirements were advised by the transaction legal counsel to be taken from participating DISCOS:
Board Resolution & NOC/Consent/Permission
Confirming clean and unencumbered status of the legal title of the identified Ijarah assets.
Permission to Issue the Sukuk by using the Identified Assets in favour of PHPL.
Permission/NOCs in favour of PHPL to sell undivided share in the Assets to the Investors and creation of required security interest/charge over the Assets with SECP.
Confirmation that the companies will not sell or create any charge on these Assets during the tenure of the Sukuk.
Permission by respective Board to the Companies & PHPL to execute required Legal Documentation.
Asset Identification and Valuation
The process of identifying PKR 200 billion worth of distinct available Assets for each issue from different companies was a tiresome exercise.
The assets were not only identified but also their legal validity was checked in order to ensure that there is no discrepancy in their title documents and are free from all charge.
Conclusion
Like its predecessor PES-I, PES-II is also a landmark transaction in Pakistan. The successful issuance of the Sukuk also depict the strength of Islamic financial sector in Pakistan and the capacity of doing large ticket deals which was not done by the conventional sector.
With its successful issuance, Islamic banking and finance industry in Pakistan has contribute for the economic benefit of the country and helped the country by providing much needed support for the power sector.
Additional References: https://www.psx.com.pk/psx/files/?file=147951-1.pdf https://www.psx.com.pk/psx/themes/psx/uploads/Book-Building-Process.pdf
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3.5 Oman Sovereign Sukuk: Series 4 & Series 5 By: Maisarah Islamic Banking Services
Issuer Oman Sovereign Sukuk S.A.O.C
Issue size OMR 208 million & OMR 25 million
Tranches (if applicable) Series 4 & Series 5
Issue date 11 Nov 2020 & 24 Nov 2020
Structure Ijarah
Mode of issue (private or public) Public
Tenor 5 & 2 years
Maturity date 11 Nov 2025 & 24 Nov 2022
Profit rate 5.75% & 4.75% per annum
Payment terms Semi-annual
Lead arranger / bookrunner / manager Maisarah Islamic Banking Services – Bank Dhofar SAOG Ubhar Capital SAOC
Financial advisor Maisarah Islamic Banking Services – Bank Dhofar SAOG Ubhar Capital SAOC
Legal advisor Ali Busaidy, Mansoor Jamal & Co.
Currency Omani Rial
Governing law Omani
Shari‘ah advisor Maisarah Islamic Banking Services – Bank Dhofar SAOG
Subscription details (undersubscribed or Over Subscribed & Fully Subscribed oversubscribed)
Minimum investment RO10,000 & RO100
Investor breakdown Series 4 – Financial Institution, Pension Funds, Corporates and HNWI Series 5 - Retail
Listing Muscat Securities Market
Rating Not Rated
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The Government of the Sultanate of Oman (GOO) represented by the Ministry of Finance (MoF) successful completed the issuance of Series 4 under the Omani Rial Sukuk Issuance Programme in November 2020. The Sovereign Sukuk was issued for an amount in excess of Rial Omani (RO) 200 million as against the issuance target of RO 175 million following strong demand from local investors and oversubscribed orderbook of circa RO 220 million. The Sukuk were offered with a minimum value of RO 10,000 during the period of 4–10 November 2020.
To share the investment opportunity with the wider public, the government also launched the public offering under Series 5 Sukuk certificates. The public offer presented a unique opportunity for retail investors to participate in the government’s Sukuk programme with a profit of 4.75 per cent per year and a limited maturity period of 2 years, at profit distribution rate every six months (May and November) until the maturity date of the Sukuk on November 24, 2022. The minimum subscription amount was RO 100.
This is the first time ever the Government of Oman issuing a Retail Sukuk. What make it more unique is that the Government issued a retail offerings during the time of pandemic of COVID-19. Despite the challenging market condition, good response from the public was witnessed towards this issuance.
Sukuk market in Oman is relatively younger than its counterparts in GCC region. The country has witnessed only three sovereign Sukuk issuances since the launch of first sovereign Sukuk in 2015. However, the country is on right track where growth is concerned.
The Omani Rial Sukuk Issuance Program forms an integral part of the strategy of the Government to enhance the depth and scale of the overall capital market in Oman, enabling it to play a more vital role in the economic development of the country, and further developing Oman’s secondary Islamic capital market. The issuance of the Sukuk will support the Government in fulfilling its development targets.
As the previous issuance by the GOO, this Sukuk is structured under the Shari‘ah concept of Ijarah (sale and lease back) and has been approved by the Shari‘ah Supervisory Board of Maisarah Islamic Banking Services (Bank Dhofar SAOG). Ijarah structure is a popular and widely used structure in sukuk issuances in the middle east region.
Maisarah Islamic Banking Services (Bank Dhofar S.A.O.G.), and Ubhar Capital S.A.O.C. were appointed as the Issue Managers for the Transaction.
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3.6 ICD Five-Year USD 600 Million Sukuk By: Islamic Corporation for the Development of the Private Sector (ICD)
The Islamic Corporation for the Development of the Private Sector (ICD), a multilateral development financial institution and part of the Islamic Development Bank (IsDB) Group, has successfully returned to the public Sukuk market following an absence of four years in the capital market with the issuance of a five-year USD 600 million Sukuk. This Sukuk was issued October 2020 at a yield of Mid-Swap + 140bps and is the largest Sukuk issuance by ICD since inception and double the amount from its USD 300.00 million inaugural issuance in 2016.
The Sukuk was subscribed by 37 international and regional investors. This is a testament to the investors’ regard of ICD’s credit story and updated strategy that the new management team has been working diligently to formulate and implement over the past two years.
ICD attracted very strong investor response despite weaker general market sentiment on the back of the on-going COVID-19 pandemic and overnight news on the issuance day of the US calling off fiscal stimulus negotiations until the election. The orderbook was oversubscribed by more than two times and the final pricing was 20 basis points below the initial price thoughts (IPTs) level.
The diversity of the orderbook saw investors from 13 countries in Europe, Asia, and the Middle East. More specifically, 4% of the transaction was allocated to UK/Europe, 21% to Asia, 75% to the Middle East. In terms of investor segment, fund managers were allocated 13%, Banks/Private Banks were allocated 57%, Agencies/Central Banks were allocated 29%, and others were allocated 1%.
Summary of the transaction terms are provided in the following table:
Issuer / Trustee ICDPS Sukuk Limited
Obligor / Guarantor Islamic Corporation for the Development of the Private Sector
Issue Ratings A2 / A / A+ (Moody’s / S&P / Fitch)
Issue Format Regulation S Only
Status Senior Unsecured
Sukuk Structure Wakalah
Pricing Date 07-Oct-2020
Maturity 15-Oct-2025
Size USD 600,000,000
Profit Rate 1.810%
Final Spread MS+ 140bps
Reoffer Yield 1.810%
Issue and Reoffer Price 100%
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Listing London Stock Exchange’s Regulated Market, Nasdaq Dubai
Global Coordinators Goldman Sachs International, HSBC, Standard Chartered Bank
Bank ABC, Boubyan Bank, Dubai Islamic Bank, Emirates NBD Capital, Joint Lead Managers First Abu Dhabi Bank, Gulf International Bank, Goldman Sachs International, and Joint Bookrunners HSBC, Islamic Corporation for the Development of the Private Sector, KFH Capital Investment Company, LBBW, Mizuho, Samba Capital, SMBC Nikko, Standard Chartered Bank, Warba Bank
The Sukuk structure is illustrated as follows:
ICD ICD (as Seller of portolio of Assests ICD (as Service Agent and as Comprising Tangible & Intangible (as Purchaser of Assets) Guarantor) Assets)
Portfolio Income Exercise Price/ Revenue Cancellation of Certificates Issue Proceeds
ICDPS Sukuk Ltd (as Issuer & Trustee)
Periodic Distribution Issue Proceeds Cash Flow Amounts
Investors
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4.1 Sukuk Silver Linings Amid Coronavirus Storm By Eiger Trading Advisors
The Unpredicted Tempest
As the curtains were being drawn back to usher in 2020, the industry was riding a wave of optimism following an exceptional year of Sukuk offerings which hit a record USD146 billion in 2019 according to International Islamic Financial Market (IIFM) data. But such market confidence was almost immediately wiped out when the novel coronavirus turned 2020 on its head, triggering a domino effect of unprecedented scale across the globe: claiming lives, paralyzing economies, shutting borders.
The flip in fortunes for the industry’s poster child was unsurprising. The odds were against it: with an aggressive deadly virus raging, companies (and sovereigns) – rightly so – rethought their investment spending and capital-raising strategies; governments clambered to prevent their economies from collapsing by injecting liquidity into the market with quantitative easing programs; while central banks jumped in to prop up the banking sector with a slew of measures including easing default penalties and postponing repayments.
It is likely the Islamic finance industry will continue to bear the brunt of the COVID-19 shock which will continue to reverberate in 2021 and beyond.
But it is not all doom and gloom – afer all, for every hardship comes ease.
A break in the clouds
Silver linings for the Sukuk market during the torrential COVID-19 storm which delivered heavy blows to the Islamic finance industry globally can be approached from three perspectives or general themes: accelerated digitalization; vindication and integration of social Islamic finance elements; and the reaffirmation of the sustainability narrative.
Digitalization of Sukuk
COVID-19 may have pushed many nations over the economic edge, but it has also pushed governments and corporates over the technological tipping point. The digital mandate for the Islamic finance and banking industry is not at all new, but the pandemic has thrusted it back into sharp focus.
According to a 2020 McKinsey & Co survey of C-level executives, the COVID-19 pandemic has slashed the digitization of their customer and supply-chain interaction and of their internal operations by three to four years while the share of digital or digitally enabled products has hastened by seven years. What this meant was that digital strategies, which are usually designed over a one- to three-year horizon, must be implemented within days or weeks.
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Across business areas, the largest leap in digitisation is the share of offerings that are digital in nature Average share of products and/or services that are partially or fully digitized, %
Precrisis COVID-19 crisis
100 Global Asia-Pacific Europe North America
Adoption Adoption Adoption Adoption acceleration¹ acceleration acceleration acceleration 7 years 10+ years 7 years 6 years 60 55 54 50 41 35 33 34 33 34 29 28 31 26 26 25
0 June May Dec July 2017 2018 2019 2020
¹Years ahead of the average rate of adoption from 2017 to 2019.
Source: McKinsey & Company
The COVID-19 crisis has accelerated the digitisation of customer interactions by several years.
Average share of customer interactions that are digital, % Precrisis COVID-19 crisis
100 Global Asia-Pacific Europe North America
Adoption Adoption Adoption Adoption acceleration¹ acceleration acceleration acceleration 3 years 4 years 3 years 3 years 65 58 53 55
41 36 32 32 22 25 25 20 20 19 18 19
0 June May Dec July 2017 2018 2019 2020
¹Years ahead of the average rate of adoption from 2017 to 2019.
Source: McKinsey & Company
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If one were to be simplistic, COVID-19 had simply become the world’s most effective chief digital/technology officer. Nearly all participants of the McKinsey & Co study revealed that their companies managed to roll out temporary solutions to meet new demands, and very importantly, at a pace they never thought was possible before the pandemic. More significantly, these digital accommodations are likely to be long-lasting.
We see this across the Islamic finance industry: banks ramped up their digital banking capabilities, Takaful operators aggressively bolstered their online customer experience with new digital products and optimized internal efficiencies while asset managers stepped up their investment-on-the-go game. e-Sukuk
The Sukuk segment also flexed its muscles, with Malaysia’s Sukuk Prihatin taking the limelight. As part of its National Economic Recovery Plan, the Malaysian government debuted its first digital Sukuk in September 2020 to phenomenal success. The RM500 million (USD123.55 million) offering was upsized to RM666 million (USD164.56 million) following overwhelming demand.
The Sukuk issue was the country’s first to be made available for subscription online via the digital banking platforms of 27 banks in Malaysia, and was opened to both retail and institutional investors.
The significance of this Sukuk offering must be emphasized for two main reasons: firstly, it is a retail issuance – a fair rarity in the Sukuk space which has the tendency to only service corporate or sophisticated investors, including in Malaysia which had only issued a couple of retail Sukuk despite being one of the most prolific Sukuk manufacturers worldwide; secondly, the decision to leverage on its national banking digital architecture including mobile banking for Sukuk has only been done by one other country – Indonesia. The Republic was the first in 2018 to offer mobile Sukuk, taking a leaf out of Kenya’s M-Akiba bond experience based on its highly successful M-Pesa service which essentially changed how the world think of the democratization of financial services among the unbanked and financially vulnerable.
It was also during this pandemic that the Indonesian Republic printed its largest online Sukuk. In 2020, the Southeast Asian giant brought to market two mobile retail Sukuk offerings including one in September 2020, its 13th series, which generated its largest orderbook ever at USD1.7 billion. The 13th series also attracted the highest number of individual Sukuk investors, over 44,800 with more than one-third of that being first-time investors and dominated by millennials, a testament to the success of its digital Sukuk program in widening the investor base.
Malaysia’s Sukuk Prihatin and Indonesia’s successful online Sukuk program could signal an emerging new trend in Sukuk issuances moving forward: the Malaysian government is reportedly considering a sophomore digital Sukuk offering and the Indonesian administration would continue tapping the retail Sukuk market through its tried-and-tested online channel.
And there is a possibility that this new reality could be replicated beyond Southeast Asia: it is learned through the IFN Annual Guide 2021 that an upcoming Maltese start-up is exploring piloting a digital pseudo-Sukuk facility integrating the principles of crowdfunding to raise investments.
Crowdfunding Sukuk
The convergence of the traditional financial instrument that is Sukuk and a relatively new fintech asset class, crowdfunding, is another growing dimension within the digitalisation of Sukuk. Indonesia, whose endeavor to fully capitalise on fintech to develop its Islamic finance industry has set it apart from its global peers, has also begun to embrace securities crowdfunding.
The Indonesian Financial Services Authority, or Otoritas Jasa Keuangan, in January 2021 officially permitted securities crowdfunding in the country, broadening regulated capital-raising digital avenues which include equity crowdfunding and peer-to-peer financing. This move is designed to benefit the SME sector while deepening the capital market as corporate Sukuk in particular have not been as widely embraced by Indonesian companies as hoped.
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Blockchain Sukuk
It is also worth noting that distributed ledger technology is increasingly making an appearance in the Sukuk realm. From its first appearance in 2019 by Indonesia’s Blossom Finance, blockchain Sukuk are becoming a prominent fixture in the Sukuk sector: Blossom Finance floated its second series of micro Smart Sukuk in 2020 while several fintech start-ups in the Gulf are making meaningful progress toward issuing blockchain Sukuk including Saudi Arabia’s Wethaq Capital Markets and Sukuk Capital Company which both secured regulatory permits last year to experiment with such offerings. Bursa Malaysia which completed a blockchain proof-of-concept for digital bonds confirmed that it is keen to explore something similar for Sukuk.
The Sukuk and Islamic social finance conflux
Another bright spot that materialised during the pandemic is the vindication of Islamic philanthropic tools such as Waqf, Zakat and Sadaqah as effective instruments to affect social changes such as addressing poverty and aiding social developments.
Governments, corporates, non-governmental entities and multilaterals embraced the Islamic concepts of donation, endowment and religious obligation or tax to finance various projects to combat the fallout from COVID-19. While largely in the domain of banking and finance and charity (and stocks), Waqf crossed over into the Sukuk landscape in the form of cash Waqf Sukuk.
Indonesia again takes the global lead: the government built upon its pilot Waqf Sukuk in 2019 that were engineered specifically for corporate investors and introduced the first cash Waqf-linked Sukuk for the retail market in October 2020. The retail Waqf Sukuk leveraged both the network of Islamic banks and Waqf-channeling institutions for distribution with the returns on the paper to be utilized for social purposes.
In Malaysia, the Sustainable and Responsible Investment (SRI) Sukuk Framework clears the way for the development of Waqf assets as an eligible SRI project. Although this has not been tested in the country, there is a real possibility that Waqf Sukuk could be issued out of Malaysia. The structure has long been discussed within Malaysian academic circles and the government – in large part driven by the pandemic – has also taken a more proactive stance about maximising Islamic social tools to assist it in meeting its development goals particularly to help post-COVID-19 recovery. This is evident in the Securities Commission Malaysia’s launching of the Waqf-featured Fund Framework in November 2020, paving the way for the offering of Islamic funds with Islamic endowment features to drive the Shari‘ah social finance sector.
Sukuk gunning for sustainability
Growing in parallel with Waqf Sukuk are Sukuk issued to meet the United Nations Sustainable Development Goals (SDG). The SDG movement within the Islamic finance industry has really picked up pace over the last few years due to the stunning rise of ethical, social and governance as well SRI finance which share common values with Islamic finance.
This theme took center stage in 2020 and is likely to remain in the spotlight this year. Take for example Malaysia’s Sukuk Prihatin: proceeds from the digital Sukuk support infectious disease research efforts (SDG 3: Good health and wellbeing), improve connectivity in rural schools (SDG 4: Quality education), aid MSMEs impacted by the pandemic especially women entrepreneurs (SDG 5: Gender equality and SDG 8: Decent work and economic growth) through the country’s COVID-19 Fund. Upon maturity, holders of the two-year Sukuk will have the option to donate all or part of the principal amount of subscription back to the COVID-19 Fund.
But it was the Islamic Development Bank (IsDB)’s five-year USD1.5 billion Sukuk which sealed 2020 as a year of sustainability Sukuk. The paper was the multilateral’s first SDG Sukuk, also the world’s first ‘AAA’-rated sustainability Sukuk. Funds raised are used to support social projects contributing toward SDG 3 and SDG 8. The paper follows the IsDB’s maiden green Sukuk the year before and is likely to attract more issuers to do the same.
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Green grew in strength as a 2020 theme. Etihad Airways brought to market the world’s first ‘transition’ Sukuk and first sustainability-linked financing in the global aviation industry with its USD600 million Sukuk. Structured under a transition finance framework, capital raised will be used to assist the Abu Dhabi airline to gradually transition to greener, more environmentally sustainable operations (SDG 13: Climate action) including achieving net zero carbon emissions by 2050. Other notable SDG-related Sukuk include Saudi Electricity Company’s USD1.3 billion green Sukuk offering and the Indonesian government’s sophomore retail green Sukuk for the domestic market.
Rays of hope
There is no denying the adverse impact of the coronavirus on world economies and the Islamic finance industry. But the adversity has also taught valuable lessons and catalyzed much-needed changes for the industry in general and Sukuk market in particular.
With vaccines now available, analysts are cautiously expecting 2021 to look up, supported by favorable rates of return and an abundance of liquidity. Core Islamic financial markets such as Malaysia, Indonesia, the GCC and Turkey are also likely to recover from their 2020 recession.
As conditions improve, it is more likely that sovereigns which postponed their Sukuk plans in 2020 could return to the Islamic capital market this year while some Sukuk are also due to mature in 2021, and it is a high possibility that a portion of this would be refinanced through Sukuk.
Challenges will remain in 2021, but there is indeed cause for optimism during a year that will once again test the resilience of the Sukuk market and wider Islamic finance industry.
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4.2 ESG and the Islamic Capital Markets: Evolving Sukuk to Ensure Effective Balance of Environmental, Social and Governance Priorities By: DDCAP Group
Introduction
Environmental, Social and Governance (ESG) factors are three of the key considerations in mobilising capital sustainably and responsibly. Traditionally, investments have looked to address one of these three factors. However, momentum is growing to develop products which incorporate two or three of these factors, which is referred to as Sustainable or Sustainability finance (rather than Green or Social Impact finance).
A recent study by Refinitivi reported that Sustainable finance issuance is at new highs with around USD360 billion of Sustainable bonds being issued in the first nine months of 2020, up 96% on the same period in 2019, as well as a record USD 155 billion of Sustainable finance raised in Q3 2020. Of these Sustainable bond issuances, 49% were made by corporates, which was a 35% increase on the same period in 2019. ii
With the volume of conventional Sustainability issuance reaching unprecedented levels and momentum continuing to increase, the Islamic Capital Markets (ICMs) would be wise to heed this as a call to action to increase their own activity in this space. Whilst the past 10 years have seen increased focus on Green and Social Impact Sukuk, ICMs should begin to focus on Sustainability issuances. By focusing on reducing negative environmental impact whilst promoting social and governance considerations, ICMs can more efficiently mobilise capital towards responsible and sustainable causes.
Background
To date, the ICMs have developed financial instruments incorporating ESG considerations but have taken a more siloed approach focusing on one of the three ESG factors.
Focus on E: Green and Transition Sukuk In beginning to address the threatened climate emergency, there has been rapid acceleration in the issuance of green Sukuk, financing the development of green projects (e.g., reforestation, clean energy, decarbonisation). The rise of corporate and sovereign green issuances began with the first green Sukuk in July 2017 by Malaysian corporate Tadau Energy to finance its 50MW solar photovoltaic power plant. Most recently, in December 2020, Indonesia’s sovereign green Sukuk raised RP5.4 trillion for eligible domestic green projects.iii Additionally, 2020 saw the first ever aviation transition Sukuk by UAE’s Etihad Airways, which raised USD600m for investment in sustainable aviation and carbon reduction targets.
Focus on S: Social Impact Sukuk Social Impact Sukuk (where funds are raised to effect a positive social outcome) have been publicly issued and privately placed, supporting projects from education to vaccinations across the Organisation of Islamic Cooperation (OIC) countries. In December 2014, International Finance Facility for Immunisation and Gavi, the Vaccine Alliance, raised USD500 million for immunisations progammes in some of the world’s poorest countries. A second tranche followed in September 2015, raising an additional USD200 million, and in April 2019 another USD50 million was raised through a private placement with the Islamic Development Bank (IsDB). iv
In June 2015, Khazanah Nasional Berhad, through Malaysian-incorporated special purpose vehicle Ihsan Sukuk Berhad, raised RM100 millionv with the issue of its 7 year Sustainable and Responsible Investment Sukuk (SRI Sukuk), followed by a second tranche in August 2017 which raised an additional RM100 million.v Proceeds from Sukuk Ihsan were used to improve accessibility to quality education in Malaysia through a private-public partnership with the Ministry of Education.
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Most recently, at the end of Q1 2020, a seven-year Sukuk facility was privately placed for the One WASH Fund to finance a water, sanitation and hygiene (WASH) programme by the International Federation of Red Cross and Red Crescent Societies, in partnership with the IsDB.vi Around USD80 million was raised to reduce cholera by 90% by 2030 in at least 18 of the OIC countries most affected.
E + S Factors: SDG Sukuk In addition to Green and Social Impact Sukuk, the market has also seen SDG Sukuk, which focus on one or several of the 17 UN Sustainable Development Goals (SDGs). HSBC Amanah Malaysia Berhad issued the first SDG Sukuk in September 2018 supporting projects targeting good health and well-being (SDG 3), quality education (SDG 4), clean water and sanitation (SDG 6), affordable and clean energy (SDG 7), industry, innovation and infrastructure (SDG 9), sustainable cities and communities (SDG 11) and climate action (SDG 13). vii This multi-discipline approach to meeting the SDGs is an example of where the next generation of the ICM’s ESG focus may be.
Growth of Sustainability Finance in Islamic Capital Markets
The International Capital Market Association (ICMA) has recognised that “the transition to a sustainable global economy requires scaling up the financing of investments that provide environmental and social benefits” and that Green, Social and Sustainability Bonds will play a key role in financing this transition. ICMA Sustainability Bond Guidelines (SBG) define a Sustainability Bond as a bond where the proceeds will be exclusively applied to finance or refinance a combination of both Green and Social Projects. viii In 2018, with the foundation on ICMA’s SBGs, the ASEAN Capital Markets Forum published the ASEAN Sustainability Bond Standards, which are also aligned with core components of both the ASEAN Green Bond Standards and the ASEAN Social Bond Standardsix .
Similar work has been done to promote sustainable Sukuk in Malaysia. In 2014, the Sustainable and Responsible Investment (SRI) Sukuk Framework was introduced by the Securities Commission Malaysia to “facilitate the creation of an ecosystem that promotes sustainable and responsible investing”. x The SRI Sukuk Framework supports the investment in green, social, sustainable and Waqf properties/assets. Whilst many Green and Social Impact Sukuk have been issued under the SRI Sukuk Framework (including the aforementioned Sukuk Ihsan), the first Sustainability Sukuk was issued in October 2019 by Edra Solar Sdn. Bhd. The RM245 million raised was allocated to its 50MW solar power plant in Malaysia as well as setting aside land for agricultural use by local farmers. This was “a key milestone marking the first time green and social elements had been incorporated in a single Sukuk issuance.”xi
Since that initial Sustainability Sukuk, there has been an increase in this type of issuance. For example, in 2020 the IsDB issued the first ever AAA-rated Sustainability Sukuk as part of its response to the COVID-19 pandemic which also was the second issuance under the IsDB’s Sustainable Finance Framework. xii The proceeds of the USD1.5 billion issuance, which was structured under ICMA’s SBGs and Social Bond Principles, will focus on “access to essential services” and “SME financing and employment generation” under the umbrellas of Good Health and Well-being (SDG 3) and Decent Work and Economic Growth (SDG 8) to assist member countries in tackling the afermath of the COVID-19 pandemic.
Turkey saw its first Sustainability Sukuk in June 2020 with Zorlu Enerji’s TL 50 million issuance, through the collaboration between the UNDP’s IICPSDxiii Global Islamic Finance and Impact Investing Platform (GIFIIP) and the IsDB. xiv GIFIIP has been promoting Islamic finance backed innovative financing tools for SDG implementation since 2016 and project eligibility for this Sustainability Sukuk was based on Turkey’s development priorities and SDG needs linking green and social priorities, including renewable energy, sustainable energy supply, sustainable infrastructure and clean transportation.
In October 2020, the inaugural ASEAN Sustainability SRI Sukuk was issued by CAGAMAS Berhad, the National Mortgage Corporation of Malaysia. The issuance totalled RM450 million and comprised a 3-year RM100 SRI Sukuk and RM350 million Islamic Medium-Term Notes as part of their broader Sustainability framework focusing on affordable housing, employment generation via small to medium size enterprises and five green solutions (renewable energy, energy efficiency, green buildings, low-carbon transportation, sustainable water and wastewater management).xv
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Conclusion: Where to from here?
Global investors increasingly are focusing on how management considers, protects and enhances the interests of all stakeholders as well as financial performance. The rapid rise of Sustainability finance is part of the response to this evolving focus. The growing diversity of green projects, such as the smart meter rollout financed by Saudi Electricity Company’s (SEC) 2020 USD1.3billion green Sukukxvi, suggests this is gaining footing in the ICMs as well. The SEC Sukuk shows that the focus remains on government and quasi-government issuances for their transition to a green economy and as this work expands there will be considerable room to embed other factors such as:
Affordable housing Socio-economic advancement and empowerment Education and skills training Health care, including preventative care and maternal health Employee health and safety Green and Sustainable Supply chain Sustainable food supply
Alongside the integration of environmental and social factors, the focus on governance should come from effective measurement and reporting of:
impact or expected impact, including the key underlying methodology or assumptions used to determine the impact or expected impact; Key Performance Indicators (KPIs) and achievement against those KPIs; Mapping KPIs against the SDGs and their underlying targets.
Accountability will be key, requiring transparency not only of targets met, but targets missed. Projects must be analysed not only from an investment perspective but also from an efficiency perspective, to avoid needlessly repeating structures that do not produce optimal ESG results. Effective leadership from within the ICMs will be imperative to ensure effective standards are put in place, and compliance with those standards is monitored. Stakeholder collaboration (including multilaterals, sovereigns, global financial institutions) across the ICMs is needed to ensure that the industry mobilises the necessary capital as efficiently as possible to create the greatest impact for people and planet. Given the MoU in place between International Islamic financial Market (IIFM) and ICMA, this could be an appropriate reference point for ICMs’ engagement.
i https://www.refinitiv.com/perspectives/market-insights/sustainable-finance-market-continues-2020-growth/ ii https://www.refinitiv.com/perspectives/market-insights/sustainable-finance-market-continues-2020-growth/ iii Islamic Markets Limited IQ (www.iq.islamicmarkets.com) iv https://iffim.org/press-releases/iffim-issues-Sukuk-islamic-development-bank v https://www.khazanah.com.my/news_press_releases/khazanah-raises-rm100-million-from-second-tranche-of-sustainable-and-responsible-investment-sri-Sukuk/; vi https://www.reuters.com/article/asia-bonds-idUSL4N0XQ2A420150429 https://www.islamicfinancenews.com/one-wash-fund-to-issue-impact-Sukuk-in-2020-as-new-cholera-outbreaks-emerge.html; vii “Pioneering the Green Sukuk: Three Years on”, published by The World Bank Group, page 40 (as available at: https://openknowledge.worldbank.org/bitstream/handle/10986/34569/Pioneering-the-Green-Sukuk-Three-Years-On.pdf?sequence=1&isAllowed=y) viii https://www.icmagroup.org/sustainable-finance/the-principles-guidelines-and-handbooks/sustainability-bond-guidelines-sbg/ vihttps://www.sc.com.my/api/documentms/download.ashx?id=3c4f768f-a290-4722-b9d1-ef55942ffde#:~:text=ASEAN%20Sustainability%20Bonds%20are%20bonds,offer%20e nvironmental%20and%20social%20benefits. x “Sustainable and Responsible Investment Sukuk Framework – An Overview”, published by Securities Commission Malaysia, November 2019, page 4. (as available at: https://www.sc.com.my/api/documentms/download.ashx?id=84491531-2b7e-4362-baf-83bb33b07416) xi “Pioneering the Green Sukuk: Three Years on”, The World Bank Group, page 40 (as available at: https://openknowledge.worldbank.org/bitstream/handle/10986/34569/Pioneering-the-Green-Sukuk-Three-Years-On.pdf?sequence=1&isAllowed=y ) xii https://www.isdb.org/news/islamic-development-bank-issues-us-15-billion-debut-sustainability-Sukuk-in-response-to-covid-19 xiii United Nations Development Program Istanbul Centre for Private Sector in Development xiv http://www.gifiip.org/turkey-issues-its-first-sustainable-Sukuk/ xv https://themalaysianreserve.com/2020/10/26/cagamas-issues-malaysias-first-asean-sustainability-sri-Sukuk-for-affordable-housing/; https://www.cagamas.com.my/press-release/overwhelming-response-cagamas-issuance-malaysias-first-asean-sustainability-sri-Sukuk xvi https://www.lw.com/news/latham-advises-on-saudi-electricity-company-green-Sukuk
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4.3 Yields & The Yield Curve - Commentary: 2020 to March 2021 By: Mohammad AlNassar, Senior Dealer, Capital Market Desk, Treasury Department, Kuwait Finance House
2020 saw a decline in yields across the board. The 2-year Treasuries started the year at 1.57%. The 10-year Treasuries were at 1.87%. From that point onwards, yields declined throughout the year. In fact, yields never revisited those levels until this day. The 2-year Treasury yields went below 0.2% and stayed there, whereas the 10-year yields hit a low of 0.5% in August then began to rise gradually.
2.0000 Last Price USGG10YR Index 1.5661 USGG2YR Index 0.1369
1.5661 1.5000
1.0000
0.5000
0.1369 0.0000 Mar Jun Sep Dec Mar
(Source: Bloomberg) The above chart shows the yields of the 2 & 10-year Treasuries during that period. The biggest movement in yields occurred towards the end of February and beginning of March. The panic brought by the pandemic forced investors to flock to the safe haven assets, driving yields sharply lower. In that period, the spread in yields between the 2 & 10-year Treasuries declined and caused the yield curve to flatten, highlighting investors’ fears of an impending recession.
The 2-year Treasury yields remained at these low levels whereas the 10-year Treasury yields began to rise. That was due to investors’ preference for cash and short-term term debt as they factored in the upcoming measures (debt issuances and increased stimulus) taken by the government to sofen the blow of the pandemic and aid the financial recovery.
Inflation
As the economy showed signs of recovery due to governmental financial aid and pandemic optimism, inflation began to pick up. The below chart displays the 10-year Treasury yield vs. the breakeven 10-year Treasury yield (a measure of expected inflation). As shown, the current breakeven rate is at a high of 2.235% vs. a low of around 0.5% exactly one year ago. Therefore, the current inflation-indexed 10-year yield stands at -0.67%.
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Last Price USGGBE10 Index 2.2350 2.2350 USGG10YR Index 1.5661
2.0000
1.5661 1.5000
1.0000
0.5000
Mar Jun Sep Dec Mar 2020 2021 (Source: Bloomberg) Whether the rise in inflation is temporary or not depends on the state of economic recovery. If economic data continues to impress, yields will continue to surge higher. If not, then inflation will remain subdued as it has been in previous years and the low yield environment will continue to be the norm.
GCC in Focus
2020 has been a very volatile year for the Gulf countries. Demand for oil decreased sharply during the pandemic due to the shutdowns implemented in many countries. The price of oil reached its lowest in the months of March and April, causing a spike in the credit risks of GCC countries. The credit default swap of Kuwait, for example, rose from 75bps (January 2020) to 180bps in March 2020. Budget deficits increased and the yield of GCC governmental debt rose significantly.
As the demand for oil began to pick up in mid 2020, credit spreads improved. We continue to see enhancements in the credit risks of GCC countries as we head towards the end of the pandemic and the price of oil continues to rise.
(Source: Bloomberg)
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The credit risk of GCC countries is dependent on two factors: the price of oil and economic reforms. The price of oil is expected to continue its recovery (or stabilize) as we get closer to pre-pandemic life. The implementation of economic reforms, on the other hand, differs from one country to another. The Kingdom of Saudi Arabia, for example, has taken many initiatives to lower its dependence on oil and diversify its economy.
A Look Ahead
My expectation is that we will continue to see excess USD liquidity in the market, especially afer all the pandemic stimulus packages. Short term rates will remain low. As a result, I expect institutional investors to search for yield to book their assets, forcing yields and credit spreads lower. In general, demand for debt issuances (regional & global) will stay strong as has been the case in 2020.
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4.4 Sukuk Development with A View to Transformation By: London Stock Exchange Group (LSEG)
Sukuk Weather COVID Headwinds in 2020
Sukuk issuance maintained its footing during 2020 despite the volatility that ensued across capital markets with the global outbreak of the COVID-19 pandemic. During Q1, sovereign and corporate issuers from core markets, particularly Malaysia and GCC states, held off large debt issuances until global economic and financial market conditions were more predictable.
The crash in oil prices and the substantial government stimulus packages that followed lef governments in core markets facing hugely fiscal deficits. Malaysia estimated a 6% or USD21 billion deficit in 2020 – its largest since the Global Financial Crisis – while GCC deficits are estimated to exceed USD180 billion combined.
Consequently, Sukuk issuance momentum picked up significantly during the second and third quarters of 2020, as the economic repercussions of the pandemic prompted these governments issuance to alleviate the blow to their fiscal budgets. Collectively, the GCC sovereigns issued USD41.2 in Sukuk – 39% of overall sovereign debt issued in 2020, marking a new record for GCC sovereign Sukuk.
Sukuk issuance is expected to pick up further momentum during 2021, with an eye on some active and first-time issuers tapping the Sukuk market. The expected persistence of the COVID-19 pandemic during the year and the resulting pressure of government budgets are expected to drive substantial sovereign Sukuk issuance from core markets. New and less frequent sovereign issuers, as well as corporates, are also expected to tap the Sukuk market to raise funding to tackle the economic fallout from the pandemic. The use of niche Sukuk instruments, particularly green and sustainability Sukuk, will become more prevalent as a funding tool, in line with the global shif towards ESG investments.
Strengthening Bank Capital Driving Corporate Sukuk Growth
Despite several governments increasing their Sukuk issuance for 2020, the total amount of sovereign Sukuk issued fell slightly short of 2019 sovereign issuance. On the other hand, corporate Sukuk issuance rose by 10% in 2020, driven by financial institutions seeking to strengthen their Tier 1 and Tier 2 capital bases hit by losses from the COVID-19 pandemic. Financial institutions accounted for nearly 80% of total corporate issuance in 2020.
The highest growth in corporate Sukuk issuance, by jurisdiction, stemmed from a 127% increase in Saudi corporate issuances in 2020. Saudi Arabia’s domestic Sukuk market also witnessed announcements of SAR-denominated Sukuk programmes from Riyad Bank worth SAR10 billion, and from the Saudi British Bank (SABB) worth SAR 5 billion.
Saudi corporate issuances have been on the rise since 2018, afer regulators introduced several incentives for corporate Sukuk issuers and investors in 2019 to encourage further issuances and increase trading activity in the secondary market. Saudi Arabia introduced lower regulator fees for new and repeat issuers to stimulate the domestic corporate debt market, as well as smaller face values for Sukuk from SAR 1 million to SAR 1,000 to offer easier access for retail investors.
Elsewhere, Egypt made its debut in the Sukuk market with two corporate issuances from real estate developer Talaat Moustafa Group and Sarwa Capital totalling USD287 million. A third corporate Sukuk issue – from education services provider Cairo for Investment and Real Estate Development (CIRA) – received regulatory approval is expected this year, in addition to further issuances worth USD 635 million in 2021.
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LSE Supporting International Sukuk Investors and Issuers
As the Sukuk market is expected to continue its growth trajectory over the next decade, London Stock Exchange (LSE) is committed to support the development of this asset class.
The FTSE Russell IdealRatings Sukuk Index demonstrated the resilience of the Sukuk secondary market, ending 2020 8.6% higher at 169 points, despite a dip in March 2020 to 149 points as the COVID-19 outbreak caused turbulence in global financial markets.
170
160
150
140
130
120
110 FTSE IdealRatings Sukuk Index 100
90 Jun/2010 Jun/2012 Jun/2014 Jun/2016 Jun/2018 Jun/2020
Source | FTSE Russell
The FTSE IdealRatings Sukuk Index measures the performance of USD-denominated, investment grade Sukuk issued in global markets, with maturities exceeding 12 months. Screening of the Shari‘ah compliance of global Sukuk is based on the methodology of IdealRatings, which incorporates more than 150 Shari‘ah standards.
LSE is also a key venue for global Sukuk issuance, having created one of the most attractive regulatory and tax systems for Islamic finance anywhere in the world. By the end of 2020, USD65 billion has been raised through over 100 Sukuk issuances.
Sukuk listings on London Stock Exchange
10,000 9,448 9,114 9,005 9,000 8,000 7,000 6,000 4,863 4,575 4,739 5,000 4,450 4,468 4,634 4,000 USD million USD 2,603 3,000 2,691 1,776 2,000 1,166 749 912 1,000 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Main Market (MAIN) International Securities Market (ISM) Professional Securities Market (PSM) Source | London Stock Exchange
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Listing on LSE guarantees investor diversification for Sukuk issuers, cementing London’s position as a leading platform for landmark Sukuk transactions. This has attracted important players in the Sukuk market such as the Islamic Development Bank, Saudi government, and several prominent Islamic banks.
Sukuk issuers listing on LSE may choose between two routes to market – International Securities Market (ISM) or the Main Market – which have both seen landmark Sukuk deals. ISM is an innovative exchange-regulated market for primary debt, operating alongside LSE’s other markets. It boasts a deep liquidity pool, providing access to professional investors worldwide, supported by a range of LSE marketing and PR initiatives, fully integrating them into London’s financial community. Other benefits of Sukuk listing on ISM include reduced disclosure requirements and exemptions from financial disclosures for guarantors and SPVs.
ESG Sukuk Come to Fore with National Development Priorities
ESG Sukuk have gained traction since 2017, fulfilling investment mandates based on themes including environmentalism, sustainability and social responsibility. These Sukuk became more prominent in 2019 as governments and corporates step up efforts to achieve the United Nations’ Sustainable Development Goals (SDGs), a trend which is expected to accelerate in the years ahead. A total of USD4.6 billion in ESG Sukuk was issued by the end of 2020, according to Refinitiv data.
Renewable energy has become the focus of many national power strategies and the numerous mega projects now underway or planned are likely to lead to further green Sukuk issuances, particularly within the GCC. This will capitalize on interest from a broad range of institutional investors, particularly from non-OIC countries, as demand grows for green and sustainable investments.
Since the first green Sukuk issuance by Malaysia’s Tadau Energy in 2017, over USD8 billion has been raised from 159 green Sukuk by 14 issuers, most of which are funding environmentally friendly projects based in Malaysia.
Green Sukuk Historical Issuance Green Sukuk by Country (2017 – 2020) (Total Issuance, USD Million)
57 4,000 60 1,117 3,500 47 3,764 50
3,000
40 2,500 33 2,502 3,242 2,000 30 1,200 22 1,500 (USD Million) 20 Amount Issued 1,362 1,000 Number of Sukuk Issued 10 500 452 0 0 2017 2018 2019 2020 2,522
Sum of Amount Issued (USD Million) Number of Issues Indonesia Saudia Arabia United Arab Emirates Malaysia
Source | Refinitiv, an LSEG business
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The Indonesian government is the largest issuer of green Sukuk to date, issuing USD3.2 billion in green Sukuk by the end of 2020, in line with a strategy under the government’s economic masterplan to seek innovative sources of financing for domestic infrastructure projects.
Saudi issuers have been among the latest to tap the market for green Sukuk. Government-owned Saudi Electricity Company debuted its international green Sukuk in 2020, raising USD1.3 billion for the installation of smart meters across the Kingdom and the development of renewable energy projects. In 2019, Saudi-based Islamic Development Bank (IsDB) launched its first green Sukuk worth EUR1 billion (USD1.17 billion) to finance climate change-related and green projects among its member countries.
Meanwhile, ‘Sustainability Sukuk’ have also come into play in the wake of the COVID-19 breakout. IsDB issued its first during H1 2020 – the first of its kind by a multilateral organization. – raising USD1.5 billion to support various social projects addressing the impact of the pandemic on the communities of some its member countries. This was the first ever AAA-rated sustainability Sukuk to be issued in global capital markets.
A new type of sustainability Sukuk – transition Sukuk – was also issued in 2020 by Etihad Airways, generating USD500 million in proceeds to fund the airline’s transition to environmentally sustainable operations.
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4.5 Sustained Growth Lies Ahead for Sustainable Sukuk Sector By: Nasdaq Dubai
The growth of sustainable finance is one of the most exciting trends in the capital markets and its acceleration is unstoppable. Issuers and investors alike are rushing to get on board. Issuance of sustainable debt exceeded USD530 billion in 2020 according to S&P Global Ratings figures, up 63% from 2019, and in 2021 it is expected to surge again to beyond USD700 billion.
By far the greatest part of this is conventional bonds, just as these still dwarf the Sukuk market as a whole. But the issuance of sustainable (otherwise known as Environmental, Social and Governance, or ESG) Sukuk is on the rise and the opportunities for further growth are enormous.
Whereas the first green conventional bond, labeled as Climate Awareness Bond was issued in 2007 by the European Investment Bank the inaugural green Sukuk was issued in 2017 by Malaysia’s Tadau Energy, raising USD58 million for solar projects. Since then ESG Sukuk issuance has proliferated to an impressive degree, coming from public and private sector issuers and from countries across the Islamic world, for a wide variety of beneficial purposes.
The Indonesian government issued the world’s first sovereign green Sukuk of USD1.25 billion in March 2018. It followed this up with two more green Sukuk issuances in 2019 and then in June 2020 of USD750 million each, all earmarked for a range of sustainable development projects including renewable energy, energy efficiency, waste to energy and waste management, sustainable transport and climate resilience. Indonesia’s green Sukuk programme has been supported with advice from the United Nations Development Programme (UNDP).
Another pioneer has been Dubai-based Majid Al Futtaim, which issued the world’s first benchmark corporate green Sukuk of USD600 million in 2019, followed by another Sukuk of the same amount later the same year. The proceeds were raised to support Majid Al Futtaim’s commitment to help create a low carbon economy, such as financing the group’s existing and future green projects, including green buildings, renewable energy, sustainable water management, and energy efficiency.
Diversification in 2020
New types of ESG Sukuk issuance emerged in 2020. The Islamic Development Bank (IsDB) issued a USD1.5 billion instrument in June to support COVID-19 relief initiatives such as medical, social and business projects in many of the bank’s 57 member countries, with the aim of protecting people’s health and improving lives. This focus on the ‘S’ part of ESG (as opposed to the ‘E’ part that is satisfied by green Sukuk) demonstrates that the sustainable Sukuk market is diversifying successfully just as the sustainable conventional bond market has done.
Dr. Bandar Hajjar, President of IsDB: “Our debut Sustainability Sukuk issuance will play a vital role in social projects that improve healthcare facilities, equipment and critical stafng in member countries to mitigate the efects of COVID-19. The competitive proft rate of 0.908% that we achieved refects strong market confdence in our issuance, ”
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In September 2020, the Saudi Electricity Company raised USD1.3 billion through a dual-tranche Sukuk intended to finance a range of green projects including installing smart meters. These can lead to lower energy consumption, saving money and supporting Saudi Arabia’s drive to reduce carbon dioxide generating activities. In October 2020, state-owned Etihad Airways, based in Abu Dhabi, became the first airline in the world to issue a transition Sukuk. Transition issuances are those that help companies move away from unfavourable practices, such as polluting activities, towards environmentally desirable outcomes. Etihad has linked its Sukuk to its carbon reduction targets including net zero carbon emissions by 2050 and a 50% reduction in net carbon emissions by 2035.
This progress in ESG Sukuk issuance is hugely encouraging. The pace of expansion will certainly increase in 2021 and beyond. The natural alignment of the ESG ethos with Shari‘ah principles is one reason for this. The synergies are clear and overlap with the harmony that is ofen commented on between Shari‘ah and other ethical investing frameworks. Protecting nature and the planet as well as promoting social wellbeing and good governance are all integral to the goals of Islamic finance.
Another factor driving ESG Sukuk issuance is burgeoning investor demand. Research by CoreData has shown that of 500 global institutional investors, 51% now fully incorporate ESG into their investment strategy, up from 36% at the end of 2019. Issuers who ignore ESG therefore run the risk that their new securities will be shunned and existing ones dropped from portfolios. Global sustainable investment assets increased more than fourfold from 2010 to 2018 up to USD32 trillion, according to the Global Sustainable Investment Alliance.
Regulatory pressures are also building globally to promote ESG. The 2020 European Union Taxonomy Regulation defines sustainability criteria, so that investors can better identify how far companies adhere to them. The UK mandates ESG disclosures for companies listed on the London Stock Exchange, and China’s Guidelines for Establishing the Green Financial System requires all listed companies to disclose environmental information, effective from 2020. In the UAE, a major player in the Islamic financial markets, the Dubai Financial Services Authority, the regulator of Nasdaq Dubai, has issued the Green Bond Best Practice Guidelines, and Dubai Financial Market has published an ESG reporting Guide. This international spate of initiatives is piecemeal and somewhat fragmented, but the underlying purpose is the same, there is no doubt which way the wind is blowing.
Roadmap to ESG Issuance
As with conventional bonds, companies that plan to issue ESG Sukuk need to develop a clear and practical sustainability strategy, aligned to their corporate realities. This can include action points on a range of environmental issues depending on the industry in which they operate, as well as social issues such as employees’ rights and diversity. Companies should then decide how they will create a relationship between their ESG goals and the security that they will issue.
A common way to do this is to focus on use of proceeds, ofen in line with an international benchmark widely recognised by investors such as the Green Bond Principles and Social Bond Principles of the International Capital Market Association (ICMA). For example, the IsDB has established a Sustainable Finance Framework in line with the ICMA principles, under which it issued a green Sukuk in 2019 as well as its COVID-19 linked Sukuk in 2020. Turkey’s first green Sukuk, issued in June 2020 by Zorlu Energy, also referenced the ICMA principles and was supported by the Global Islamic Finance and Impact Investing Platform (GIFIIP), set up by the IsDB and the UNDP.
As an alternative to a use of proceeds focus, companies can issue sustainability-linked Sukuk. These come with a promise that the company will meet sustainability performance targets for its activities as a whole, not just relating to those funded by the Sukuk. Etihad’s Sukuk issued in 2020 is sustainability-linked through the company’s pledges to cut carbon emissions.
Alain Bejjani, Chief Executive of Majid Al Futtaim - Holding: “The widespread interest from global investors in the bond indicates their confdence in our ESG rating, BBB credit rating, and prudent fnancial and risk management approach. Investors’ faith in our vision empowers us to continue on our path to become one of the most environmentally sustainable companies with in our industries,”
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Whatever type of ESG linkage an issuer chooses, investors will require the comfort of a second opinion from an independent party to show that the issuer is living up to its sustainability obligations and continues to do so. Prominent providers of second party opinions include Sustainalytics, used by Majid Al Futtaim, and CICERO, which rates the Indonesian government’s ESG framework. Other second opinion providers in the debt market include Vigeo Eiris and the ‘big four’ audit firms. Such providers assess issuers’ ESG objectives and monitor how far they comply with them. Regular ESG reporting by issuers is required. Compliance confirmation by a second opinion provider can effectively counter any suspicions by investors of ‘greenwashing’, whereby companies are sometimes accused of exaggerating their ESG adherence.
As with any Sukuk, issuers of sustainable Sukuk can benefit from listing them on a well regulated exchange. This can attract investment from funds that are looking for ESG assets but are also mandated to invest in listed assets. The high visibility that goes with a listing can also help to publicise an issuer’s ESG credentials. In the Middle East, Nasdaq Dubai plays a leading role in hosting green and other ESG Sukuk listings, totalling 6.55 billion US dollars from seven Sukuk. Issuers include international as well as regional entities, and sovereign bodies as well as private sector companies.
As ESG Sukuk issuance expands, the type and number of issuers will also grow. There are notable opportunities in many Muslim countries for further transition Sukuk, in sectors such as energy, transport and utilities where investors are looking for progress in reducing pollution and enhancing resource management. Like anywhere else in the world, issuers should also be aware that ESG investors might also look at the ‘S’ aspect of a company’s activities, such as the rights of employees, as well as the ‘G’ for governance, even though the issuer’s focus may be more on ‘E’ green activities. Whatever the challenges ahead, ESG issuance has already made its mark and is set to rapidly increase its share of the Sukuk sector.
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4.6 Opportunities for New Sukuk Issuers: Systemic Trends and A Drive for Democratisation By: Dr Scott Levy, Chief Executive Officer, Bedford Row Capital PLC
2020 has been called the year of Sukuk. As the “fastest growing asset class”, Sukuk issuance in the first nine months of 2020 was more than all of 2019. The current problem in the market is that the market lacks a depth of issuers. There are systemic challenges which exist in expanding the pool of potential issuers but the recent past has seen a number of trends which should allow 2021 to exceed 2020s exceptional year. What changing market trends will allow for new Sukuk issuers to emerge? Will new government-issued Sukuk drive innovation in the respective local markets. And will technology change the landscape for new issuers? Democratisation means both new issuers and new investors; will conventional investors increase their exposure to Sukuk? 2020 has shown the way on a number of these systemic issues and this summary should provide some high level insight into how these trends can positively impact new Sukuk issuance.
Every month sees more government initiatives to establish Sukuk as a funding mechanism. It is not just the developed markets like the UK’s announced Wakalah “alternative liquidity facility” but also emerging economies turning to the Islamic capital markets as a source of liquidity. The capital markets exist specifically for this reason to provide global liquidity; the challenge is for these new entrants in the market to establish a regular issuance of products. Introducing new domestic legislation to allow for Sukuk issuance has to go hand in hand with the government’s own fundraising initiatives. This is not just for the domestic capital markets and here is the biggest opportunity. Taking Bangladesh as an example. The government’s first ever Sukuk in early 2021 is at odds with the central bank rules which prevent foreign capital investment via debt.This makes no sense; Sukuk is not debt and yet the central bank rules lag the capital markets developments creating discordance. Harmonising the rules to allow for the fast growing corporate market (or even domestic financial institutions) to tap the international Sukuk marketplace would be expected and are yet outstanding. Perhaps the best example of this disconnect is the UK. The first two UK Sukuk were oversubscribed; and yet there are still very few UK domestic Shari‘ah compliant products available. The UK’s second Sukuk looks more like a pure market-driven offering to raise low cost, sterling financing in a low yield environment rather than something to advance the UK’s place in the Islamic capital markets.
Government initiatives will bring some positive awareness to the global investor marketplace but it will take additional effort to make an impact at the corporate and institutional level.
Government policy support for issuing Sukuk is of course important. The real effort around what could be called “democratisation” comes from the enormous opportunities which are represented in providing capital to the real economy. Some commentators look to 2021 as a decline or levelling off of Sukuk issuance. The global demand for capital is not abating and with bank’s investment criteria continuing to tighten because of “regulatory pressures”, which is a kind way of looking at it, anything other than a positive outlook does not make sense. With so many new entrants to the market already in 2021, quantifying the potential size of the growth of the market in 2021 is impossible. New mid-sized corporate issuers from Bangladesh, Holland, the UK are just the start of a potential wave of new entrants to the market from just these countries. North America remains virtually untapped as does Europe. If the number of fintech businesses springing up in these markets is an indication of possible new Sukuk issuance, the market could explode in the next 12-24 months.
Technology has an important role to play. Not necessarily fintech but simply the rationalisation of the process around Sukuk issuance. There are a number of initiatives in the market which are designed to allow for the democratisation process to be successful. If the outcome of these development is not to lower the costs of accessing the capital markets then what is the point. Cost of issuance (in terms of time and money) have come down dramatically in the last few years in markets where the expertise around the issuance process is developed. In new markets, it is imperative that the various development banks, Shari‘ah advisers and other specialists focus on bringing product to market. This could include grass roots, microfinance to mid-sized corporates and financial institutions.
1https://www.refinitiv.com/perspectives/future-of-investing-trading/2020-a-strong-year-for-Sukuk/
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Fintech and blockchain continue to be hot topics but what is the role for businesses with this focus in increasing the global Sukuk issuance market? To be honest, it is too early to tell. The businesses which have emerged in markets as diverse as Canada, the UK and across the GCC and Malaysia are all early days. The main problem is where are the issuers? Platforms which are proposing to offer wider investment choice have to have a choice of investments. The barriers to entry remain and if the potential issuers are going to consider either a tech platform or traditional capital markets the choice is easy. The biggest impact (for both job creation and market access) will be amongst mid-market corporates and financial institutions and established businesses looking for new liquidity. Fintech companies will not be able to assist in issuing perpetual Sukuk to improve the balance sheet of mid-tier financial institutions. Blockchain will not help an established Bangladeshi corporate raise capital in the international marketplace. That being said, both technologies might be useful in accessing the retail pension market for Islamic investors in the UK, eventually. The bulk of capital flows and the efficiency of the existing capital markets is more than sufficient to handle an explosion in demand of Sukuk issuance. The efficiency of current clearing and settlement arrangements (Euroclear and Clearstream to start) is not under threat (yet). To this end, it will be interesting to see where new platforms can attract capital from (most likely from high end retail clients) but these take time to develop, have the hurdles of regulatory sandbox regimes to survive and the cost of acquisition of new clients is as yet unknown. At the end of the day, tapping in to a global investor community has to be compliant with both old school settlement systems as well as traditional investment due diligence, Fatwa and analysis of the underlying business. Technology will not change this. What will undoubtedly have an impact on improving Sukuk liquidity is expanding beyond the traditional financial institutions and limited mutual funds into a wider investment universe.
Sukuk issuers can, and have, benefit from a focus on the pure ethics of the transactions. There are examples in the market where conventional investors have invested in Sukuk issuers which have moved towards using terminology which is aligned with United Nations Sustainable Development Goals (SDG) and/or ESG terminology. “Delabellisation” as it could be referred to has been necessary for large segments of the conventional debt issuance spectrum post GFC. Public, not retail but even amongst professional investors, perception of SPVs or securitisation has shifed. Conventional issuers have found alternative terms for traditional investment banking structures with remarkable ease. Sukuk issuers should ensure that they align their proposition to the trendier terms associated with SDGs; the ethical nature of the transaction is unarguable however conventional investors are not aware of the natural overlap between Shari‘ah law and SDGs in many aspects. As the weight of conventional money continues to search out investment opportunities, Sukuk issuers have already seen some early indications of the success of delabellisation. To take this further, there is no reason why Sukuk issuers need to dedicate as much of their marketing material to the intricacies of the nature of the transaction (even as simple as a commodity Murabaha may confuse a conventional investor in to thinking they are investing in commodities directly).
The business and cashflows should stand on their own; coupled with an SDG angle, Sukuk issuers can penetrate the broader and deeper investment universe.
Will Sukuk remain the fastest growing asset class? Despite some predictions of stagnation, the market for global Sukuk is poised to grow dramatically. More governments are trying to set the pace for domestic markets by issuing Sukuk for the first time. The costs of issuance should continue to fall as technology and market opportunity create more efficiencies for new issuers. New markets and new investors should combine to increase the efficiency in the market and subsequent reduction in cost. The cost of capital will not fall because new issuers will have hard time to benchmark their offerings; there has only been one Bangladeshi corporate to issue a Sukuk (Deshbandhu group) but more should follow. And this is just the start as new providers and new technology (which could include some of the current new blockchain marketplaces) opens new markets. Trends in the conventional debt capital markets can also bring positive lessons to new issuers. As at the end of February 2021, institutional investors continue to accumulate “dry powder” looking for the right mix of risk and return. Short-dated instruments are in short supply; issuers like IILM, Al Waseelah and the Central Bank of Bahrain should see increased competition for short-dated certificates. Assets like supply chain finance continue to consume capital but there is a shortage of issuers. Development banks which offer technical assistance should include more outcome-based support (not just drafing new laws but actually providing some support for local and international issuance). The COVID crisis has increased globallisation and flattened the market; more capital connecting with more businesses on a broader basis than ever before; who would have imagined doing a global roadshow for a USD250m issuance, video calling makes this possible. Democratisation of Sukuk issuance can bring systemic changes to many local markets as investors look at sustainability, ethical investing and most importantly impact investing. The opportunities for Sukuk issuance in 2021 are as bright as they ever have been.
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4.7 Sukuk Lead the Sustainable and Green Revolution By: Sohail Jaffer, MD Genesis Consulting Sarl-s Luxembourg
ESG and Sustainable Finance
Environmental, Social and Governance (ESG) investing has gone from an acronym in 2005 to an exponential development in the investment business globally but especially in Europe. Virtually all stakeholders in the capital markets and investment management business including the institutional buy side, especially pension funds, are prioritising sustainability issues. The Institutional Investors Group on Climate Change, representing some USD 16 trillion, announced a series of measures to design a net zero framework for portfolios.
Major milestones such as the UN Paris Agreement in 2016, the release of the European Commission’s Action Plan on Financing Sustainable Growth in 2018 and the Sustainable Financial Disclosure Regulation (SFDR) are important catalysts of change in the investment landscape. In their report on “The growth opportunity of the century”, PWC forecast European ESG assets to reach between EUR 5.5 trillion and EUR 7.6 trillion by 2025, up from EUR 1.7 trillion in 2019. The rise of impact investing in fixed income is reflected in the growth of the green bond market, which is making a positive contribution to environmental welfare. The market was enhanced with new impact investing products in the form of social and sustainability bonds to support social wellbeing as well. The European sustainable bond market has tripled in size from 2010 to 2019 to reach EUR 327.9 billion and represents some 70.7% of the global ESG bond assets.
Luxembourg Green Exchange
In order to help facilitate the development of sustainable finance, the Luxembourg Green Exchange (LGX), a dedicated platform for green, social and sustainable securities was launched in 2016. Over the past decade, IFC has issued in excess of USD 10.4 billion of green bonds, many of which are listed at LuxSE and displayed on the United Nations-awarded Luxembourg Green Exchange, the world’s leading platform for sustainable securities. A total of 24 green and social bonds issued by IFC, with a combined value of close to USD 6 billion, are listed on LuxSE and displayed on LGX. Out of this amount, USD 1.4 billion worth of green and social bonds were issued in 2020.
In January 2021, the Luxembourg Stock Exchange (LuxSE) announced the acquisition of a 22.8% stake in the Luxembourg-based technology company Tetrao International. Tetrao powers its technology with artificial intelligence to provide data services including document, websites and information handling. Tetrao is currently working with LuxSE to further develop its strategic LGX DataHub. In just 3 months, Tetrao has collected 350,000 sustainability data points from 385,000 document pages.
Green, Social and Sustainability Bonds
A green bond is basically a regular bond with one key difference; the proceeds raised by the issuance may only be used for environmentally friendly projects, investments and expenditure. A green Sukuk complies with the green principles similar to a green bond. As the green principles are independent of the underlying financing structure, a green Sukuk is issued in a similar manner as a non-green Sukuk would be issued, with the addition of the Green Framework that dictates the usage of the issuance proceeds, a second opinion report or green certification by an independent reviewer, and a post-issuance impact report that covers how the funds raised have been used and the environmental impact that has been achieved. Other than meeting sustainable requirements and ensuring funds are channelled to environmentally sustainable projects, the main advantage of a green Sukuk is that it appeals to a broader set of investors than a non-green Sukuk or a green bond. Moody’s expects global issuance to rise to USD 400 billion (green bonds USD 300 billion, social USD 25 billion and sustainability USD 75 billion). New issuance of green bonds is the highest for agencies and corporates and Europe leads the green bond issuance (52%). Green bond aggregate issuances topped USD 1 trillion as of October 2020.
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Emerging markets green bond issuances in 2019 were some USD 52 billion. In September/October 2020, Egypt issued sovereign governmental green bonds, worth USD 750 million, domestically and on the London Stock Exchange, the first of their kind in the Middle East and North Africa.
In 2019 the Islamic Development Bank (IsDB) and the European Investment Bank agreed to commit USD 1 billion each in a five year joint program of green Sukuk to be invested in Africa and the Middle East. Later in June 2020, the IsDB issued a USD 1.5 billion sustainable Sukuk to finance economic recovery and tackle social issues particularly in terms of health care and SME’s in member countries. Earlier in November 2019, IsDB issued a EUR 1 billion maiden green Sukuk to finance renewable energy, green transportation and pollution control in its member countries. The IsDB also concluded an agreement with Japan’s Government Pension Investment Fund to support the further development of sustainable and green Sukuk markets consistent with its aim of achieving the UN’s SDG’s.
Malaysia and Indonesia
In Malaysia, the Securities Commission (SC) issued the SRI Sukuk framework in 2014. At the end of 2019, the SC revised its SRI framework expanding the list of qualifying SRI projects. During this period a total of 11 green and sustainable Sukuk (totalling USD 1.24 billion) have been issued to finance a range of projects including solar, green buildings, hydropower and education. One of the issues was Edra Solar’s Sustainability SRI Sukuk of USD 59 million. Another issuer was Sime Darby Property that raised USD 195.7 million from a triple tranche Sukuk that included a debut issue of sustainability notes. In addition, the Malaysian government has announced the issuance of its first sovereign sustainability Sukuk for environmental and social initiatives.
Moody’s expect that the green Sukuk issuances in Malaysia and Indonesia are likely to stimulate greater issuance as efforts to combat climate change gain traction. Indonesia to date has the largest amount of green Sukuk issuances by value, while Malaysia has the largest number of green Sukuk issuances. Project based green Sukuk issuances in Malaysia have mainly focused on renewable energy and real estate. Both Indonesia and Malaysia are leading the way on green Sukuk development and innovation.
Noteworthy Green/Transition Issues
Saudi Electricity Company issued its USD 1.3 billion international green Sukuk in September 2020. The Sukuk was raised for procurement and installation of smart meters across the Kingdom.
UAE’s Majid Al Futtaim launched its first USD 600 million green Sukuk 10 year facility in May 2019, the first time a corporate completed such a benchmark transaction. The second USD 600 million green Sukuk was launched in October 2019
UAE’s Etihad Airways launched the world’s first transition USD 600 million 5 year Sukuk and the first sustainability-linked aviation in October 2020. Etihad has announced a USD 3 billion program
Turkey’s Zorlu Energy is the first USD 60 million green issuer in June 2020 in the local market
The Republic of Seychelles has launched the world’s first sovereign blue bond—a pioneering financial instrument designed to support sustainable marine and fisheries projects. The bond raised USD 15 million from international investors. The World Bank assisted in developing the blue bond
Cagamas Bhd, the National Mortgage Corporation of Malaysia, has announced the combined issuance of its inaugural ASEAN Sustainability SRI Sukuk (SRI Sukuk) and Islamic Medium Term Notes (IMTNs) totalling RM450 million, issued under its existing RM60 billion Islamic Medium Term Notes Programme.
The Malaysian government has announced the issuance of the country’s first digital Sukuk, Sukuk Prihatin, as part of the PENJANA economic recovery plan. Proceeds from the Sukuk Prihatin will be directed to the Kumpulan Wang COVID-19 for the implementation of economic recovery measures. The Sukuk has a total target issuance of RM500 million with a maturity period of two years
The Indonesian government offered two green retail Sukuk instruments (approximately USD 200 and USD 333 million respectively) in 2020
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Sustainable Infrastructure
The investment opportunities in sustainable infrastructure are significant. Both issuers and investors note the potential in renewable power and lower carbon fuels, hydrogen power and electricity storage. Water and waste water management systems are also on the agenda. Developing markets will need some USD 3.3 trillion to USD 4 trillion annually for infrastructure. According to IFN, green Sukuk issuance from June 2017 to mid-September 2020 globally stood at USD 8.53 billion. There have been a total of 159 green Sukuk from 14 issuers in 4 countries. A total of USD 4.6 billion in ESG Sukuk was issued by the end of 2020.
Potential sectors and types of projects that could be financed by green Sukuk include renewable energy, waste management, greater efficiency in transportation, energy efficient buildings, reforestation, agriculture, forests and ecological resources, pollution control and biodiversity conservation.
Conclusion
Some of the challenges encountered by green Sukuk include learning curve for first time issuers, marginally higher issuance cost and relatively low secondary market trading. The establishment of a SME Sukuk platform would also increase small sized issues. First time issuers are likely to find the World Bank Guide book on “Developing a National Green Taxonomy” useful. Many potential issuers may not be aware that refinancing of proceeds already utilized for green projects is allowed under the Green Bond Principles. Hence the issuer could initiate their green project and issue the green Sukuk aferwards.
The green Sukuk stands at an important crossroad in both sustainable and Islamic finance by combining the environmental principles of the green bond and the Shari‘ah compliant financial structure of the Sukuk. The support of capital market regulators as well as public sector involvement combined with financial incentives is essential in broadening the adoption of green Sukuk. The ASEAN Capital Markets Forum, representing all 10 ASEAN capital market regulators, have launched the ASEAN Green Bond, Social Bond and Sustainability Bond Standards to set a common base for ASEAN issuers with 126 tranches issued by July 30, 2020. In conclusion the future is bright and evergreen.
Reference sources include: World Bank, Refinitiv, MIFC, IFN, PWC, LuxSE, S&PGlobal Ratings, Moody’s Investors Services and FitchRatings
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4.8 Green Technology Sukuk: Shifing Gears to Finance Green Energy Supply Chain the Context and Momentum By: Dr. Hatim El Tahir, PhD (London), FCISI, Director – Audit & Assurance, Deloitte & Touche – Middle East
Political and business leaders around the world have long started to fight climate change and designed policies and regulations to promote greener economies. Corporates and executive managers have pledged significant investments to develop sustainable strategies and set clear goals to achieve these strategies over the next decades.
The December 2015 Paris Agreement on Climate Change (Paris Agreement) recognized the necessity for private finance to mobilize instruments such as green bonds to meet the extraordinary financial needs of the global commitment to reducing carbon emissions.
The Organization of Islamic Cooperation (OIC) and the Islamic Development Bank (IsDB) have long been supporting the Paris Agreement negotiations, as well as the UN Framework Convention on Climate Change to “invest in the creation of a green economy”, as well as supporting the UN Sustainable Development Goals (SDGs). Likewise, several Institutions offering Islamic Financial services (IIFSs) and corporations have embraced the concept of green finance and designed internal policies and strategies for sustainability to create value for both stockholders and stakeholders to build a sustainable Islamic green finance.
This process has been slow and there has been difficulty in developing common goals.
This article attempts to address some of the key considerations for tapping green finance from an Islamic financial perspective. It is hoped that the discussions will stimulate more practical research into this space and inspire industry professionals and practitioners as well as Shari‘ah scholars to explore the benefit and value proposition of offering a new asset class and harness the Islamic financial service offerings, as well as build an efficient Islamic green finance market in our marketplace.
Green Sukuk for Green Technology:
The green technology projects in the OIC marketplace are significant and make a sound market for Islamic finance to tap into. The strategy of developing green supply chain financing will help create the industry ecosystem by improving investment capabilities on business and operational processes, standards, digitalization, efficiencies and viability of the new green technologies.
The success story of green Sukuk issuances which is estimated at USD 6.1 in 20201 stands out as an inspiration factor for developing ‘green technology Sukuk’ to bridge financing gaps for Small and Medium Enterprises (SMEs) operating and supporting business in the green energy industry in the OIC marketplace and beyond.
Green Sukuk Issuance (2017 – July 2020)
FIGURE 9: Green Sukuk Issuance (2017 - July 2020)
4,000 3,500 3,000 2,500 2,000 1,500 (in USD millions) 1,000 500 - 2017 2018 2019 up to Jul 2020
Source: World Bank (2020) “Pioneering the Green Sukuk: Three Years On” (October), World Bank, Washington, DC.
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Building the ecosystem and infrastructure of green energy markets is vital to boost financing of product innovation and harness a vibrant green technology supply chain in the OIC markets. Clearly, there are a number of considerations and challenges that need to be addressed and prioritized.
What Drives the Green Technology Markets?
There are a number of factors and market demand changes in economies which have all supported the growth of clean energy in many countries around the world. Some of these considerations include:
The need for developing ‘green finance’ and particularly for our markets and industries, Islamic green finance, fits naturally with development of ‘sustainable energy’ or green energy. The value proposition of combining social value with commercial and investment goal is now a goal for investors and governments alike.
The green technology enterprises are growing their market shares considerably and constantly require capital for research and development, to harness their investment capital capabilities to achieve sustainable growth and efficiency.
The green industry supply chain players have increasing operational expenses and require long term financing partners to support their long-term expansions, innovations and growth plans.
Classic finance and bank loans nowadays are strict and scarce and international regulators such as Basel III -IV have more restrictive regulations which impacted on financing SMEs’ business.
Anchor Green Sukuk Issuances:
In 2019, CIMB of Malaysia launched Renewable Energy Financing for SMEs in Malaysia, with one of its first initiatives being the provision of 100% financing to cover the cost of solar photovoltaic system installation. To further this, CIMB Islamic is introducing Green Biz Ready, a program to support sustainable business in Malaysia and its interlinks with the global Islamic economy. The innovative program aims to provide knowledge, technical assistance, and financing for SMEs that want support in tapping green initiatives.
In 2020, HSBC Amanah arranged the first SRI Green Sukuk in local currency amounting to 260 million Malaysian Ringgit (USD62.09 million). The multi-tranche, one to 18-year Sukuk Wakalah, will finance two solar photovoltaic power projects in Malaysia. Other green Sukuk issuances are listed in Appendix A.
Nonetheless, the development of a ‘green technology Sukuk’ market need to be streamlined with the emerging ‘green Sukuk market’, and provide financing solutions to the small and medium enterprises (SMEs) and projects in the green energy space.
Industry standards setters such as the IIFM can drive industry discussions, practice guidance and engage regulators and relevant stakeholders to address opportunities and potential.
The creation of such specialized green Sukuk will help improve Sukuk market offerings and investors base regionally and globally and will undoubtedly attract more investors and issuers.
Clearly, the nature of the green industry and the assets used in its supply chain will make a strong business case for Sukuk for different asset-based/backed structures for different project life-time/tenures, from Murabaha, Mudarabah or Ijarah Sukuk.
Concluding Thoughts
Market demand is increasing for green technologies and the energy industry with its subsectors – power, water, solar, waste management etc., have all created numerous opportunities for private sectors and SMEs to be engaged in the supply chain business. For instance, the use of Power Purchasing Agreements (PPAs) and Independent Power Plans (IPPs) have increasingly spread in developing countries and in many OIC economies.
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In the longer term, and once the Islamic green finance market matures, there will be more potential to develop specialized ‘Credit Carbon Markets’ in the OIC marketplace and subsequently, the natural development of Credit Carbon Sukuk which could be streamlined with international financial markets. This will allow for a better way to plan for solutions, the Islamic finance industry stakeholders together with energy’s stakeholders could start a collaborative industry dialogue to better understand how the IIFSs and energy operators can leverage the pool of Islamic finance investors and issues and create such desired Green Sukuk that will help diversify the offering of Islamic financial services and improve the industry portfolio performance generally.
Industry Stakeholders and Collaborators:
International Renewable Energy Agency (IRENA). The Islamic Development Bank (IsDB). The Islamic Corporation for Private Sector Development (ICD). The International Finance Corporation (IFC). African Development Bank (AfDB). Asian Development Bank. Other specialized Multilateral Development institutions and international agencies and donators.
Appendix A:
Anchor Green Sukuk Issuances:
Kingdom of Saudi Arabia:
Date Issuer Country Sector Amount Structure
March The Islamic Saudi Arabia Finance and refinance green USD 2.5 n/a 2021 Development Bank (IsDB) and social development projects billion September Saudi Electricity Saudi Arabia Energy efficiency and USD 1.3 n/a 2020 Company (SEC) renewable energy Billion 2020 Etihad Airways UAE Climate reduction projects USD 600 n/a to reduce carbon emissions million November The Islamic Saudi Arabia Renewable energy, clean EUR 1 Sukuk Al 2019 Development transportation, energy billion Wakalah Bank (IsDB) efficiency, pollution prevention and control, environmentally sustainable management of natural living resources and land use and sustainable water and wastewater management. May 2019 Majid Al Futtaim UAE Finance and refinance green USD 600 Wakala building and energy efficiency million / Murabaha investments 2018 The Government Indonesia Renewable energy, energy USD 1,250 Wakalah Trust of Indonesia, efficiency, sustainable million Certificates represented by transportation, waste to (Sukuk) the Ministry of energy and waste Finance management climate resilience for vulnerable areas.
October Quantum Solar Malaysia Finance the construction USD 236.5 Murabahah (via 2017 Park (Semenanjung) of the largest solar power million a Tawarruq Sdn Bhd project in Southeast Asia. arrangement)
1 Islamic Development Banks, Development Effectiveness Report.
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4.9 The Impact of the Pandemic on Global Liquidity By: Hichem Bouqniss (Executive Director of Business Operations) and the Business Operations Unit, International Islamic Liquidity Management Corporation (IILM)
In 2020, we witnessed an unprecedented pandemic that poses an overarching threat to both the physical health of the world and the wellbeing of the global economy. Public health responses to COVID-19 in the form of longer lockdowns may exacerbate an already tight global financial market. Although trading volumes in fixed income securities generally prevailed as we transitioned from Q1 to Q2 of 2020, we soon observed a sharp rise in the cost of liquidity due to the economic uncertainties. Financial markets, even traditionally stable ones, have become sharply volatile, while global liquidity proceeded to significantly deteriorate, leading to a worldwide liquidity crisis before regulators and monetary authorities’ intervention.
2.10
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Jan 20 Jan 20 Mar 20 Mar 20 Apr 20 May 20 Jun 20 Jul 20 Aug 20 Sep 20 Oct 20 Nov 20 Dec 20
Figure 1: 3-Month London Interbank Offered Rate (LIBOR), USD 2020 Source: ICE Benchmark Administration Limited (IBA)
The case is far worse for emerging markets since they are most vulnerable to financial distress caused by pricing and credit stretches. As short-term benchmark rates have reached all time lows, the shock caused by the global pandemic has then amplified, intensifying the falling of prices due to large outflows of capital. Essentially, financial institutions may slide into distress as default rates skyrocket and the credit markets cease to operate in high-risk segments.
Central banks immediately attempted to intervene by employing mitigation measures targeted at cushioning the impending liquidity stress. As the first line of defence for global economic stability, they remain committed to expanding their provisions for liquidity. Alternatively, central banks have also encouraged financial institutions to defer their receivables for key-industry SMEs and vulnerable households. However, forbearance of financing will bring about complications to the bank’s balance sheets. In addition to the list of issues entailing loan deferment like shortage of liquidity and decline in profitability, Islamic banks also face Shari’ah and operational issues in implementing the rescheduling.
Similarly in liquidity management, Islamic financial institutions do not enjoy the luxury of relying on liquid treasury bills or interest-bearing reserves accounts at the central bank.
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Although seemingly able to thrive in an ecosystem that is stacked against them, Islamic financial institutions tend to inefficiently hold high stocks of cash at zero return or higher-yielding but lesser-liquid Sukuk. Hence, in the event of a global financial crisis incited by the pandemic, the Islamic finance sector may be at a disadvantage.
The COVID-19 pandemic serves as a wake-up call, not only to the international financial market, but more so for the Islamic finance sector. The situation we are facing today makes a case for much needed progress in further developing a global Islamic financial industry that is equipped with a deeper Islamic money market and an Islamic benchmark yield curve.
The IILM: A Trailblazer in Cross-Border Islamic Liquidity Management
The establishment of the IILM, as a cross border liquidity instrument issuer, is a stark example of this much-needed development. In fulfilling its mandate, the IILM serves the market by assisting market players and investors in meeting liquidity requirements, albeit they are Islamic or conventional. It is interesting to note that even at the heart of the pandemic in March 2020, the IILM was able to address the on-going demand for high quality liquid papers – to the extent that it was able to increase its offering with a program increase from USD 3 billion to USD 4 billion.
Indeed in 2020, the IILM has outstandingly extended its funding base by 80% from USD 1.96 billion in January to USD 3.51 billion in September 2020 which was made possible thanks to the support of its primary dealership structure enabling to increase the total programme size up to USD 4 billion Therefore, the unique platform developed by the IILM also acts as a real partner to governments and central banks in their objective of stability and support of the economies.
The total volume of the IILM monthly issuances remained unchanged while some tenors were adjusted to fit the investors’ needs of liquid papers. As regulatory requirements became paramount in this context of uncertainty, the need for papers classified as Level 1, High-Quality Liquid Assets followed suit. Since Islamic banks mainly used short-tenor papers to fill up this requirement, the IILM met the market demand by increasing the supply of its 1-month tenor Sukuk from USD200 million back in 2019 to USD400 million in 2020.
The IILM has continued to fulfil its mandate of providing liquidity management instruments to the market by supplying an excess of USD 11.95 billion in 2020, across 35 IILM Sukuk through five different tenors. This accounted for circa 32% of the total global USD Sukuk issuances in 2020. A wider range of tenors have been offered such as 6-week, 7-month Sukuk as well as the 1-month Sukuk on regular basis to address the market demand. The IILM became the first and only issuer to offer such ultra-short-term tools in the Islamic Finance industry.
2-week 7-month 1-year 2-year 3-year 4-year 5-year +...
USD 11.95 Bio NIL NIL NIL 3Y- 10Y (Including Perp.) USD 25.5Bio
IILM IILM Sovereign/Supra./Fins./Corp.
Figure 2: The IILM Sukuk compared to the total Sukuk issued worldwide in 2020 Source: International Islamic Liquidity Management Corporation
The 35 IILM Sukuk issued in 2020 has garnered sound demand from the market, reaching a Bid-To-Cover ratio of almost 170% in average.
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7 month tenor 6 month tenor 3 month tenor 6 week tenor 1 month tenor Subscription Level
242% 232% 210% 205% 183% 212% 181% 191% 202% 204% 177% 202% 176% 186% 160% 182% 181% 170% 161% 161% 144% 148% 166% 155% 140% 160% 156% 116% 158% 154% 107% 141% 110% 110% 117%
300 300 250 300 300 400 300 300 200 300 460 300 300 300 300 300 360 400 250 490 300 300 250 400 500 210 300 400 500 200 400 460 210 400 500 Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio Mio
Jan-20Jan-20Jan-20 Feb-20Feb-20Feb-20 Mar-20Mar-20Mar-20 Apr-20Apr-20Apr-20 May-20May-20 Jun-20Jun-20 Jul-20 Jul-20 Jul-20 Aug-20Aug-20Aug-20 Sep-20Sep-20 Oct-20Oct-20Oct-20 Nov-20Nov-20Nov-20 Dec-20Dec-20
Jul-20 (2nd) Sep-20Sep-20 (2nd) (2nd)
Figure 3: The IILM Sukuk issuance details in 2020 Source: International Islamic Liquidity Management Corporation
The wide range of tenors offered as well as the regular monthly offering in the market allowed investors to manage their excess liquidity in an efficiently manner according to their investment needs.
The total turnover on the secondary market reached USD756 million for 2020, through 131 trades which accounted for circa 6% of the total related issuances. This is a drastic change from the previous year which reached USD1.37 billion through almost 240 trades accounting for 12% of total related issuances, which confirmed the change in investors behaviour from March to August 2020 by holding the IILM high quality liquidity tool further till maturity as a safe-haven Islamic instrument.
Monthly Secondary Trading Volume in 2020 (USD 756 Mio)
182 Mio
157 Mio
126 Mio
63 Mio 54 Mio 45 Mio 44 Mio 34 Mio 23 Mio 11 Mio 13Mio 6 Mio
Jan- 20 Feb- 20 Mar- 20 Apr- 20 May- 20 Jun- 20 Jul- 20 Aug- 20 Sep- 20 Oct- 20 Nov- 20 Dec- 20
Figure 4: Monthly Secondary Trading Volume of IILM Sukuk in 2020 Source: International Islamic Liquidity Management Corporation
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Note: The total turnover for 2020 includes series issued from August 2019 until end of December 2020
It should be noted that the secondary market activity was indeed slower in H1 2020 due to the initial impact COVID-19. This dip in volume took place at the peak of the liquidity crunch as investors’ outlook became cautious. However, secondary trading then surged from September 2020 onwards, where the IILM achieved monthly trading volume of more than USD100 million ever since, all due to investors’ restored confidence in the economic outlook.
Total Secondary Trading Volume per series (% of Issuance Size)
7 month tenor 6 month tenor 4 month tenor 3 month tenor 1.5 month tenor 1 month tenor
53% 45%
29% 29% 27% 24%
19% 19% 18% 18% 16% 15% 16% 13% 12% 13% 11% 10% 11% 9% 7% 6% 6% 4% 5% 5% 3% 4% 4% 2% 1% 1% 1% 0% 0% 0% 0% 0% 0% 0% 0%
IILM 2.25 02/18/20IILM 2.16 03/16/20IILM 2.00 01/21/20IILM 1.91 02/18/20IILM 1.92 04/14/20IILM 1.92 03/16/20IILM 1.85 02/18/20IILM 1.93 04/14/20IILM 1.95 07/09/20IILM 1.71 03/16/20IILM 1.75 05/14/20IILM 1.80 08/18/20IILM 0.81 04/14/20IILM 0.87 06/11/20IILM 0.85 09/10/20IILM 1.15 05/14/20IILM 1.55 07/09/20IILM 1.73 10/08/20IILM 0.33 06/11/20IILM 0.5 08/13/20IILM 0.27 07/09/20IILM 0.40 09/10/20IILM 0.227 08/13/20IILM 0.43 10/08/20IILM 0.55 01/21/21IILM 0.60 02/17/21IILM 0.33 09/10/20IILM 0.45 11/12/20IILM 0.58 03/18/21IILM 0.22 08/10/20IILM 0.43 10/12/20IILM 0.24 12/11/20IILM 0.60 18/03/21IILM 0.26 12/11/20IILM 0.45 21/01/21IILM 0.46 15/04/21IILM 0.35 10/12/20IILM 0.44 17/02/21IILM 0.51 06/05/21IILM 0.35 21/01/21IILM 0.42 18/03/21
Figure 5: Total Secondary Trading Volume Per Series of IILM Sukuk 2020 Source: International Islamic Liquidity Management Corporation
While almost all the series have been traded at secondary, including 1-month Sukuk, naturally in average the 6-month series tend to be more actively traded on the secondary market compared to the 1-month and 3-month series. The average secondary trading activity of the 6-month series stands at 16%, against 8% and 4% for the 3-month and 1-month series. Geographically speaking, the most active market players are located in the GCC region, while increasing activity is recorded from European and Asia-based counterparties for the past two years.
The strong demand for the IILM Sukuk mainly came from asset & liability management desks and financial institutions that sought to place their cash holdings in a short-term safe-haven instrument. This has further led to a strong demand for the IILM Sukuk in the Secondary Market.
The Way Forward: A Shari’ah Compliant Cross-Border Repo Instrument
More issuers of global short-term Islamic instruments as well as broader and active investors are needed to support a deeper Islamic money market and the establishment of a much-needed Islamic benchmark yield curve. Additionally, the liquidity stress due to COVID-19 this year has clearly identified the need for an effective Islamic Repo cross-border framework that will support the global financial need for short-term funding.
In the conventional market, the Repo instrument has become a key liquidity management tool. Intuitively, it is important to have a similar apparatus available for the global Islamic industry. However, the lack thereof in the Islamic finance world proves to be an inherent disadvantage that renders Islamic financial Institutions to face difficulties in competing within the global financial market.
There have been several successful cases of Shari’ah compliant Repo instruments being offered locally in specific markets. Developed based on the structured of Commodity Murabahah Financing as well as a Dual Wa’ad for Sale and Repurchase, these instances prove to be a promising step towards global adoption.
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However, the effort to establish a global Islamic Repo market faces surmount challenges like low usage of Islamic Repo instruments by Islamic banks and lack of harmonisation between jurisdictions in terms of legal framework, documentation, structure, and accounting treatment. Most notable of all the challenged is low growth in new Sukuk issuances and low trading activity in the secondary market. These issues are what stand between us and a deeper global Islamic liquidity market.
The way forward will first require a comprehensive standard that will guide the industry and its players in formulating a streamlined global Islamic Repo framework. Moreover, such global secured funding market will also need a centralised platform or clearing house that is both robust and reliable in managing the numerous global transactions that will take place. In order to address these encumbrances, strong collaboration amongst players in the Islamic finance industry is crucial.
Regardless, we maintain a positive outlook to future industrial engagements and cooperation between Islamic finance institutions, players and regulators alike, in developing a global Shari’ah compliant apparatus for enhanced short-term liquidity management.
173 AN INNOVATIVE ISLAMIC FINANCIAL CENTRE
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Well supported by a robust, modern and internationally recognised legal framework, Labuan IBFC provides clear legal provisions and industry guidelines enforced by its one-stop regulator, Labuan Financial Services Authority.
Labuan IBFC boasts Asia’s widest range of business and investment structures for cross border transactions, business dealings and wealth management needs. These unique qualities offer sound options for regional businesses going global or global businesses looking at penetrating Asia’s burgeoning markets.
As a comprehensive midshore jurisdiction, Labuan IBFC is your legitimate jurisdiction of substance.
Labuan IBFC Inc. Sdn. Bhd. (817593-D) Suite 3A-2, Level 2, Block 3A Plaza Sentral, Jalan Stesen Sentral, KL Sentral 50470 Kuala Lumpur, Malaysia www.LABUANIBFC.com Tel: +603 2773 8977 Fax: +603 2780 2077 Email: [email protected] CHAPTER 05 SUKUK MARKET IN SELECTED IIFM MEMBER COUNTRIES IIFM SUKUK REPORT 2021
5.1 Government of Bahrain Sukuk Issuances Short and Long term Salam and Ijarah Sukuk Domestic and International By: Central Bank of Bahrain (CBB)
Introduction
The Kingdom of Bahrain is one of the countries which have made great strides in launching new Islamic financial products in an innovative manner. It started issuing sovereign Sukuk, as early as 2001. Since then it has been quite active in the Sukuk market and issues short and long term instruments at regular intervals. As much as 24% of Bahrain government’s total financing needs are fulfilled through Islamic instruments. It is therefore an important element in helping the government address its deficits and plan for future development.
1. Sukuk Al Salam
Started in June 2001 and having 237 issues to-date. Sukuk Al Salam are an instrument based on sale and purchase contracts. These securities are collateralised by a commodity (Residue Gas). They are issued through a fixed-rate tender procedure. The rate of return is set by the CBB Monetary Policy Committee.
Sukuk Al-Salam Coverage
800% 4.50
700% 4.00
3.50 600% 3.00 500% 2.50 400%
2.00 Yield 300% 1.50 200% 1.00
100% 0.50
0% 0.00
Auction Date Sukuk Al-Salam yield/coverage chart showing the contrast between the coverage percentage and yield from 2010 to date
2. Sukuk Al Ijarah
2.1 Short term Ijarah Sukuk
Short term Ijarah Sukuk was first issued in August 2005 (185 issues to date).
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These Sukuk are issued on a monthly basis and have a 6-month (182 days) maturity. The Ijarah Sukuk is an instrument which takes the form of Islamic leasing contracts. They are based on assets owned by the Government of Bahrain and are issued through a fixed-rate tender procedure.
The rate of return is set by the CBB Monetary Policy Committee.
Short term Ijarah Sukuk Coverage
800% 5.00 4.50 700% 4.00 600% 3.50 500% 3.00
400% 2.50
300% 2.00 1.50 200% 1.00 100% 0.50 0% 0.00
Yield Sukuk Al-Salam yield/coverage chart showing the contrast between the coverage percentage and yield from 2010 to date
Auction procedure for Sukuk Al Salam and Ijarah Sukuk issuance is as follows:
Invitation letters which contain details on a forthcoming issue are circulated to the institutions eligible to participate.
The institutions submit a tender bid to the CBB indicating the quantity they would like to acquire through the Scripless Securities Settlement System (SSSS). Tenders are then allotted pro-rata to interested institutions, according to their quantity contributions.
The SSS system notifies the participating institutions of the result of the tender allotment.
Settlement takes place by debiting the participating banks’ Real Time Gross Settlement (RTGS) system accounts with the CBB.
The settlement date is normally two business days afer the tender date.
The CBB issues a press release with information about the allotment result, including the issue number, issue and maturity date, amount allotted, expected return and total tenders received.
2.2 Long term Ijarah Sukuk (Domestic)
Long term Ijarah Sukuk were first issued in September 2001 (26 issues to date) upon the request of the Ministry of Finance and National Economy. They are based on assets owned by the government of Bahrain.
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Features of long term local Ijarah Sukuk issuances are as follows:
In issuing these instruments the government of Bahrain sells an asset to the investors who will buy it before renting it back to the government at a predetermined rental rate, via a rental contract (the Ministry of Finance and National Economy chooses the asset which is to be used for a new issue).
The government will also issue a binding promise to buy back the asset at its par value at the end of the rental period.
A prospectus is prepared, which gives details on the issue amount, currency, rental return, issue date and maturity date.
On the date of the rental return, the CBB will transfer the return amount to the participating institutions’ respective accounts (semi-annually).
2.3 Long term Ijarah Sukuk (International)
International Ijarah Sukuk were first issued in March 2008 (6 outstanding issuances to date).
On May 14th, 2020, the Kingdom of Bahrain acting through the Ministry of Finance and National Economy successfully priced a USD 1,000 million Rule 144A/RegS 4.5-year Sukuk with a structure of 51% Ijarah and 49% Commodity Murabaha under the Trust Certificate Programme. The transaction received strong global investor interest and was issued at 6.25% profit rate.
On September 16th, 2020, the Kingdom of Bahrain acting through the Ministry of Finance and National Economy successfully priced a USD 1,000 million Rule 144A/RegS 7-year Sukuk with a structure of 51% Ijarah and 49% Commodity Murabaha under the Trust Certificate Programme. The profit rate for the 7 year Sukuk was 3.95%.
The auction procedure for long term international Ijarah Sukuk issuance is as follows:
The CBB sends invitations for Joint Lead Managers (JLMs) to submit their offers for arranging and handling the issue.
The CBB evaluates the tender offers received according to their competitiveness, price range, total fees, rating of the banks, etc.
The CBB selects one or more banks to further negotiate the conditions of the offer.
The CBB appoints the Clearing and Trust Agents, the external legal advisor, the exchanges, etc.
Bids are received through book building conducted by the arrangers afer completing road shows to major investors across the world.
The CBB then allocates the securities to the participants.
Figure 1: CBB’s long term Ijarah Sukuk Issuances (local)
Issue No Issue Date Maturity Date Return rate Issue Amt.
Issue No. LI/1 04-Sep-01 04-Sep-06 5.250% USD100 million
Issue No. LI/2 27-Feb-02 27-Feb-05 4.250% USD70 million
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Issue No. LI/3 29-Aug-02 29-Aug-07 4.000% USD80 million
Issue No. LI/4 19-Nov-02 19-Nov-05 3.000% USD50 million
Issue No. LI/5 27-Feb-03 27-Feb-06 3.000% USD80 million
Issue No. LI/6 02-Apr-03 02-Apr-08 3.750% USD100 million
% Issue No. LI/7 27-May-03 27-May-08 60 B.P Over 6m LIBOR USD250 million
% Issue No. LI/8 15-Dec-03 15-Dec-06 30 B.P Over 6m LIBOR USD50 million
% Issue No. LI/9 30-Jun-04 30-Jun-09 45 B.P Over 6m LIBOR USD250 million
Issue No. LI/11 28-Feb-05 28-Feb-10 4.500% BD 30 million
Issue No. LI/12 21-Nov-05 21-Nov-11 5.600% USD230 million
% Issue No. LI/13 03-Oct-07 03-Oct-12 30 B.P Over 6m LIBOR BD 95 million
Issue No. LI/16 24-Sep-09 24-Sep-12 3.75% BD 165 million
Issue No. LI/17 07-Apr-11 07-Apr-16 5.50% BD 200 million
Issue No. LI/19 17-Jul-12 17-Jul-17 4.300% BD 160 million
Issue No. LI/20 13-May-13 13-May-15 1.450% BD 100 million
Issue No. LI/21 08-Jan-15 08-Jan-18 3.000% BD 100 million
Issue No. LI/22 19-Jan-15 19-Jan-25 5.500% BD 250 million
Issue No. LI/23 09-Jul-15 09-Jan-25 5.000% BD 200 million
Issue No. LI/24 17-Jul-17 17-Jul-20 4.200% BD 125 million
Issue No. LI/25 08-Jan-18 08-Jan-21 4.800% BD 100 million
Issue No. LI/26 19-Jul-20 19-Jul-26 4.500% BD 125 million
Source: Central Bank of Bahrain
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Figure 2: CBB’s long term Islamic Sukuk Issuances (International)
Issue Type Issue No. Issue Date Maturity Date Return rate Issue Amt.
75 BPS over Ijarah Sukuk LI/14 19-Mar-2008 19-Mar-2013 6M LIBOR USD350 Million
Ijarah Sukuk LI/15 17-Jun-2009 17-Jun-2014 6.247% USD750 Million
Ijarah Sukuk LI/18 22-Nov-11 22-Nov-18 6.273% USD750 Million
Ijarah/Murabaha 1 12-Oct-16 12-Feb-24 5.624% USD1 billion
Ijarah/Murabaha 2 20-Sep-17 20-Mar-25 5.25% USD850 Million
Ijarah/Murabaha 3 05-Apr-18 05-Oct-25 6.875% USD1 billion
Ijarah/Murabaha 4 30-Sep-19 30-Mar-27 4.5% USD1 billion
Ijarah/Murabaha 5 14-May-20 14-Nov-24 6.25% USD1 billion
Ijarah/Murabaha 6 16-Sep-20 16-Sep-27 3.95% USD1 billion
Islamic Standing Facilities offered by the CBB against the Ijarah Sukuk:
Islamic Sukuk Liquidity Instrument (ISLI)
The mechanism of the Islamic Sukuk Liquidity Instrument (ISLI) which was launched in June 2008 is based on sale and purchase transactions meant to help Islamic banks in managing their liquidity. It involves three separate Sukuk sale and purchase transactions requiring three parties, namely the Sukuk owner (the bank in need of liquidity), the intermediary bank (the market maker) and the CBB, which offers the liquidity.
The Sukuk are sold and then repurchased according to the following procedure involving the three parties:
Bank A (Seller): sells the Sukuk to Bank B (Market Maker) and receives the liquidity needed; should be any CBB-Licensed bank which invests in eligible Sukuk.
Bank B (Market Maker) sells the Sukuk to the CBB, the market maker should be any CBB-Licensed bank that acts as a broker for the sale of Sukuk.
The CBB (second purchaser) which offers required liquidity.
At maturity, the CBB sells back the Sukuk to Bank A (the first seller)
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CBB Wakalah Facility
As part of the ongoing efforts towards the development of Islamic banking and promoting liquidity management for Islamic retail banks, the Central Bank of Bahrain (CBB) launched a Shari‘ah compliant Wakalah liquidity management instrument. The current duration of the Wakalah is Overnight & One-Week which is available every Tuesday for Islamic retail banks.
The One-Week Wakalah facility was launched in March 2015, and in May 2017 the CBB introduced Overnight Wakalah. This instrument, which was approved by the Shari‘ah Board of the CBB, is aimed at absorbing excess liquidity of the local Islamic retail banks and place it with the central bank. The instrument has been developed, based on a standard contract of the International Islamic Financial Market (IIFM). Retail Islamic banks appoint the CBB as an agent (Wakil) to invest cash on behalf of the bank (Muwakkil). The Wakil will invest these funds in the investment portfolio allocated in advance, and contains Islamic Sukuk and BHD Cash. O/N Wakalah BD MN Wakalah Deposit 260.00 240.00 220.00 200.00 180.00 160.00 140.00 120.00 100.00 80.00 60.00 40.00 20.00 0.00
This chart shows the Wakalah deposits received from retail Islamic banks for the One Week and Overnight Wakalah from June 2017 up to date.
Single binding Wa’ad for the Islamic retail banks
The Central Bank of Bahrain (CBB) has launched a new Shari‘ah Compliant Foreign Exchange Forward as a Single binding Wa’ad based structure Facility. This tool, which was approved by the Shari‘ah Board of the CBB, promotes Islamic finance in the Kingdom and enhances the Islamic banking sector’s capacity by supporting them in managing their liquidity.
In Single binding Wa’ad, the CBB will be the promisor and promises to buy the Bahraini Dinar from the participating Islamic retail bank. In the event the Wa’ad is exercised, the execution and settlement will be on the future value date and at the exchange rate promised in advance. The current available tenors are one-week, one-month, three-months, six-months and twelve-months. The facility procedure involves two steps: the first step is a spot currency sale, where the CBB sells to the Islamic retail bank Bahraini Dinars against US Dollars on spot basis at 0.376. In the second step, CBB gives a Wa’ad (promise) to the Islamic retail bank to buy the Bahraini Dinars in a future date and at an agreed exchange rate. Finally, two working days prior to the Wa’ad Settlement Date (Exercise Date), the Islamic retail bank may exercise the Wa’ad by providing an “Exercise Notice Offering” to purchase the US Dollars from the CBB against the Bahraini Dinars.
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Murabahah Sukuk service
As part of the ongoing efforts towards the development of Islamic banking and promoting Capital Market in the Kingdom of Bahrain, the Central Bank of Bahrain (CBB) in collaboration with Bahrain Bourse has developed a Murabahah Sukuk Service for clients and Banks, which is a Shari’ah compliant liquidity and borrowing tool.
Under this service and through an electronic platform provided by Bahrain Bourse, the lending party purchases the Sukuk from the Central Bank of Bahrain, and afer having ownership of the Sukuk sells it to the borrowing party as a deferred sale.
Conclusion
Although Bahrain’s sovereign Sukuk issuances are meant primarily for the domestic market, the long track record and the high frequency of issuance make it among the active countries in this field. With nearly one-quarter of the Bahrain government’s financing needs being met through Sukuk we can expect continued activity in the near and medium term future. Having a sophisticated Sukuk issuance program in place, the Kingdom serves as a role model for other countries which are entering this arena.
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5.2 Sukuk Market Developments in Malaysia By: Labuan Financial Services Authority (Labuan FSA) Malaysia maintains its leadership position in the global Sukuk market in 2020. Malaysia commands a market share of 45.1% of the global Sukuk outstanding, followed by the Kingdom of Saudi Arabia with 24.6%. Increased volumes have been driven by corporates with 57.5% share of total issuance for the year. Malaysia also contributed 45.4% market share of total global corporate issuance in 2020.
Figure 1: Global Sukuk Issuance and Global Sukuk Outstanding by Domicile
Global Sukuk Issuance Global Sukuk Outstanding by Domicile
Others, 10.8% 200 174.2 157.8 Qatar, 3.8% 150 112.4 Malaysia, 45.1% Indonesia, 7.2% 99.5 100 74.8 UAE, 8.5%
USD Billion 50
0 2016 2017 2018 2019 2020 Saudi Arabia 24.6%
Source: Malaysia International Islamic Financial Centre (MIFC) estimates The domestic Sukuk market in Malaysia continues to serve as an important and attractive platform for government and corporate entities to raise long-term funds for various economic, business and infrastructure development needs. In the first half of 2020, Sukuk issuances by Government and corporates amounted to RM114.07 billion, representing 61.06% of total Sukuk and bond issuances, a slight decrease compared with RM136.95 billion in 1H2019 due to COVID-19 pandemic. Total Sukuk outstanding amounted to RM977.46 billion or 62.69% of total Sukuk and bonds outstanding, compared with RM918.46 billion in 1H2019. Corporate Sukuk issuances represented 72.23% of total corporate bonds and Sukuk issuances while corporate Sukuk outstanding accounted for 79.92% of total corporate bonds and Sukuk outstanding in the 1H2020. As at end of December 2020, corporate Sukuk outstanding reached RM593.43 billion compared to that of conventional bonds at RM138.96 billion, constituting 81.03% of total corporate bonds and Sukuk outstanding.
The total issuance of corporate Sukuk amounted to RM76.97 billion compared to that of conventional bonds at RM27.6 billion. As at end of November 2020, total Sukuk outstanding amounted to RM1015.47 billion or 63.16% of total bonds and Sukuk outstanding while total Sukuk issuances by Government and corporates amounted to RM211.55 billion.
Figure 2: Total Sukuk Issued and Total Sukuk Outstanding
RM billion 1200 1015.47 938.96 1000 844.21 759.64 800 661.08 576.31 607.93 512.13 600 474.5 349.3 400 326.5 275.77 262.76 235.2 181 185 168.68 199.9 211.55 200 117.7 129.45 30.24 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Nov-20. Size of Sukuk Issued Size of Outstanding Sukuk Source: Malaysian ICM bulletin
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Figure 3: Corporate Sukuk Issuance
150 75.68 124.88 132.82 80 105.45 104.57 75 100 86.35 85.65 70.19 68.92 77.09 66.67 70 73.61 50 RM Billion 65 57.57 64.82 87.65 72.68 102.39 76.97 (%) Percentage 0 60 2015 2016 2017 2018 2019 2020
Corporate Sukuk Issuance
Corporate Bond and Sukuk Issuance
% of Corporate Sukuk Issuance to Corporate Bond and Sukuk Issuance
Source: Malaysian ICM bulletin
In Malaysia, the Sukuk market provides customised solutions to government and corporate issuers through a variety of Sukuk structures using different Islamic contracts such as Murabahah, Mudharabah, Musharakah, Wakalah, Ijarah or hybrid structures based on combinations of Shari‘ah contracts. The Sukuk structures are backed by real economic activity and has the ability to tap a wider investor base from both Islamic and conventional spectrum including foreign investors. An increasing number of corporations, including foreign corporates also leverage on the strength of Malaysia’s Islamic capital market to issue regular short-term commercial papers to meet their on-going financing needs.
Figure 4: Sukuk Issued as per Shari‘ah Principle in 1H 2020
Sukuk Issued as per Shari'ah Principle 1H 2020
Ijarah 0.18% Wakalah 0.56%
Hybrid 23.66%
Musharakah Murabahah 4.03% 61.05%
Mudharabah 10.52%
Source: Malaysian ICM bulletin
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In enhancing capital market fund raising for sustainable development, Securities Commission of Malaysia (SC) revised its Sustainable and Responsible Investment (SRI) Sukuk Framework which was first introduced in 2014. The revised framework expanded the list of SRI projects deemed eligible under the Framework to provide clarity whilst encouraging diversity and innovation in the types and variants of sustainable Sukuk. The launching of Sustainable and Responsible Investment Roadmap for the Malaysian Capital Market (SRI Roadmap) in 2019 aimed to create a facilitative SRI ecosystem and chart the role of the capital market in driving Malaysia’s sustainable development. As at December 2020, RM5.4 billion SRI Sukuk have been issued under the SRI Sukuk Framework, out of which 58% or RM3.1 billion are also recognised under the ASEAN Standards.
To further encourage sustainable finance and investment, the SC has expanded its Green SRI Sukuk Grant Scheme to encourage more companies to finance green, social and sustainability projects through SRI Sukuk and bond issuances with this expansion, the grant is now renamed as SRI Sukuk and Bond Grant Scheme and applicable to all Sukuk issued under the SC’s Sustainable and Responsible Investment (SRI) Sukuk Framework or bonds issued under the ASEAN Green, Social and Sustainability Bond Standards (ASEAN Standards).
The initiative is reflected in Malaysia’s budget 2021 where the government of Malaysia announced that for the issuance of SRI products and bonds that achieve green, social and sustainable standards in Malaysia, the existing income tax exemption provided for the recipients of the SRI Green Sukuk Grant Scheme has been extended to all types of Sukuk and bonds as well as for a period of five years until 2025. Meanwhile, the existing tax deduction on issuance costs of SRI Sukuk approved by or lodged with the SC has been extended till end 2023. The eligible issuers of SRI Sukuk and Bond Grant Scheme can claim the grant to offset up to 90% of the external review costs incurred, subject to a maximum of RM300,000 per issuance.
The eligibility for issuances that qualify for the SRI Sukuk and Bond Grant Scheme are as follows:
(i) Green SRI Sukuk issuances made under the SC’s SRI Sukuk Framework from July 2017 onwards;
(ii) Social sustainability or other SRI Sukuk issuances made under the SC’s SRI Sukuk Framework from 25 August 2020 onwards; and
(iii) Bond issuances under the ASEAN Green Bond Standards, ASEAN Social Bond Standards or ASEAN Sustainability Bond Standards from 29 October 2020 onwards.
To cement its position as the world’s leading Sukuk marketplace, Malaysia has taken further steps by issuing the country’s first digital Sukuk in its economic recovery effort to cushion the impact of the COVID-19 pandemic. The first-of-its-kind RM666 million Sukuk Prihatin which was issued in September 2020 received a notable mention in the non-IPO fundraising category for its innovative elements.
Sukuk Prihatin is the first Malaysia Sukuk that is available for fully online subscription where it can be accessible through the digital banking platforms of 27 banks in Malaysia. The Sukuk Prihatin was offered to retail and corporate investors with minimum subscription as low as RM500. With ‘national solidarity’ as the main theme, Sukuk Prihatin was the first Sukuk that had an element of donation embedded in its documentations where the investors can opt to donate the principal amount due, either in part or in full, upon its two-year maturity. The donation contribution will be eligible for special tax treatment, an incentive from the government of Malaysia to encourage contribution.
The oversubscription and successful issuance of the uniquely structured Sukuk Prihatin was seen as another significant milestone for Malaysia in product innovation and added another feather to Malaysia’s cap, strengthening its value proposition as a centre of Islamic finance globally.
In order to foster the secondary market development of Sukuk, Bursa Malaysia plays an important role to provide a listing platform for Sukuk denominated in Ringgit and foreign currencies issued by local and international listed and non-listed entities under an “exempt regime” which does not provide for the paper to be quoted or traded over the exchange. The trading would occur on Over-the-Counter (OTC) basis. The listing of Sukuk promotes greater transparency and governance as the listed Sukuk would have higher visibility and transparency with disclosure of information being made to the Exchange and the public. The listing would also be useful for the profiling of the issuers to facilitate future fund-raising exercises by attracting investments from a wider segment of institutional and high net worth investors across the globe.
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In addition, Bursa Malaysia offers Exchange Traded Bonds and Sukuk (ETBS) which are bonds and Sukuk listed and traded on the stock market, to further enhance the breadth and depth of investment options in the Malaysian capital market.
Figure 5: Sukuk listing under Bursa Malaysia as at June 2020
Exempt Regime 25
Exchange-Traded Bonds and Sukuk (ETBS) 2
Source: Bursa Malaysia
Labuan IBFC as an Attractive Domicile for Sukuk Issuance
The mid-shore jurisdiction of Malaysia, Labuan International Business and Financial Centre (Labuan IBFC) complements Malaysia in offering a conducive environment for Sukuk issuance. Labuan IBFC has a well-developed legal, regulatory and Shari‘ah framework that supports and accords certainty as well as integrity in Islamic financial transactions. In addition, Labuan IBFC offers fiscal incentives and a pool of Islamic finance talent in Sukuk structuring and distribution.
As part of the efforts to stimulate the growth of Sukuk issuances out of Labuan IBFC, Labuan Financial Services Authority (Labuan FSA) issued business guides on the benefits of Sukuk issuance out of the centre for Sukuk issuers and investors. The business guides highlight the conducive and flexible requirements for raising funds through Sukuk issuance under distinct Shari‘ah principles in Labuan IBFC. In 2020, Labuan FSA issued two guidance notes on Sukuk, specifically the Guidance Note on Issuance of Green, Social and Sustainability Sukuk in Labuan IBFC and Guidance Note on Issuance of Aviation Sukuk in Labuan IBFC. These guidance notes complement the series of business guides that have been issued since 2017, namely the Explanatory Note on Issuance and Subscription of Sukuk in Labuan IBFC and Guidance Note on Issuance of Sukuk Wakalah Bi Al-Istithmar in Labuan IBFC.
The Guidance Note on Issuance of Green, Social and Sustainability Sukuk was issued to provide comprehensive guidance to the market on the green, social and sustainability Sukuk that can be offered out of Labuan IBFC. This is in tandem with the growing prominence of sustainable finance in international financial markets. Financial products such as green Sukuk, social-impact Sukuk and sustainability Sukuk have become globally recognised as an effective means of directing investment capital towards climate change mitigation as well as climate change resilience and adaptation projects. Green Sukuk, social-impact Sukuk and sustainability Sukuk have also emerged as viable financial instruments that can support infrastructure financing demands in emerging markets and developing economies to promote sustainable and climate-resilient growth. In addition, social-impact Sukuk has vast potential to support social needs of the society in light of the adverse impact of the COVID-19 pandemic.
Meanwhile, the issuance of Guidance Note on Issuance of Aviation Sukuk in Labuan IBFC is to enhance market awareness and provide market guidance on the diverse aviation Sukuk that can be structured under a variety of Shari‘ah principles in Labuan IBFC. Labuan IBFC is an ideal jurisdiction for aviation Sukuk issuance particularly for the Asia-Pacific region as it has a comprehensive infrastructure that supports and accords certainty as well as integrity for Shari‘ah-based structures. In addition, Labuan IBFC is home to a profusion of aviation leasing companies that can leverage on the Centre for aviation Sukuk issuance to finance their aviation business needs.
In Labuan IBFC, the Labuan International Financial Exchange (LFX) serves as a one-stop full-fledged financial exchange with a complete range of services from listing and trading to clearing and settlement of financial instruments including foreign currency denominated Sukuk. As at 31 December 2020, the number of Sukuk listed on LFX is 8, representing 30.7% of the total number of instruments listed on the exchange.
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Figure 6: Sukuk listing under LFX as at 31 December 2020
No. Issuer Name Currency (Size) Issue Date Maturity Date
Wakalah Global Sukuk Berhad - 1 USD800,000,000 7 Jul 2011 6 Jul 2021 Series 2 - Trust CertificatesER
2 Malaysia Sovereign Sukuk Berhad - USD1,000,000,000 23 Apr 2015 22 Apr 2025 3.043 per cent Trust CertificatesER Malaysia Sovereign Sukuk Berhad - 3 4.236 per cent Trust CertificatesER USD500,000,000 23 Apr 2015 22 Apr 2045
Danga Capital Berhad - Trust 4 USD750,000,000 2 Mar 2016 1 Mar 2022 CertificatesER
Malaysia Sukuk Global Berhad - 5 USD1,000,000,000 28 Apr 2016 27 Apr 2026 Series 1 Trust CertificatesER
Malaysia Sukuk Global Berhad - 6 Series 2 Trust CertificatesER USD500,000,000 28 Apr 2016 27 Apr 2046
Cindai Capital Ltd – Cash-Settled 7 Exchangeable Trust CertificatesER USD320,800,000 8 Feb 2018 8 Feb 2023 SD International Sukuk II Limited - 8 Fixed Rate Senior Unsecured Trust USD200,000,000 12 Dec 2019 22 Nov 2024 Certificate
*ER : This instrument is also listed on Exempt Regime platform Bursa Malaysia Source: Bursa Malaysia - Labuan International Financial Exchange (LFX)
The progressive development of the Islamic financial ecosystem in Malaysia and Labuan IBFC contributes towards enhancing the dynamism of Sukuk in facilitating cross border financial flows, including in the sustainable finance space to achieve a more balanced, sustainable and inclusive growth for the global community.
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5.3 Indonesia Sukuk Market: Sustaining Growth Through Pandemic By: Bank Indonesia (BI)
Sukuk In National Economic Recovery
In 2020, the Government of Indonesia issued IDR367.31 trillion State Shari‘ah Securities (SBSN/Sukuk Negara). The SBSN was dominated with a maturity of 1 to 5 years (44%) and with a maturity of more than 21 years (27%). The remaining portion covered short maturity period, i.e 6 months (12%), 6 to 15 years (12%) and 16 to 20 years (5%). The SBSN issuance in 2020 increased significantly due to the increasing needs of micro-financing caused by the impact of the COVID-19 pandemic. As the State Budget (APBN) deficit has widened in 2020 due to pandemic, the SBSN issuance has increased by 42.2% compared to 2019 which amounted to IDR 258.28 trillion. APBN financing through the issuance of SBSN has become the main option and Project Financing Sukuk is the most strategic fiscal instrument, because it has connected directly to the development of infrastructure and service facilities to the public.
Development of State Shari‘ah Securities (SBSN / Sukuk Negara)
Since the enactment of Act Number 19 year 2008 regarding State Shari‘ah Securities namely SBSN/Sukuk Negara, its issuance has reached IDR 1,597.75 trillion through various issuance methods (auction, book building, private placement), both in Rupiah and foreign currency (USD). The development of SBSN issuance shows the increasing role of SBSN in financing the state budget deficit, financing infrastructure projects, and also developing the Islamic financial market.
IDR Trillion IDR Trillion 1,597.75 400 1600 367.31 350 1400 300 1200 258.28 250 1000 213.93 192.49 200 800 178.90
150 600 119.51
100 400 75.54 57.09 53.18 200 26.97 33.31 50 16.55 4.70 0 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Figure 1. Total Issuance of SBSN Source: Directorate General of Budget Financing and Risk Management - Ministry of Finance of Indonesia
Based on the type of series issued, the Project Financing Sukuk series or also known as Project-Based Sukuk (PBS) has been mostly issued with a portion reaching 49.63%. Meanwhile, based on the issuance method, 57% of SBSN were issued through auction, 31% through book-building, and 12% on private placement. Total issuance of SBSN in foreign currency denominations reached 17% of the total issuance and 83% was issued in IDR.
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PBS 49.52%
SNI 16.63%
13.81% SPNS 12% SR 12.75%
SDHI 3.89%
ST 1.39%
IFR 1.07% 57% 31% SPNSNT 0.48%
PBSNT 0.28%
USDPBS 0.18%
SW 0.00% Lelang Bookbuilding Private Placement SWR 0.00% Figure 2. Type of SBSN Figure 3. Method of Issuance of SBSN
17%
83%
IDR USD Figure 4. Denomination of SBSN Issuance Source: Directorate General of Budget Financing and Risk Management - Ministry of Finance of Indonesia
In 2020, the SBSN circulated in domestic market and international markets reached IDR971.5 trillion of SBSN, or around 19% of the total Government Securities (SBN) issued by the Indonesian Government. This outstanding number has increased by 31.2% compared to 2019.
971.50 (IDR trillion)
740.62
644.95
551.56
412.63
297.58
206.10 169.29 124.28 77.73 44.34 4.70 20.33
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Figure 5. Outstanding of SBSN Source: Directorate General of Budget Financing and Risk Management - Ministry of Finance of Indonesia
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Based on maturity, most of SBSN (58.34%) are matured in less than 5 years followed by 17.60% are matured between 6 years – 10 years; 17.07% are matured between 11 years – 20 years and the longest one (6.99% of them) are matured more than 20 years (see figure 7). SBSN is also available for the global investors as 25.70% issued in USD denomination in the global Sukuk market while the rest (74.30%) are issued in Rupiah denomination for the domestic market (see figure 8). For trading purposes, most of SBSN series (96.01%) are tradable while only 3.99% of them are non-tradable such as SDHI (see figure 9).
PBS 61.09%; 593.47
SNI 25.41%; 246.84
SR 6.93%; 67.36 0 - 5y 58.34%;
SDHI 2.03%; 19.70 566.80
1.49%; 14.52 ST 11 - 20y 17.07%; SPNS 1.48%; 14.40 165.79 IFR 0.81%; 7.83 6 - 10y 17.60%; PBSNT 0.46%; 4.50 170.96 USDPBS 0.29%; 2.82
SW 0.01%; 0.05 >20y 6.99%; (trillion IDR) (trillion IDR) SWR 0.00%; 0.01 67.95
- 100 200 300 400 500 600 - 100 200 300 400 500 600
Figure 6. Types of SBSN Figure 7. Tenors of SBSN Source: Directorate General of Budget Financing and Risk Management - Ministry of Finance of Indonesia
74.30% IDR 721.84 Tradable 96.01%; 932.72
25.70%, USD Non-Tradable 3.99%; 38.78 249.66 trillion IDR trillion IDR
200 400 600 800 (50) 150 350 550 750
Figure 8. Currency Issuance of SBSN Figure 9. Tradability of SBSN Source: Directorate General of Budget Financing and Risk Management - Ministry of Finance of Indonesia
In international market, Indonesia has become the largest issuing sovereign Sukuk country which the total international issuance reached USD20.65 billion, or around 22.18%, compared with Kingdom of Saudi Arabia (13.97%), Emirates of Dubai (8.83%), Malaysia (7.52%) and Turkey (6.72%) (see figure 10). Indonesia sovereign Sukuk chairs the global Sovereign Sukuk market and has stood as the most in-demand among its peers.
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Indonesia; Others; 12,67% 22,18%
Oman; 4,99%
Pakistan; 5,42% Kingdom of Saudi Arabia; 19,34% Bahrain; 5,63%
Qatar; 6,69% Emirates of Turkey; 6,72% Dubai; 8,83% Malaysia; 7,52%
Source: Directorate General of Budget Financing and Risk Management - Ministry of Finance of Indonesia
International Sovereign Sukuk Issuance
Indonesia 20.650
Kingdom of Saudi Arabia 18.000
Emirates of Dubai 8.219
Malaysia 7.000
Turkey 6.256
Qatar 6.231
Bahrain 5.238
Pakistan 5.044
Oman 4.649
Emirates of Sharjah 4.400
Hongkong 3.000
Emirates of Ras Al Khaimah 2.625
United Arab Emirates 1.272 Million USD South Africa 500
Figure 10. Market Share of Sovereign Sukuk (USD denominated) in the World Source: Directorate General of Budget Financing and Risk Management - Ministry of Finance of Indonesia
PROJECT-BASED SUKUK
Project Financing Sukuk (Project-Based Sukuk/PBS) is an alternative infrastructure financing that has been carried out by the Government of Indonesia since 2013. It has shown significant developments, in terms of project financing, the number of Ministries / Institutions that are project initiators, the financing amount allocated, the number of projects built, as well as the distribution of the project implementing work units and the project location being processed. Project Financing Sukuk is a strategic fiscal instrument used to support the acceleration of National Economic Recovery. In 2020, it has successfully recorded the achievements through the Government Sukuk up to 90.96% of the ceiling value of the Government Sukuk financing. It shows high commitment of all Ministries / Agencies in implementing priority programs to promote national development.
192 IIFM SUKUK REPORT 2021
RETAIL SBSN
Retail SBSN issuance has undergone a strategy change in line with the increasing need for financing. In 2019, the issuance of Retail SBSN includes 4 times the issuance of Savings Sukuk (ST) and 1 time Retail Sukuk (SR). In 2020, the SR issuance has carried out 2 times and ST issuance was 1 time as SR sales resulted more than ST. The result of the 2020 SR issuance included 2 SR series (SR012 and SR013) reached IDR 37.8 T and the issuance of ST through ST007 was IDR 5.4 T, that total issuance of Retail SBSN was IDR 43.2T. The amount is larger than the issuance of Retail SBSN in 2019 which only reached IDR 30.3T included 1 SR issue and 4 ST issuance. The Retail SBSN issuance will be continued because it has become an investment outlet for Shari‘ah financial institutions such as Islamic banking, Islamic insurance and provides Islamic investment financial inclusion instruments for the public, realizing the transformation of society towards an investment-oriented society.
GREEN SUKUK
Another innovation of SBSN financing is Green Sukuk on the Global Market and domestic retail. Green Sukuk is Government's commitment on the environmental preservation. Indonesia has become the First Green Sukuk Issuer in the World with 8 international awards for Green Sukuk and 36 international awards for the management State Sukuk from international institutions.
The government has issued Green Global Sukuk for the third time in the international market in US Dollar denominations with the format Reg S / 144A Trust Certificates of USD750 million for a-5-year maturity and 2.30% compensation on June 18, 2020. The structure of the Sukuk agreement is Wakalah, with underlying assets: (i) State Property (BMN) in the form of land and buildings (51%) and (ii) APBN projects that are under construction or will be constructed (49%).
This Global Sukuk is issued through Issuance Company SBSN Indonesia III, a company established by the Government of the Republic of Indonesia specifically to issue Sukuk. The Global Sukuk issuance is listed on the Singapore Stock Exchange and NASDAQ Dubai (dual listing).
The transaction is carried out in line with the Government's 2020 financing plan, in order to accommodate the needs of the state budget in handling the impact of the COVID-19 pandemic as well as to strengthen Indonesia's position in the global Islamic financial market, support the development of Islamic finance in the Asian region, and fund or refinance green projects that contribute to climate change mitigation and adaptation.
Green Global Sukuk received a Baa2 rating from Moody's Investor Service, BBB from S&P Global Ratings Services, and BBB from Fitch Ratings. Amidst highly volatile market conditions, the issuance of Green Global Sukuk received a very good response from global and local investors which resulted in an order book that was oversubscribed nearly 7.37 times above the Government's target. Another achievement was that the 5-year Green Global Sukuk was successfully listed as a 5-year Global Sukuk instrument issued by the Government of Indonesia with the lowest coupon and managed to reach 33.74% ownership by Green Investors.
The Retail Green Sukuk was issued again by the Government of Indonesia in December 2020 through the ST007 series Savings Sukuk. This is the second Retail Green Sukuk issued by the Government afer the first published in November 2019 through ST006. The result of ST007 Retail Green Sukuk issuance is much bigger than ST006 indicating the increasing public interest in investing in Retail Green Sukuk. A comparison between the Green Sukuk Retail ST006 and ST007 can be seen below.
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006 007
IDR 1.46 Billion IDR 5.42 Billion
Sale Amount
7,735 People 16,992 People
Investors
Nov 28th, 2019 Dec 2nd, 2020
Issuance Date 6.75% p.a 5.50% p.a (floating with floor) % (floating with floor) Coupon
Figure 12. Average Daily Transactions of Domestic SBSN Source: Directorate General of Budget Financing and Risk Management - Ministry of Finance of Indonesia
CASH WAQF LINKED SUKUK
Another form of innovation of Indonesia Islamic financing is the issuance of a Cash Waqf Linked Sukuk (CWLS). The scheme was prepared by the Ministry of Finance, Ministry of Religion, Bank Indonesia, the Financial Services Authority (OJK), and Indonesia Waqf Board (BWI), which has designed as an instrument to encourage the development of productive Waqf, with the investment proceeds from the cash Waqf funds being used for the formation of new Waqf assets and financing social activities. The CWLS was also developed to simplify the community’s intention to donate, both temporary and permanent, as well as to invest their money in safe and productive investment instruments. The first CWLS series SW-001 was issued on March 10, 2020, through a private placement method with BWI acting as Nazir. The investment proceeds were channeled for the renovation and purchase of medical devices to support the construction and optimization of the retina center at the Achmad Wardi Waqf Hospital located in Serang, Banten Province. The proceed of the investment which is paid monthly for 5 years-tenure will be used for cataract surgery services for Dhuafa at the same hospital that are targeting 2,513 patients in 5 years.
The Government has also issued CWLS Retail with series SWR001 amounting to IDR 14.9 billion, which the public has purchased through 4 Islamic Banks namely Bank Muamalat, Bank Syariah Mandiri, BRI Syariah, and BNI Syariah. The funds received are entirely used to finance social programs held by the Nazirs of the four distribution partners.
BANK INDONESIA SUKUK (SUKBI)
Bank Indonesia Sukuk (SukBI) was issued in 2018, which uses Government Shari‘ah securities (SBSN) as the underlying asset. The provision is carried out in order to strengthen monetary operations based on Shari‘ah principles. SukBI issuances constitute a follow-up action in the reformulation of the monetary policy operational framework as an integral part of Bank Indonesia's Shari‘ah monetary and macroprudential policy mix framework. Previously, Bank Indonesia issued Shari‘ah Bank Indonesia Certificates (SBIS) as a monetary instrument. The primary difference between SukBI and SBIS is that SukBI has underlying assets and are tradable, whereas SBIS do not have underlying assets, nor are they tradable.
In addition to its function as an instrument of Shari‘ah monetary operations, SukBI is also used as Shari‘ah money market instrument. In this term, SukBI provides liquidity management instrument which is tradable in secondary market and is issued based on an al-musyarakah al-muntahiyah bi al- tamlik contract, namely a syirkah contract between two or more parties, where one of the parties purchases a portion (hishah) of others when the contract matures.
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Bank Indonesia pays the SukBI coupon at maturity or before (if the corresponding bank fails to meet the SukBI repurchase agreement obligations). SukBI scheme is illustrated in more depth in Figure 13 below. For an illustration, Bank Indonesia holds 1000 units of Shari‘ah-compliant securities that may be used as underlying assets for SukBI issuances. SukBI issuance was based on placement from an investor (in this case an Shari‘ah bank and/or business unit) totaling 999 of the underlying asset units and Bank Indonesia holds one unit as part of the investment fund. There is a joint placement (al-musyarakah) between Bank Indonesia and the investor with a profit-sharing agreement from the return on the underlying asset. Upon maturity, Bank Indonesia repurchases the 999 units (hishah) from the investor (al-muntahiyah bi al-tamlik) and pays the SukBI coupon to the investor.
Figure 13 : SukBI Scheme Source: Bank Indonesia
Striving to strengthen monetary operations based on Shari‘ah principles, Bank Indonesia expanded the underlying assets for SukBI issuances in April 2019 from only Government Shari‘ah Securities (SBSN) to include global Sukuk held by Bank Indonesia.
Since its first launch on 2018, SukBI has grown exponentially as an alternative of Shari‘ah liquidity instrument for the Islamic banking sector. The outstanding amount of SukBI issued by Bank Indonesia at the end of 2020 is IDR 41,467 Billion.
BI fund participation (syirkah) share Min. 1 unit of OMO smallest instrument (IDR 1 million)
Growth of Outstanding SukBI (in billion IDR)
IDR 60.000
IDR 50.000
IDR 40.000
IDR 30.000
IDR 20.000
IDR 10.000
IDR 0
2018 2019 Jan-2020 Jun-2020 Jul-2020 Jan-2021 Feb-2020 Mar-2020 Apr-2020 May-2020 Aug-2020 Sep-2020 Oct-2020 Nov-2020 Dec-2020
SukBI Expon. (SukBI) Figure 14 : Growth of Outstanding SukBi Source: Bank Indonesia
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GROWTH OF DOMESTIC CORPORATE SUKUK
In 2020 amid the pandemic, the issuance of domestic corporate Sukuk relatively decreased compared to 2019, both in terms of nominal and number of issuances. Total corporate Sukuk issuance in 2020 amounted to IDR 7.5 trillion through 43 issued series, or nominally decreased by around 45% compared to 2019. This shows that the pandemic has hit the economic engine in the private sector, particularly in the consumption, investment and foreign trade sectors, which in turn hampers the issuance of corporate Sukuk.
14,000 (billion IDR) 13,658 13,000 12,000 11,000 10,625 10,000 9,000 8,000 7,499 7,000 6,000 5,662 5,000 3,924 4,000 3,172 3,000 2,608 2,017 1,675 2,204 2,000 1,025 923 1,000 565 654 585 175 200 300 100 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Size (bio IDR) 175 565 654 585 200 1,025 2,608 2,017 300 100 1,675 2,204 923 3,172 3,924 5,662 10,625 13,658 7,499 Number 1 5 7 4 1 4 6 14 5 2 6 10 7 15 15 34 40 61 43
Figure 13. The Development of Corporate Sukuk Issuance Source: Directorate General of Budget Financing and Risk Management - Ministry of Finance of Indonesia
CONCLUSION
The Performance of the 2020 SBSN issuance illustrates that the Government keep striving for innovative financing instruments in order to achieve financing targets, while at the same time supports the implementation of government’s programs. The steps taken also demonstrate the high commitment of the Government to continue deepening the Islamic financial market.
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5.4 Brunei Darussalam Sukuk Market Development By: Autoriti Monetari Brunei Darussalam (AMBD)
1. DATA OF SUKUK ISSUANCE a. Sovereign Sukuk
As at 31st December 2020 the Brunei Government has issued over BND 14.23 billion worth of short-term Sukuk Al-Ijarah securities since its maiden offering on April 6, 2006.
The Government of Brunei Darussalam through its agent, Autoriti Monetari Brunei Darussalam (AMBD), issues the following for the period of January 2020 to December 2020:
YEAR SERIES ISSUANCE DATE TENOR (DAYS) MATURITY DATE TOTAL (BND) RENTAL YIELD
SERIES 177 9-Jan-20 91 09-Apr-20 86,000,000.00 1.3750
SERIES 178 6-Feb-20 91 07-May-20 51,000,000.00 1.1250
SERIES 179 5-Mar-20 364 04-Mar-21 47,500,000.00 1.0625
SERIES 180 9-Apr-20 91 09-Jul-20 96,000,000.00 0.8125
SERIES 181 7-May-20 91 06-Aug-20 100,000,000.00 0.3750
2020 SERIES 182 18-Jun-20 364 17-Jun-21 50,000,000.00 0.2500
SERIES 183 9-Jul-20 91 08-Oct-20 100,000,000.00 0.1875
SERIES 184 6-Aug-20 91 05-Nov-20 100,000,000.00 0.1875
SERIES 185 3-Sep-20 364 02-Sep-21 50,000,000.00 0.2500
SERIES 186 8-Oct-20 91 07-Jan-21 100,000,000.00 0.1250
SERIES 187 5-Nov-20 91 04-Feb-21 100,000,000.00 0.1250
SERIES 188 3-Dec-20 364 02-Dec-21 10,000,000.00 0.0625
b. Quasi-Sovereign Sukuk
As part of AMBD’s continued efforts to develop a more efficient money market for Brunei Darussalam, AMBD successfully launched the AMBD Islamic Bills (AMBD I-Bills) on 22 October 2020.
The inaugural AMBD I-Bills has a tenor of 2 weeks and is based on the Shari‘ah concept of Wakalah bil Ujrah (i.e. Wakalah with fee), the first of its kind in Brunei Darussalam. The introduction of the AMBD I-Bills will be part of the short-term benchmark yield curve and is hoped to be able to facilitate the development of other financial instruments in Brunei Darussalam, particularly Shari‘ah-Compliant instruments. It also aims to support effective and efficient liquidity management for the banks and at the same time, will widen the list of available money market instruments for AMBD and the domestic financial sector.
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YEAR SERIES ISSUANCE DATE TENOR (DAYS) MATURITY DATE TOTAL (BND) RENTAL YIELD
SERIES 001 22-Oct-20 14 5-Nov-20 50,000,000.00 0.1000
SERIES 002 29-Oct-20 14 12-Nov-20 50,000,000.00 0.1200
SERIES 003 5-Nov-20 14 19-Nov-20 50,000,000.00 0.1200
SERIES 004 12-Nov-20 14 26-Nov-20 10,000,000.00 0.0800
SERIES 005 19-Nov-20 14 3-Dec-20 30,000,000.00 0.0900
2020 SERIES 006 26-Nov-20 14 10-Dec-20 30,000,000.00 0.0900
SERIES 007 3-Dec-20 14 17-Dec-20 20,000,000.00 0.0900
SERIES 008 10-Dec-20 14 24-Dec-20 20,000,000.00 0.0900
SERIES 009 17-Dec-20 14 31-Dec-20 20,000,000.00 0.0900
SERIES 010 24-Dec-20 14 7-Jan-21 20,000,000.00 0.0900
Since its maiden issuance on 22 October 2020, AMBD has issued BND300 million, a total of 10 issuances with the total outstanding as at 31st December 2020 at BND20 million.
c. Corporate Sukuk
There was no corporate Sukuk being issued during the period of January 2020 to December 2020.
d. Secondary Market Trading
There was no secondary market activity recorded in the same year.
2. LEGAL AND REGULATORY FRAMEWORK FOR SUKUK IN BRUNEI DARUSSALAM
The capital market industry in Brunei Darussalam is governed by the Securities Markets Order, 2013 (SMO) and the Securities Markets Regulations, 2015 (SMR) which are administered by AMBD.
The SMO and SMR provide the legal and regulatory framework for the licensing and supervision of market operators such as securities exchanges, clearing house, trading facilities, credit rating agencies, capital market intermediaries such as dealers, fund managers, investment advisers, securities products and collective investment schemes.
Prior to any issuance of these investment instruments or securities in Brunei Darussalam by way of a public offering, a registration statement and prospectus are required to be issued in the form and manner set out in the SMO and SMR. Any distributors who wish to make a secondary offering of Sukuk to retail investors in Brunei Darussalam are expected to notify the capital markets regulator and are exempted from the requirement to submit registration statement and prospectus.
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Additionally, Islamic securities or financial products including Sukuk are regulated under the Shari‘ah Financial Supervisory Board Order, 2006 (SFSBO). Under the SFSBO, Islamic securities or financial products are required to be submitted to the Shari‘ah Financial Supervisory Board (SFSB) for approval. The SFSB acts as the final authority for the interpretation of the Laws of Islam for the purposes of any Islamic financial activities that are based on Shari‘ah principles, including Islamic banking business, Takaful, and Islamic capital markets.
3. MOVING FORWARD
AMBD is currently working on developing further the domestic money market, both the conventional and Islamic money market, and will include issuing shorter tenor Sukuk. This project will provide benchmark rates for the shorter end of the yield curve.
Additionally, AMBD is currently enhancing its legal and regulatory framework to facilitate the growth of Sukuk market in Brunei Darussalam. To lower the cost of Sukuk issuance in Brunei Darussalam, some initiatives are currently being developed to encourage corporate issuances of Sukuk.
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5.5 Recent Developments at the Sukuk Market of Turkey By: The Capital Markets Board of Turkey
Interest-free (Islamic) financial products are regulated by four dedicated regulators in Turkey. While shares, Sukuk, interest-free funds and real estate certificates are regulated by the Capital Markets Board of Turkey (CMB), sovereign Sukuk, on the other hand, are under the control and regulations of the Ministry of Treasury and Finance (MTF). In addition Islamic Banks (named as Participation Banks under Turkish legislation) are mainly regulated by Banking Regulation and Supervision Agency. Those Participation Banks are also subject to the rules and regulations of the Central Bank of Turkey.
In order to improve the investor base and enhance the financial inclusion within Turkey’s capital market, “lease certifiacate (Sukuk)” has been been designed in line with the international standards and global best practices. Following its introduction in 2010, Turkey’s Sukuk Market, has demonstrated promising development process thanks to its unique characteristics as providing interest-free investment opportunities.
In recent years, besides its conventional financial products, Turkey has carried out numerous key reforms in Islamic capital markets in order to enhance its financial infrastructure, and increase the diversity of financial products and services. Within that perspective, under the Istanbul Financial Center Action Plan there is a national initiative aiming to develop the securities market in Turkey, including Islamic capital markets. This motivation has proved itself thanks to rising size of issuances within its Sukuk market.
In order to support the regulatory framework for corporate Sukuk, some major challenges have been achieved in the last decade. When the first Sukuk regulation was introduced in 2010, it was basically designed to enable interest-free financing and investment in the form of a leasing (Ijarah) transaction. Then in 2011, tax inequalities on Ijarah Sukuk compared to conventional products were solved. And finally, Sukuk regulations currently in force have been published under the Capital Market Law (CML) in 2012. Sukuk regulations have been entirely renewed in June 2013 with the enactment of the new Capital Market Law. Those new regulations introduced in line with the new Law, have extended the scope of underlying assets to all kinds of rights and assets and introduced five more internationally well known Sukuk structures (which are Wakalah, Murabahah, Mudarabah, Musharakah and Istisna’a) to enable greater product diversity. In order to support corporate Sukuk, in 2016, tax and fee exemptions were extended with a legal amendment to cover all Sukuk. Also in 2016, in order to promote the companies’ access to finance and cushion their financial costs, the CMB has made fify per cent discount for the registration fees it imposed for capital market instrument issuances, including Sukuk.
Market Trend and Recent Data (based on outstanding securities)
In line with effective, reliable and flexible regulatory framework, the volume of Sukuk issues has reached significant levels. Following the tax exemptions and the discount on the CMB registration fees, some advances have been observed in the lease certificate (Sukuk) issuances by the private sector since 2017. When all outstanding debt securities are considered, corporate Sukuk have reserved more than 6 percent in total debt securities including both the conventional and Islamic debt securities. Within that perspective, Table 1 displays this market trend since 2015.
1Sukuk are introduced and defined as “lease certificates” in our jurisdiction.
2For further regulations introduced by the CML in 2012, please see Turkey’s Country Focus for the IIFM Annual Sukuk Report 2017.
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Table 1. Share of Corporate Sukuk – Outstanding Securities (2015-2020)
(USD Million) 2015 2016 2017 2018 2019 2020
Lease Certificates (LC) 3 142 2 776 4 211 4 621 3 061 3 734
All Debt Securities (ADS)* 53 462 53 552 63 789 60 552 62 230 60 745
LC / ADS (%) 5,88% 5,18% 6,60% 7,63% 4,92% 6,15%
* Conventional and Islamic Debt Securities As shown in Figure 1, the share of lease certificates among all outstanding debt securities reached its record level in 2018 and following a decline in 2019 it is now over 6 per cent which is also the general average rate since 2015.
Figure 1. Share of Corporate Sukuk – Outstanding Securities (2015-2020)
Share of Corporate Sukuk (%) 10.00%
8.00%
6.00%
4.00%
2.00% 2015 2016 2017 2018 2019 2020
As for the sale methods of corporate Sukuk, Figure 2 displays that “qualified investors” have been receiving the lion’s share at the market for years: more than two third of corporate Sukuk issued locally have been sold to qualified investors. It can also be asserted that Sukuk have gradually been attracting retail investors in Turkey with IPOs. As being the second group of Sukuk sales, public offerings have also been adopted by the issuers quiet moderately. And according to Figure 2, rather than Sukuk issuances abroad, they are intensively introduced for local investors (including both retail and institutional).
Figure 2. Sale Methods for Corporate Sukuk since 2013
Sale Methods of Corporate Sukuk - (2013-2020)
10% 12% Public Offering
8% Sale to Qualified Investors
Private Placement 70%
Overseas Sales
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As for the structures of corporate Sukuk in Turkey, they are generally based on ownership (Ijarah), trading (Murabahah) and management contracts (Wakalah) whereas the underlying assets of these Sukuk are largely real estates, commodities listed at London Commodity Exchange or Bursa Suq-al-Sila, and bank receivables or loans respectively. However, “Wakalah Sukuk” has dominated the market since 2016 and thereafer, figure 3 and 4 depict that there is precisely a market concentration on “Wakalah Sukuk” with a rate of more than 90 percent among total issuances in 2020.
Figure 3. Types of Corporate Sukuk (2015-2020)
Types of Sukuk by Years (2015-2020) - (USD Millions)
5,000
4,000
3,000
2,000
1,000
0 2015 2016 2017 2018 2019 2020
Based On Management Contract (Wakalah Sukuk) Based On Ownership (Covered Ijarah Sukuk) Trading-Based Contract (Mrabahah/Tawarruq Sukuk) Based on Partnership Contract (Musharakah)
Figure 4. Share of Wakalah Sukuk - (2015-2020)
Share of Wakalah Sukuk - (2015-2020)
100.00%
80.00%
60.00%
40.00%
20.00% 2015 2016 2017 2018 2019 2020
On the other hand, when the issuers are considered, it can be stated that the Participation (Islamic) Banks account for roughly 90 per cent of all Sukuk issuances. Similar trend can also be observed considering conventional debt securities at which financial sector including corporate banks are responsible for 83 per cent of all conventional debt securities.
Secondary Trading and Market Infrastructure
As a challenge of Turkey’s corporate Sukuk market, secondary trading has been very limited in the market. In line with the CMB regulations, when Sukuk is offered to public it needs to be listed at Borsa Istanbul. Secondary trading of Sukuk in Turkey is mostly dominated by sovereign issues. For corporate Sukuk, preferences of retail investors may be mentioned as a disadvantage for second hand transactions as they hold Sukuk usually till the maturity.
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Clearing, settlement and registration functions operated by the MKK and Takasbank under the surveillance of the CMB provide sound infrastructure for Sukuk transactions and also supply a credible Sukuk database to Borsa Istanbul for the secondary market activities.
Meanwhile, some significant steps have been taken to introduce Turkish Sukuk market for international issuers in recent years. Sukuk issued by the Islamic Development Bank (IsDB) has been listed in Borsa Istanbul in 2016. IsDB has issued Sukuk which is already traded at London, Dubai and Malaysia. IsDB’s listing has been an important landmark as it highlights Istanbul Sukuk Market.
Sovereign Sukuk in Turkey
As the issuer of the sovereign Sukuk in Turkey, Ministry of Treasury and Finance (MTF) conduct all these Sukuk issuances under the structure of Ijarah Sukuk. In 2016 the MTF issued first longest term (5 year) maturity Sukuk in order to enhance liquidity and provide benchmark yield curve. Again in 2016, another important Sukuk issuance took place, 5 year CPI linked Sukuk sold to domestic market for the same goal. Subsequently, gold denominated Ijarah Sukuk was introduced in 2017 by the MTF with the aim of bringing idle gold into the economy.
The MTF raised 2.5 tons of gold in 2018, 65,5 tons of gold in 2019 and 51,1 tons of gold in 2020 from the public with its gold-based lease certificates. In addition, the MTF has also issued foreign currency (Euro and USD) based lease certificates (corresponding to USD 4,15 billion & USD 2,97 billion) and TRY based lease certificates (corresponding to USD 1,28 billion & USD 5,43 billion) respectively in 2019 and 2020. Among those sovereign Sukuk which are issued in 2020, TRY based lease certificates have much longer maturities (upto 5 years) rather than foreign currency and/or gold based lease certificates that have maturities upto 3 years.
3Sovereign Sukuk data provided here is gathered from the website of Ministry of Treasury and Finance of Turkey.
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5.6 Sukuk Market in Pakistan By: State Bank of Pakistan (SBP) 1. Overview
The Sukuk Market has emerged as one of the important segments of Islamic finance industry of the country. Pakistan’s first Sukuk was an international sovereign Sukuk, amounting USD 600 million, issued in 2005. So far, Pakistan has tapped the international market four times by issuing international Sukuk of valuing USD 3.6 billion.
In Pakistan’s domestic market, the first Sukuk was issued in 2006, which was a corporate Sukuk. While, Government of Pakistan (GoP) has been issuing sovereign Ijarah Sukuk in the domestic market since 2008. On an overall basis, 141 Sukuk amounting Rs. 2,341.4 billion have been issued in the domestic market till December 31, 2020, out of which 31 are GoP Ijarah Sukuk while remaining 110 Sukuk have been issued by corporate and quasi-sovereign entities.
2. Domestic Sukuk Market
Table 1: Breakdown of Domestic Sukuk Table 2: Status Wise Sukuk Issuance in Pakistan in Pakistan
Issuer Number of Amount in Listing Status Number of Amount in Issues Billion Rs. Issues Billion Rs. Government of Pakistan 31 1,497.8 Privately Placed 124 2,039.2
Quasi-Sovereign 29 612.0 Listed 17 302.2
Corporate 81 231.6 TOTAL 141 2,341.4
TOTAL 141 2,341.4
In the domestic Sukuk market, 141 Sukuk have been issued till December 31, 2020 (see Table 1). In terms of number of issues, corporate Sukuk have the highest number with 81 issues followed by 31 issues of sovereign Sukuk issued by GoP. However, the share of GoP Sukuk is highest in terms of amount. The major investors in the domestic Sukuk market include commercial banks, mutual funds, employees’ funds and other financial institutions.
Majority of the Sukuk are privately placed whereas, some are listed on the stock exchange (see Table 2).
A. Structure Break-up of Sukuk
In the domestic Sukuk market, the most commonly used mode is Musharakah (61 issues) followed by Ijarah (47 issues). However, Ijarah dominates the Sukuk market with 83.82% value of total Sukuk issuances (see Figure 1). This is mainly because that all GoP Sukuk are Ijarah based which are generally of larger volume as compared to other Sukuk issued in Pakistan.
Figure SEQ Figure \* Arabic 2: Year wise Financing Raised by Domestic Sukuk Breakup of Sukuk Structures 4.93% 11.25%
83.82%
Ijarah Musharakah Others 204 IIFM SUKUK REPORT 2021
B. Chronological Development of Pakistan’s Sukuk Market
Since 2006, when Pakistan issued its first domestic corporate Sukuk, a total of 141 Sukuk valuing Rs. 2,341.4 billion have been issued. In 2020, GoP issued sovereign Sukuk with a longer maturity period, i.e., five years instead of the past practice of three years. A total of 19 Sukuk were issued in 2020 in the domestic market raising Rs. 806.4 billion; the largest amount raised in a single year till December 2020 (see Figure 2). Historically, significant growth was observed during 2011-2012, 2015-2016 and 2019-2020.
Figure 2: Year wise Financing Raised by Domestic Sukuk
Amount (in Billion Rs.)
900.00 800.00 700.00 600.00 500.00 400.00 300.00 200.00 100.00 0.00 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
In terms of number of Sukuk issued during a year, afer witnessing least number of issues in 2015 (only 2), the number of Sukuk issued have increased in 2020, witnessing issuance of 19 Sukuk during the year (see Figure 3).
Figure 3: Year wise No. of Domestic Sukuk Issued
Number of Sukuk Issues
25
20
15
10
5
0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
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C. Entity wise Sukuk Issuance
In the domestic Sukuk market, corporate Sukuk had major share in total Sukuk issuances in Pakistan till 2009. However, since 2010, the share of GoP sovereign Sukuk in overall Sukuk value has started increasing. During the last two years, the share of quasi-sovereign Sukuk has improved considerably due to issuance of Pakistan Energy Sukuk. However, till December 31, 2020, the Sovereign Sukuk still has the highest share of Sukuk in terms of value (see Table 3).
Table 3: Entity wise & Year wise Breakup of Sukuk (Cumulative as of end year (In Percent)
Year Corporate Sovereign Quasi-Sovereign
2006 7.2 0.0 92.8
2007 55.5 0.0 44.5
2008 48.6 14.0 37.4
2009 43.3 29.0 27.7
2010 27.1 55.7 17.2
2011 15.9 72.7 11.4
2012 11.5 79.3 9.2
2013 10.7 78.5 10.8
2014 11.0 78.3 10.7
2015 9.2 79.3 11.5
2016 8.9 74.2 16.9
2017 10.0 73.4 16.6
2018 11.8 71.9 16.3
2019 12.2 61.0 26.8
2020 9.9 64.0 26.1 a. Sovereign Sukuk
Pakistan Domestic Sukuk Company Limited (PDSCL), a public sector company, has been issuing GoP Sukuk in the domestic market since 2008 and all of these Sukuk have been issued on the basis of Ijarah. Since issuance of first GoP Ijarah Sukuk, there have been 31 issues in total. Out of these, 16 Sukuk, valuing around Rs. 669 billion, were on the basis of variable rental rate with a tenor of 3-years (see Table 4), while 3 GoP Sukuk amounting to around Rs. 268 billion with a tenor of 3-years were issued on the basis of fixed rental rate (see Table 5). During 2020, GoP started issuance of its variable and fixed rental rate Sukuk with 5-years tenor. Accordingly, in 2020, a total of 9 Sukuk of around Rs. 517 billion on the basis of variable rental rate and 3 Sukuk of Rs. 45 billion on the basis of fixed rental rate have been issued.
Table 4: Summary of Ijarah Sukuk by the Government of Pakistan (Variable Rental Rate)
Issue Issue Date Amount of Sukuk (in Billion Rs.) Tenor (years)
GoP Ijarah Sukuk - 1 26/09/2008 6.52 3
206 IIFM SUKUK REPORT 2021 Continued from previous page
GoP Ijarah Sukuk - 2 29/12/2008 6.00 3
GoP Ijarah Sukuk - 3 11/03/2009 15.33 3
GoP Ijarah Sukuk - 4 17/09/2009 14.40 3
GoP Ijarah Sukuk - 5 15/11/2010 51.84 3
GoP Ijarah Sukuk - 6 20/12/2010 37.17 3
GoP Ijarah Sukuk - 7 07/03/2011 47.54 3
GoP Ijarah Sukuk - 8 16/05/2011 45.80 3
GoP Ijarah Sukuk - 9 26/12/2011 70.27 3
GoP Ijarah Sukuk - 10 02/03/2012 38.12 3
GoP Ijarah Sukuk - 11 30/04/2012 29.63 3
GoP Ijarah Sukuk - 12 28/06/2012 48.77 3
GoP Ijarah Sukuk - 13 18/09/2012 47.02 3
GoP Ijarah Sukuk - 14 28/03/2013 43.02 3
GoP Ijarah Sukuk - 15 25/06/2014 49.54 3
GoP Ijarah Sukuk - 16 18/12/2015 117.72 3
GOP Ijarah Sukuk - 18 30/04/2020 76.38 5
GOP Ijarah Sukuk - 19 29/05/2020 74.62 5
GoP Ijarah Sukuk - 20 24/06/2020 47.24 5
GoP Ijarah Sukuk - 21 29/07/2020 26.73 5
GoP Ijarah Sukuk - 21 26/08/2020 21.57 5 (1st Reopen)
GoP Ijarah Sukuk - 21 23/09/2020 69.13 5 (2nd Reopen)
GoP Ijarah Sukuk - 21 21/10/2020 69.48 5 (3rd Reopen)
GOP Ijarah Sukuk - 22 09/12/2020 68.86 5
GOP Ijarah Sukuk - 22 23/12/2020 62.83 5 (1st reopen)
Total Value 1,185.53
Table 5: Summary of Ijarah Sukuk by the Government of Pakistan (Fixed Rental Rate)
Issue Issue Date Amount of Sukuk (in Billion Rs.) Tenor (years)
GISF – 1 15/02/2016 116.26 3
GISF – 2 29/03/2016 80.40 3
GISF – 3 30/06/2017 71.01 3
207 IIFM SUKUK REPORT 2021 Continued from previous page
GISF – 4 29/07/2020 21.00 5
GISF - 4 (1st Reopen) 26/08/2020 17.83 5
GISF - 4 (2nd Reopen) 23/09/2020 5.76 5
Total 312.26 b. Corporate and Quasi-Sovereign Sukuk
There have been a total of 110 corporate and quasi-sovereign Sukuk issued between the first offering in 2006 and the end of 2020. During the last two years, domestic corporate and quasi-sovereign Sukuk market has witnessed revival, mainly due to issuance of Pakistan Energy Sukuk-I & II amounting to Rs. 400 billion. As a result, the cumulative value of corporate and quasi-sovereign Sukuk, issued till end of December 2020, has reached to Rs. 843.6 billion (see Table 6). A total of seven corporate Sukuk worth around Rs. 245 billion were issued in 2020, which is highest amount of Corporate Sukuk issuance in the domestic market in a single year.
Table 6: Cumulative (Corporate & Quasi-Sovereign) Year Wise Domestic Sukuk Summary
Cumulative (Corporate & Quasi-Sovereign) Year wise Domestic Sukuk Summary
Year Amount (in Billion Rs.) No. of Issues
2006 8.63 2
2007 48.06 20
2008 20.56 17
2009 26.18 8
2010 0.80 2
2011 6.40 5
2012 8.88 5
2013 18.00 6
2014 15.20 7
2015 22.00 1
2016 126.17 7
2017 38.07 9
2018 27.23 6
2019 232.45 8
2020 245.00 7
Total 843.62 110 c. International Sukuk by the Government of Pakistan
Since the first issuance in 2005, Pakistan has so far issued four international Sukuk worth USD 3.6 billion (see Table 7). These international Sukuk were issued for a period of five years each and attracted positive response from investors. Two of these four international Sukuk have matured till date.
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Table 7: International Sukuk
Issue Date of Issue Date of Maturity Amount (in Billion USD)
Pakistan First International Sukuk 01/01/2005 01/01/2010 0.60
Pakistan Second International Sukuk 01/11/2014 01/11/2019 1.00
Pakistan Third International Sukuk 16/10/2016 13/10/2021 1.00
Pakistan Fourth International Sukuk 01/11/2017 01/11/2022 1.00
3. Regulatory Framework Governing Issuance of Sukuk
Sukuk in Pakistan are issued by the companies either by way of public offering or by way of private placement under section 66 of the Companies Act, 2017. Majority of the Sukuk issued in Pakistan are through private placement. In case of privately placed Sukuk, the issuers are required to comply with the Sukuk (Privately Placed) Regulations, 2017 and the Private Placement of Securities Rules, 2017. On the other hand, the issuer of public offering Sukuk is required to obtain approval of Securities and Exchange Commission of Pakistan (SECP) for issuance, circulation and publication of the prospectus.
4. Future Prospects
The emergence of Sukuk has been a significant development in Islamic capital markets due to its ability to raise financing under Shari‘ah permissible modes while maintaining link between the real economy and the financial sector. In case of Pakistan, the Sukuk market has witnessed a strong performance as both sovereign and corporate entities have been issuing Sukuk in order to meet their various project financing needs. In recent years, the successful issuance of Pakistan Energy Sukuk has also provided much needed support to Islamic banking institutions to manage their liquidity. Based on a positive trend of last few years, it is expected that the Sukuk market will grow further in the upcoming years.
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CONCLUSION OF IIFM SUKUK REPORT 2021
The global Sukuk market maintained its attractiveness for both issuers and investors as evident from the yet another new record of total Sukuk (short term & long term) issuances both in domestic and International Sukuk markets.
As the case in previous year, the key drivers of the Sukuk market during the year were issuances from regular & well-established jurisdictions, several new as well as relatively recent entrants, increase in Basel III Complaint Tier 1 & Tier 2 issuances, increase in long dated 30 years issuances, increase in short term issuances for liquidity management and greater focus on project financing and ESG related issuances.
The demand for Sukuk from GCC countries namely Bahrain, Saudi Arabia, UAE, Oman, Qatar; other Islamic jurisdictions including Malaysia, Indonesia, Turkey, Pakistan, Brunei Darussalam, Africa region such as Nigeria, Egypt etc., and Islamic Development Bank (IsDB) provided the impetus to stronger growth in issuances.
In recent years, several of the Islamic jurisdictions, mentioned above, have been regularly issuing benchmark Sukuk in domestic as well as international markets. Moreover, some jurisdictions, including African countries, have adopted Bahrain’s strategy of regularly issuing short term Sukuk to support the liquidity and investment requirements of Islamic financial institutions based in its jurisdiction. Bahrain, Brunei Darussalam, Indonesia, Malaysia, Turkey and certain African countries were the most frequent issuers of short-term Sukuk during 2020 as the case previous year also.
The International Islamic Liquidity Management Corporation (IILM) continues to remain an active issuer of short term international Sukuk. This offers an alternative liquidity management avenue to Islamic financial institutions which are active in the short-term market and looking for low risk securities to address High Quality Liquid Assets (HQLA) requirements of regulators.
The issuance of more debut Sukuk and successful refinancing of maturing Sukuk has contributed in maintaining the positive Sukuk volume trajectory and the indications were that this trend will continue in 2021.
So far, the impact of COVID 19 on the Sukuk market is confined to few corporate issuers and the Sukuk remained as an attractive Islamic capital market instrument from both issuers and investors perspective.
The use of gold in Sukuk issuance by sovereign such as Turkish Treasury and asset backed Sukuk issuances may continue to be explored and issued though the volume may be limited given the limited availability of fully transferable assets, structuring issues and legal challenges especially title transfer requirement and risk management of the underlying asset need to be addressed.
The trend of issuing Sukuk on a fixed profit rate is expected to continue given the fact that the investor base is much more diverse as compared to the early years of Sukuk issuance when the investors were generally financial institutions. The Sukuk issued on fixed profit rates provide more trading opportunities and is helping the development of the secondary Sukuk market.
Generally, Sukuk market did not face any major issue due the global benchmark rate reforms and transition from Inter-bank offered Rates (IBOR) to Risk Free Rates as mostly the IBOR is used in short term Sukuk issuances. Moreover, IIFM has published a white paper on global benchmark rate reforms and its impact on Islamic industry and is currently assessing through its consultative process the required amendment to be made in the documentation.
During 1st half of 2021 Islamic Development Bank has issued a Sukuk based on RFR basis to set the trend in the market.
Sukuk issuances in non-local currency, for example, an issuer based in GCC issues a Malaysian Ringgit Sukuk or a Malaysian corporate issue a Sukuk in Singapore Dollar or Chinese Yuan etc., such transaction did not take place in 2020 as the case previous year.
210 IIFM SUKUK REPORT 2021
The issuance of Farmosa Sukuk out of Taiwan in January 2020 was a positive development but since then there is no follow-up issuance though it was a positive development and in future will be helpful in the development of Sukuk market.
The application of the Dodd Frank rule of a 5% take-up by the issuer in the case of the Government of Saudi Arabia’s international Sukuk issuance of USD 9 billion in 2017 seems to be one time event as no such transaction was reported in 2020 also.
During 2020, the share of sovereign issuances in the domestic market remained robust; contributing whopping 60% of total issuances value followed by corporate, Quasi-sovereign and IFs issuances of 14%, 8% and 18% respectively. The shares of the corporate sector excluding Malaysian Government remained below its potential in issuance volume.
In 2020, quasi-sovereign issuances in the international market were relatively strong with an issuance contribution of 45% (USD 19.27 billion) while sovereign issuances contribution was 23% as against 2019 contribution of 30%. The financial institutions issuances increased to 23% (USD 9.55 billion) from 2019 issuances of 16% (USD 6.27 billion) while the corporate again declined to 9% (USD 3.85 billion) from 2019 issuances of 13% (4.93 billion).
On a cumulative basis for the period of 2001 to 2020, Malaysia continues to maintain its top position of Sukuk issuances with combined domestic and international issuances of around USD 800 billion, followed by Saudi Arabia with 174.60 billion, Indonesia with USD 124.90 billion, UAE USD 98.39 billion and Turkey USD 66.90 billion. Malaysia, due to its deep capital market, continues to maintain its lead over its peers in the Asia and the GCC; however, the increase in issuances from Kingdom of Bahrain, Saudi Arabia, Indonesia, UAE, Turkey, etc is resulting into a reduction of the Malaysian share of the global Sukuk market in recent years.
In 2020, the Sukuk Al Wakalah structure maintained its lead over the Ijarah and other structures as the one most widely used by issuers in the international market with the market share of 51.00% (USD 21.42 billion) resulting into slight decrease of around 5%. It was followed by a Sukuk Al Ijarah where market share increased to 18% (USD 7.50 billion) followed by Sukuk Al Mudarabah 6% (USD 2.70 billion).
In 2020, the domestic Sukuk Al Murabahah remains the most used structure while seeing a decline in market share of this structure to 29% (USD 38.09 billion) as compared to 30% (USD 32.00 billion) last year, followed by Sukuk Al Ijarah of 41%, (USD 21.20 billion) and Murabahah/Mudharaba of 10.00% (USD 13.70 billion.
The year 2020 presents a somewhat balanced structure preference, which is desirable and encouraging for the Sukuk market as the concern of dependence on one particular structure has been addressed.
In 2020, the International Sukuk issuance closed at around USD 42.41 billion Sukuk issuances as compared to USD 38.4 billion in 2019. The volume of short term international Sukuk issuance in 2020 and 2010 works out to USD 13.32 billion and USD 9.03 billion respectively which means that longer tenor Sukuk issuances were USD 29.09 billion and USD 29.40 billion respectively.
The international outstanding Sukuk increased to around USD 165.25 billion, which is an improvement over last year; though the supply and demand gap still remains.
Several landmark global Sukuk issuances from Malaysia, Saudi Arabia, Turkey, UAE, Indonesia, Bahrain etc., were in the pipeline for 2021, which is a clear indication that the Sukuk market is the most sort afer capital market instrument.
As far as domestic Sukuk markets are concerned, Sukuk issuances during 2020 were USD 132.23 billion compared to USD 107.20 billion in 2019. Malaysia has maintained a dominant share in terms of both volume and value, and remains the largest domestic Sukuk issuer with 40.65% (USD 53.70 billion). The countries like Kingdom of Bahrain, Indonesia, Saudi Arabia, Pakistan, Qatar and Turkey are emerging as potential leaders. Kingdom of Bahrain, particularly short-term Sukuk issuances, has also kept up its regular Sukuk issuances and has seen several landmark issuances.
211 IIFM SUKUK REPORT 2021
The domestic Sukuk market in a number of jurisdictions is becoming active, particularly Saudi Arabia, Indonesia, Turkey and few others. Central banks are providing avenues to Islamic banks and other investors to invest their surplus liquidity in government Sukuk programs designed to provide a level playing field to Islamic financial institutions. Moreover, a number of countries such as Gambia, Ivory Coast, Senegal, Mali, Morocco, Bangladesh and Pakistan are actively developing their domestic Sukuk markets.
The total outstanding Domestic Sukuk as of 2020 stood at around USD 482.84 billion, which is pleasantly around USD 76.00 billion higher than the previous year. The issuances volumes are on the rise in recent years led by sovereigns, quasi-sovereigns and IFIs and it is expected that in 2021 also the issuances will be mostly come from these issuers while corporate Sukuk issuances is expected to be lacklustre.
The US Dollar continues to be the favoured currency for attracting international investors around the globe. Local currency Sukuk will develop in the coming years as more OIC countries develop their domestic Sukuk markets. This trend is taking shape with Indonesia, Turkey, Pakistan, Africa and the GCC countries issuing local currency Sukuk. Sovereign or sovereign linked entities currently dominate issuance in these countries and this flow will continue, since the sovereign needs to fund its budget while also setting up the local benchmark curves and funding huge infrastructure projects.
Cross-border international Sukuk maturities in 2020 were USD 10.5 billion while the Sukuk maturities during 2021 and 2022 will be USD 16.00 billion and USD 21.70 billion respectively and need to be replaced.
The domestic maturities in 2020 were USD 23.40 billion while the maturities during 2021 and 2022 will be in the tune of around USD 20.93 billion and USD 39.68 respectively which need to be replaced.
Short-term Sukuk with a maturity of one year or less are essential in the development of Islamic interbank markets and these Sukuk play a key role in the liquidity management of financial institutions. In the year 2019, the main issuers of the short-term Sukuk were the kingdom of Bahrain, Malaysia, Indonesia, Turkey, Brunei Darussalam and a few African countries etc.,. The short-term Sukuk market, although limited to a few jurisdictions, offers and presents balanced issuances from various jurisdictions. In addition, the ILLM's short-term international Sukuk issuances also helps to develop this important market.
The appetite for short term Sukuk is high, perhaps higher than Sukuk with longer tenors, and is evident by these issuances. The trend towards issuing shorter tenor Sukuk is improving though it is mainly driven by sovereign issuers. There is a need for Islamic financial institutions and corporates to become active issuers of Sukuk in order to provide diversity and depth to the local markets, which are essential in the development of the money market.
Another important aspect, which is critical to the development of the Sukuk market, is the role of the corporate sector. As mentioned in the analysis part of this report, the volume of corporate issuances in most of the Sukuk issuing jurisdictions (except Malaysia) is below the potential. Among the reasons for the underperformance of the corporate sector in issuing Sukuk are economic conditions, government policies towards a particular sector, cash flow issues, tax incentives and other related reasons, moreover, the current adverse situation caused by the COVID-19 pandemic could be another reason for issuance slowdown during 2020.
The most important issue surrounding corporate Sukuk is default and restructuring which was cause of concern during 2008 global economic crisis and is again surfacing though confined to few domestic and international issuances.
The Sukuk market continues to evolve, and in recent years, it has witnessed over reliance on certain Sukuk structures such as Wakalah and Murabahah. This development in particular needs to be monitored, as a structurally diversified global Sukuk market is recommended. Moreover, Sukuk market also need more asset backed or securitized Sukuk issuances perhaps covered bond structure can be introduced for Sukuk issuance as well.
Finally, IIFM recently published Sukuk Al Ijarah and Sukuk Al Mudarabah Tier 1 standard template documentation is likely to play a significant role in the development of Sukuk market.
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GLOSSARY (A) General Islamic Finance Terms
Term Meaning
‘Aqd A bilateral contract, agreement etc.
Contract of exchange in which compensation is given against the goods or Aqd al-Muawadah services received.
Al-bai` Sale contract.
Bai` al-`Inah Sale contract followed by repurchase by the seller at a different price.
Advance purchase. Sale contract based on order of certain asset with certain Bai al- Salam specifications. Full payment is made in cash at the time of conclusion of the contract, whereas the delivery of the asset is deferred to a specified time.
A sale agreement in which a security deposit is given in advance as a partial Bai Al- ‘Arbun payment towards the price of the commodity purchased. (It is also known as down payment sale).
Bai Bithaman al-Aajil / Deferred payment sale. It refers to the sale of goods contract on a deferred Bai Mu'ajjal or Bai al-Aajil. payment basis.
Buyback, sale and repurchase, a contract with the condition that when the seller Bai al-Wafa pays back the price of goods sold, the buyer returns the goods to the seller.
Is a Muslim Jurist who gives rulings on various juristic issues in the light of the Faqih Qur’an and the Sunnah of Prophet Muhammad (peace be upon him).
It is a religious decree. A ruling made by a qualified Shari 'ah scholar on a Fatwa particular issue. It is an opinion that addresses either a specific problem of interest to a particular person or a matter of public concern.
Refers Islamic jurisprudence. It covers all aspects of life - religious, political, Fiqh social, commercial, and economic. Fiqh is based primarily on interpretations of the Holy Qur’an and the Sunnah of Prophet Muhammad (peace be upon him) etc.
It is Islamic commercial jurisprudence, jurisprudence of financial transactions or Fiqh al-mu ‘aamalat the rules of transacting in a Shari 'ah-compliant manner.
Lease or service contract that involves benefit/usufruct of certain asset or work for Ijarah an agreed payment within an agreed period.
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Ijarah muntahia bi al-Tamlik Lease contract which ends with acquisition of ownership of the asset by the lessee.
Advance purchase of goods or buildings. It is a sale contract by way of order for a certain Istisna‘a product with certain specifications and certain mode of delivery and payment (either in cash or deferred)
Murabahah Sale contract with a disclosure of the asset cost price and profit margin to the buyer.
Profit sharing contract. It is an investment partnership, whereby the investor provides capital Mudarabah to the entrepreneur in order to undertake a business or investment activity. While profits are shared on a pre-agreed ratio, losses are born by the investor alone. The entrepreneur loses only his share of the expected income.
Mudarib Entrepreneur of a Mudarabah joint venture contract.
Profit and loss sharing contract. It is an investment partnership in which all partners are entitled Musharakah to a share in the profits of a project in a mutually agreed ratio. Losses are shared in proportion to the amount invested.
Refers to a contract whereby one of the partners promises to buy the equity share of the other Musharakah Mutanaqisah gradually until the title is completely transferred to him. (This is known as diminishing Musharakah).
Murtahin A party who asks for collateral.
Musawamah Bargain on price. Sale contract without the disclosure of the asset cost price and profit margin to the buyer
Muwakkil The principal/investor who appoints the agent (Wakil) to carry out a specific job on his behalf.
Rabb al-Mal Owner of capital (the investor) in Mudarabah joint venture contract.
Ra’s-al-Mal The capital. The money or property which an investor invests in a profit-seeking venture contract.
Rahin Chargor
Is often referred to as Islamic law. It is the rulings contained in and derived from The Holy Qur’an and the Sunnah (i.e. sayings and living example of the Prophet Muhammad (peace be upon him). Shari‘ah These cover every action performed by an individual or a society. It is primarily concerned with a set of values that are essential to Islam and the best manner of their protection. The essential values of the Shari 'ah include those of faith, life, intellect, lineage, property, fulfillment of contracts, preservation of ties of kinship, honoring the rights of one’s neighbor. It also includes sincerity, trustworthiness and moral purity and so forth.
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The Islamic Shari'ah scholar is an individual who is well-versed with the necessary knowledge Shari‘ah Scholar of the Shari‘ah teachings and principles.
The product meets the requirements of Shari‘ah. In other words, this is the term used in Islamic A Shari‘ah compliant product finance to indicate that a financial product or activity that complies with the requirements of the Shari‘ah.
Is the committee of well-versed Islamic scholars available to an Islamic financial institution for guidance and supervision in the development of Shari‘ah compliant products. It is recommended A Shari‘ah board the scholars of a Shari ‘ah board to be well-versed and competent in Shari‘ah and its approaches to economics and finance.
Is an independent Islamic trained scholar that advises Islamic institutions on the compliance of A Shari ‘ah advisor the products and services with the Shari‘ah.
Islamic insurance. Structured as a charitable collective pool of funds based on the idea of mutual Takaful assistance.
Tawarruq Reverse Murabahah, for the purpose acquiring cash through trade activities.
Tamwil Majm‘a li Refers to a participation agreement for trade finance transactions. muamalaat Tijariah
Promise/undertaking. Such as a promise to buy or sell certain goods in a certain quantity at a Wa'ad certain time in future at a certain price.
Agency. A contract of agency in which one party appoints another party to perform a certain task Wakalah on its behalf.
Wakil In a Wakalah contract, a representative/agent, who acts on behalf of the principal/investor.
Wakalah bi al-istithmar Agency contract for investment.
Wathiqah Hamish al Refers to Credit Support Deed for Cash Collateral Variation Margin Agreement Rahn al Naqdi
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(B) Sukuk report tenth edition glossary
An ‘Arabic term for financial certificate. It is defined as “Certificates of equal value representing Sukuk undivided shares in ownership of tangible assets, usufructs and services or (in the ownership of) the assets of particular projects or special investment activity”. .
Refers to Investment Sukuk. Investment Sukuk are of different types. Such as Certificates of Sukuk Sukuk Al- Istithmar ownership in leased assets and Certificates of ownership of usufructs.
Sukuk mulkiyat al Certificates of ownership in leased assets maujudaat al muajjarah
Sukuk mulkiyat al Manaf ‘i Are Certificates of ownership of usufructs (are of different types).
An Islamic certificate for the buying and leasing of assets by the investors to the issuer and such Al-Ijarah Sukuk Sukuk shall represent the undivided beneficial rights/ownership/interest in the asset held by the trustee on behalf of the investors.
Are certificates of equal value issued with the aim of mobilizing funds to be employed for the production of goods so that the goods produced come to be owned by the certificate holders. Istisna‘a Sukuk (This type of Sukuk has been used for the advance funding of real estate development, major industrial projects or large items of equipment such as: turbines, power plants, ships or aircraft (construction/manufacturing financing).
Are certificates that represent project or activities managed on the basis of Mudarabah by appointing one of the partners or another person as the Mudarib for the management of the Mudarabah Sukuk operation. (It is an investment partnership between two entities whereby one entity is mainly a provider of capital and the other is mainly the manager)
Are certificates of equal value issued for the purpose of financing the purchase of goods through Murabahah Sukuk Murabahah so that the certificate holders become the owners of the Murabahah commodity. (This is a pure sale contract based Sukuk, which based on the cost plus profit mechanism). Are certificates of equal value issued with the aim of using the mobilized funds for establishing a new project, financing a business activity etc., on the basis of any of partnership contract so that Musharakah Sukuk the certificate holders become the owners of the project. (Musharakah Sukuk is an investment partnership between two or more entities which together provide the capital of the Musharakah and share in its profits and losses in pre-agreed ratios)
Are certificates of equal value issued with the aim of mobilizing Salam capital/mobilizing funds Salam Sukuk so that the goods to be delivered on the basis of Salam come to be owned by the certificate holders.
Corporate Sukuk Is a Sukuk issued by a corporation as opposed to those issued by the government. It is a major way for companies to raise funds in order to expand its business or for a specific project.
Convertible or Convertible or exchangeable Sukuk certificates are convertible into the issuer’s shares or exchangeable Sukuk exchangeable into a third party’s shares at an exchange ratio, which is determinable at the time of exercise with respect to the going market price and a pre-specified formula.
Domestic Sukuk A Sukuk issued in local currency. (For the purpose of this report)
Global Sukuk Both international and domestic Sukuk. (For the purpose of this report)
Hybrid Sukuk combine two or more forms of Islamic financing in their structure such as Istisna’a Hybrid Sukuk and Ijarah, Murabahah and Ijarah etc.
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(B) Sukuk report tenth edition glossary
International Sukuk (For the purpose of this report) A Sukuk issued in hard currency such as USD.
Are Sukuk issued by a public sector entity that is like sovereign Sukuk. It may carry explicit or Quasi-sovereign Sukuk implicit government guarantee.
Are Sukuk issued by a national government. The term usually refers to Sukuk issued in foreign Sovereign Sukuk currencies, while Sukuk issued by national governments in the country’s own currency are referred to as government Sukuk.
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International Islamic Financial Market
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