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2015 IFN Deals of the Year

Wednesday, 06 January 2016

In what was an undeniably challenging year for the global financial markets, and with turbulence and volatility from which the Islamic financial industry certainly did not escape, the Shariah compliant capital markets nevertheless saw another exceptional year marked by landmark deals, maiden entries, impressive resilience and new levels of innovation and sophistication. While volumes may have flattened, new sectors emerged and new opportunities were leveraged to prove that despite the headwinds, Islamic transactions continue to evolve apace. Our illustrious and expert judging panel has once again labored to evaluate and analyze the very best deals of the last 12 months, and we are delighted to present to you their comprehensive independent review of the industry. 

In 2015, we felt more pain from declining oil prices, currency devaluations, dollar tightening, austerity budgets, and new central bank strategies. Nonetheless, clear themes emerged in the market. Social impact nominations increased greatly. These reflected innovation and a wider reach of both scope and imagination. Airlines came to the fore with a significant number of plain vanilla lease deals, secured commodity Murabahah, credit support and creativity. Bank capital deals were also widespread.

Two disappointments bracketed the market. Commodity Murabahah or Tawarruq was the dominating form of submission. The revision of strategy at Bank Negara Malaysia led to a withdrawal of certain Sukuk from the market. The Malaysian central bank had been issuing short-term securities for domestic bank liquidity management. But the instruments were often found in the portfolios of non-banks. This resulting reduction in Bank Negara transactions is a distraction. For too long the market measures itself with a Malaysian yardstick. The necessity is for key central banks and capital market regulators in the GCC and other Islamic markets to stimulate their own markets. Hydrocarbon-linked deficits in countries with low debt may be addressed in part with Sukuk issuances. 

Last year, the retreat of global banks had been plugged by the rise of Islamic banks. Yet 2015 witnessed continuing and stable involvement of global banks. Islamic banks, however, retreated in some markets. Increased problems with slow-paying obligors, dollar shortages, and slower domestic growth affected the strategies of many banks in the emerging markets. The news was not gloomy everywhere as Islamic banking in Oman, which enjoyed its sovereign benchmark launch in 2015, experienced a sharp increase in assets, and new markets continue to embrace Islamic finance as a viable addition to their financial systems. 

Malaysia, the UAE and Saudi Arabia remain the pillars of the market by volume and quantity. As often as not, their players were often key in market expansion, and certainly in the testing of new ideas. 

Indonesia, Turkey and Pakistan hang just behind, promising to become vibrant domestic Islamic finance markets with strong links. Each, however, is a consumer of capital. Only Pakistan among the three is developing as an idea laboratory with influence into new markets. Africa kept pace with small deals, following, not yet leading.

Would-be competing hubs like London, Luxembourg and Hong Kong were surprisingly silent among nominees in 2015. 

In 2015, innovation flew above austerity. Sometimes, innovation tested the edges of Shariah understandings about exposure to certain businesses – those deals won’t make it into DOTY 2015. Global connections continued to improve, but more in the service of the emerging markets. 

Finally, we witnessed one new concept, a completely non-commercial transaction meant to serve the public with the support of the capital markets.

CORPORATE FINANCE: Emirates National Oil Company
Size:
US$1.5 billion
Arrangers:
Dubai Islamic Bank, Abu Dhabi Islamic Bank, Noor Bank, Mashreqbank, Emirates NBD, Commercial Bank of Dubai, Standard Chartered
Lawyers:
Clifford Chance for the obligor and Allen & Overy for the arrangers
Date closed:
17th June 2015
Shariah advisors:
Dar Al Sharia, ADIB and Noor Shariah Board

Most 2015 corporate finance deals were linked to either oil and gas or infrastructure. Saudi ARAMCO came to the market for syndication of US$10 billion in conventional and Islamic tranches. This is not the first time that Saudi ARAMCO has dipped into the Islamic market. Most corporate finance nominees raised less money. The range was between US$500 million and US$1.5 billion. The UAE’s government-related entities (GRE) have been much less active in the Islamic finance market. Emirates National Oil Company (ENOC) represents a benchmark deal with conventional and Islamic tranches. This is the first syndication for a UAE GRE. The deal encompasses dual tranche and dual currency conventional and Islamic structures. The Islamic tranche, based on commodity Murabahah, breaks the ice and supports Mohammed Rashid Al Maktoum’s efforts to promote Dubai and the UAE as leaders in the Islamic economy.

ENOC is applying the proceeds for refinery expansion and upgrade. These in turn will allow ENOC to expand its product lines into higher premium offerings.

Honorable Mention: Saudi Aramco, Gas Malaysia Energy Advance, and MAF Sukuk.

 

CROSS BORDER: Khadrawy
Deal Size:
US$913.03 million
Bankers:
Citigroup Global Markets, HSBC Bank, JPMorgan Securities, National Bank of Abu Dhabi as joint structuring agents and joint lead managers.
Abu Dhabi Islamic Bank, Dubai Islamic Bank, Emirates NBD Capital and Standard Chartered Bank as joint lead managers. NCB Capital Company as co-lead manager
Citibank N.A., London branch in separate capacities as delegate, principal paying agent, and ECA security agent.
Lawyers:
Norton Rose Fulbright (advising on US, UAE and English law) and Clifford Chance advised the joint lead managers and Hogan Lovells International and Allen & Overy for the guarantor
Date:
31st March 2015
Rating:
Unrated
Guarantor:
Her Britannic Majesty’s Secretary of State acting by the Export Credits Guarantee Department of the UK government (currently operating as UK Export Finance) (ECGD or UKEF)
Shariah Advisors:
The Shariah Supervisory Board of Citi Islamic Investment Bank, the Executive Shariah Committee of HSBC Saudi Arabia, the Shariah Committee of National Bank of Abu Dhabi, the Shariah Advisors of JPMorgan, the Shariah Supervisory Committee of Standard Chartered Bank and Dar Al Sharia

Emirates Airlines remains an aggressive builder of its global market share. The result is that the airline has explored nearly every form of aircraft acquisition. The 2015 Khadrawy transaction allowed Emirates to acquire under a hybrid structure four Airbus A-380 aircraft. The deal had both market firsts and established new grounds for Emirates:

  • Market Firsts:
    • The first Sukuk guaranteed by the Export Credits Guarantee Department of the UK government operating as UK Export Finance, and
    • Financing by the sale of ATKM rights as corporate finance prior to the aircraft deliveries in mid-2015.
  • Emirates’s Achievements:
    • Emirates’s sale of a security with both Reg S and 144A tranches.

By using ATKM as the basis for the first leg of financing, the deal allowed both profit payments and tradability prior to the delivery of the aircraft. Once the aircraft were delivered, the ATKM portion of the deal was cancelled and the operational leases went into effect. The ten-year transaction achieved an expanded conventional and Islamic investor base for Emirates. The deal also demonstrated the capacity of international export agencies to support Islamic structures. The 144A tranche allowed the deal to draw from US institutional investors making the Khadrawy transaction the most exciting of the hotly contested Cross Border market.  

Honorable Mention: AB Bank of Bangladesh financing by Noor Bank, Aydın Deniz Isletmeciligi funding on the DMCC Trade Flow platform, and the Saudi Public Investment Fund’s acquisition of a 38% stake in POSCO Engineering and Construction of the Republic of Korea.

 

MOST INNOVATIVE: Ihsan Sukuk

Size:
RM100 million (US$22.99 million)
Arrangers:
CIMB Investment Bank
Legal Counsel:
Zaid Ibrahim & Co for the issuer and arrangers
Guarantor:
Khazanah Nasional
Rating:
‘AAA’ by RAM Rating Services
Date:
18th June 2015
Shariah Advisors:
CIMB Islamic Bank, Amanie Advisors

The Sukuk were structured based on the Wakalah Bi Al-Istithmar principle representing an investment participation in a specific universe of assets with a separate commodity Murabahah transaction. This is similar to Khazanah’s previous issues. Khazanah is a regular participant in the Islamic market and a frequent innovator. In 2015, Khazanah adapted their Sukuk Wakalah concept to social projects. The proceeds go to finance educational projects. Beyond this first innovation, issuing securities that are not directly beneficial to the issuer/obligor is the second, the investors may forgo their rights to periodic payments or a return of capital effectively making donations to the causes supported by the Sukuk. At last, an Islamic finance transaction that serves the public good.

Honorable Mention: Khadrawy; Food Department of the Government of Pakistan; and Beehive Crowd Funding Platform.

 

EQUITY & IPO: Malakoff Corporation

Size:
RM2.74 billion (US$629.92 million)
Bankers:
CIMB Investment Bank, Credit Suisse (Singapore), Deutsche Bank, Hong Kong Branch, Hong Leong Investment Bank, JPMorgan Securities, JPMorgan Securities (Malaysia), Maybank Investment Bank, Merrill Lynch (Singapore), Morgan Stanley & Co International, Nomura International (Hong Kong), RHB Investment Bank and The Hongkong and Shanghai Banking Corporation, Singapore Branch.
Lawyers:
Adnan Sundra & Low (local counsel), Clifford Chance (international counsel), Cleary Gottlieb Steen & Hamilton (legal counsel to issuer for international law), Albar & Partners (legal counsel to issuer for Malaysian law)
Rating:
Not applicable
Date:
15th May 2015
Malakoff is an approved Shariah counter by the Securities Commission of Malaysia.

The Islamic equity and IPO markets saw activity from a variety of players. Some like Abu Dhabi Islamic Bank prepared for their expansion to new markets. Others like Gatehouse Bank reordered their shareholding. And some like Al Salam REIT tapped a market facing growing restraints on liquidity in the face of attractive opportunities. The largest IPO in Malaysia in 2015, Malakoff is a leading real estate and equity group.

The issuer is the largest independent power producer in Malaysia. The issuer is also engaged in the operation and maintenance business, serving their own power plants in Malaysia as well as power plants and water plants of certain of their associates, joint venture and third-party clients abroad.

They also operate an electricity and chilled water distribution business, provide project management services and are working to develop additional renewable energy projects.

Honorable Mention: Abu Dhabi Islamic Bank rights issue, Al Salam REIT, Gatehouse Bank.

 

IJARAH: Purple Boulevard

Size:
RM450 million (US$103.45 million)
Arranger:
Hong Leong Investment Bank
Legal Counsel:
Adnan Sundra & Low for the arrangers and Khan & Mazlan for the issuer
Guarantor:
Danajamin Nasional
Rating:
(a) ‘AAA/AA3/A3’ for Class A Sukuk Ijarah, Class B Sukuk Ijarah and Class C Sukuk Ijarah
(b) ‘AAA(fg)’ for Class D Sukuk Ijarah
Date:
13th November 2015
Shariah Advisors:
Dr Mohd Daud Bakar

The Islamic finance market is built on sale and leaseback and leases ending in ownership. In this case, the issuer is an SPV company. The originators are Nadin Holdings and Nadin Management. As property investors, the originators used the Sukuk proceeds to settle the consideration for the purchase of Ampang Point Shopping Center located in Kuala Lumpur, including all amenities, structures, fixtures and fittings on the land and for the makeover and improvement works to be carried out on the exterior and interior of Ampang Point Shopping Center. As an asset-backed security, Nadin will cease to own the asset and the investors will rely on an uncertain market event for recovery of their capital. The transaction is the first asset-backed securitization transaction that is guaranteed by Danajamin, a domestic government-backed mono-line credit insurer.

Honorable Mention: Oman Sovereign Sukuk and Saadiyat Beach Apartments (Arcapita).

 

MUDARABAH: DIB Tier 1 Sukuk (2)
Deal Size:
US$1 billion
Arrangers & Bookrunners:
Dubai Islamic Bank, Al Hilal Bank, Emirates NBD, HSBC, National Bank of Abu Dhabi, Noor Bank, Sharjah Islamic Bank, Standard Chartered Bank
Lawyers:
Allen & Overy (English, DIFC, UAE Law), Maples and Calder (Cayman Islands) for the issuer and Linklaters for the arrangers
Date:
14th January 2015
Rating:
Moody’s: ‘Baa1’, Fitch: ‘A’
Shariah Advisors:
Dar Al Sharia

Mudarabah transactions have proven very popular for the bank capital market. In the Basel III environment, the Mudarabah concept is ideal. DIB kicked the year off with a replacement of their earlier perpetual. This transaction marks the first public regulatory capital issuance with Basel-III compliant mechanics from Dubai and DIB’s second public regulatory capital issuance. Indeed, this perpetual Sukuk differs from DIB’s 2013 perpetual with a contingent PONV and contractual permanent write-down language.

The write-down clause becomes effective once Basel III is officially implemented in the UAE and would be enforced at the discretion of the Central Bank. As Arbab Al Mal, the investors rely fully on the management of the bank to act in their best interest, and they truly bear capital risk.

Honorable Mention: Qatar Islamic Bank and NCB Tier 1 Sukuk.

 

MUSHARAKAH: Food Department of the Government of Punjab

Deal Size:
PKR6 billion (US$56.56 million)
Arranger:
Dubai Islamic Bank Pakistan
Rating:
None
Date:
10th April 2015
Shariah Advisor:
Dubai Islamic Bank Pakistan

The Musharakah category enjoyed a wide range of new contenders. Concepts which have been more popular in Pakistan were applied in the GCC. Even Malaysian corporates got into the act. Dubai Islamic Bank Pakistan was competing for the business of the Food Department of the Government of Punjab (FDP). The FDP procures wheat from local farmers. Normally, banks approved by the Ministry of finance support the purchases. Historically, the Food Department preferred overdraft facilities by conventional banks. Islamic banks have been offering financing to FDP under fixed tenor Shariah compliant financing structures such as Murabahah and Salam cum Wakalah. Dubai Islamic Bank Pakistan (DIBPL) won the business with a Musharakah structure based on Shirkat Ul-Aqd.

The Musharakah participates in the FDP’s procurement, storage and sale of wheat. FDP has the option to draw the funds from time to time from DIBPL as the bank’s investment in Musharakah. The profit sharing is on a pro rata basis up to the profit ceiling amount (desired profit rate). Profit over and above the profit ceiling amount will be shared between FDP and the bank at a pre agreed ratio. The pro rata shares will be determined at the end of the Musharakah period. The desired profit rate will be determined at the start of each Musharakah period.  

Honorable Mention: Port & Free Zone World FZE – Shirkat Al Milk, Mah Sing Group – perpetual, and Jeddah Economic City Real Estate Fund.

 

 

PROJECTINFRASTRUCTURE FINANCE: Jimah East Power
Deal Size:
RM8.98 billion (US$2.06 billion)
Bookrunners:
HSBC Amanah, CIMB Investment Bank, Maybank Investment Bank
Lawyers:
Adnan Sundra & Low for the arrangers and Zaid Ibrahim & Co for the issuer
Rating:
‘AA-IS’ MARC
Date:
4th December 2015
Shariah Advisors:
HSBC Amanah and CIMB Islamic Bank

Despite the economic environment, project finance kept apace in both the GCC and Malaysia. Jimah was the largest greenfield power deal in Asia and the largest Sukuk deal in 2015. Sponsored by Japan’s Mitsui & Co, the project is funded on a commodity Murabahah basis. The proceeds were applied for the design, construction, commissioning, operating and maintaining a 2,000 megawatts coal-fired power plant in Kuala Sg Sepang, Mukim Jimah, Negeri Sembilan in Peninsular Malaysia. The project will enhance power distribution in Malaysia.

Honorable Mention: Al Safi Danone for Dairy Production and Distribution, Jeddah Economic City Real Estate Fund, Petro Rabigh, and Emirates National Oil Company.

 

COMMODITY MURABAHAH /TAWARRUQ: Aydın Deniz Isletmeciligi
Deal Size:
US$20 million
Arrangers:
Dubai Islamic Bank
Lawyers:
R&S Hukuk ve Danısmanlık Bürosu for the obligor and Pinsent Masons for the arranger
Guarantor:
Denizbank and Albaraka Turk Participation Bank
Rating
Unrated
Date:
Not stated
Shariah Advisors:
Dar Al Sharia

Last year we saw the first UAE use of the DMCC Trade Flow platform. In 2015, Aydın Deniz Isletmeciligi accessed the US dollar market via the Trade Flow platform. Aydin Deniz, part of the Aydin Group, is a major Turkish marine services operator. Dubai Islamic Bank provided two separate commodity Murabahah facilities to Aydın Deniz Isletmeciligi (Aydin Deniz) of US$10 million each.

The deal is supported by a standby letter of credit being issued by Denizbank and Albaraka Turk Participation Bank. The first US$10 million Murabahah facility performed the commodity trades on the London Metal Exchange (LME). The second US$10 million Murabahah transaction traded on the Dubai Multi Commodities Center (DMCC)’s trading platform Tradeflow.

DMCC Tradeflow is a new platform originally set up in 2004 as a warehouse receipt system. It has since evolved to become an efficient and cost-effective platform for registering possession and ownership of commodities stored in UAE-based storage facilities. Tradeflow is a specialized and interactive ownership registry that brings together all stakeholders related to the trade and financing of physical commodities.

Aydin Deniz’s Tradeflow deal was one of the largest deals executed on the platform. Trade flow is governed by UAE law as opposed to English law which is another interesting market development which suggests that the market may embrace UAE platforms in addition to the well-trodden LME and the increasingly popular Suq Al Sila on Bursa Malaysia. On the one hand, the deal shows the strengthening of the UAE-Turkish Islamic finance connection. On the other hand, the deal reflects the increasing realization of Mohammed Rashid Al Maktoum’s vision for Dubai.

Honorable Mention: IFFIm Sukuk Company II, Sapura Kencana TMC, Jimah East Power, Saudi ARAMCO, Emirates National Oil Company, and International Finance Corporation of the World Bank Group.

 

REAL ESTATE: Purple Boulevard
Size:
RM450 million (US$103.45 million)
Arranger:
Hong Leong Investment Bank
Legal Counsel:
Adnan Sundra & Low for the arrangers and Khan & Mazlan for the issuer
Guarantor:
Danajamin Nasional
Rating:
(a) ‘AAA/AA3/A3’ for Class A Sukuk Ijarah, Class B Sukuk Ijarah and Class C Sukuk Ijarah
(b) ‘AAA(fg)’ for Class D Sukuk Ijarah
Date:
13th November 2015
Shariah Advisors:
Dr Mohd Daud Bakar

The typical real estate deal in the Islamic market is a lease ending in ownership, usually in a sale and leaseback process. In this case, the issuer is an SPV company. The originators are Nadin Holdings and Nadin Management.

As property investors, the originators used the Sukuk proceeds to settle the consideration for the purchase of Ampang Point Shopping Center located in Kuala Lumpur, including all amenities, structures, fixtures and fittings on the land and for the makeover and improvement works to be carried out on the exterior and interior of Ampang Point Shopping Center.

As an asset-backed security, Nadin will cease to own the asset and the investors will rely on an uncertain market event for recovery of their capital. The transaction is the first asset-backed securitization transaction that is guaranteed by Danajamin, a domestic government-backed mono-line credit insurer.

Honorable Mention: Saadiyat Apartments, Oreidco Sukuk, Pinebridge Sale & Leaseback of Lulu Hypermarkets, and MAF Sukuk

 

SOVEREIGN: Oman Sovereign Sukuk (Ministry of Finance, Sultanate of Oman)
Size:
OMR250 million (US$646.96 million)
Arrangers:
Bank Muscat, Meethaq Islamic Banking and Standard Chartered
Lawyers:
Allen & Overy and Al Busaidy, Mansoor Jamal & Company for the arrangers and Linklaters and Trowers & Hamlins for obligor/issuer
Rating:
‘A1’ Moody’s
Date Closed:
22nd October 2015
Shariah Advisors:
Meethaq Islamic Banking

There were many interesting sovereign, supra-sovereign, and sub-sovereign deals in 2015. Malaysia raised new funds helping to redeem 1Malaysia Development with a novel approach to capacity with the sale of transportation rights. Emirates National Oil Company went to the syndication market for the first time. Both, like the IFC and Hong Kong returned to the market with tried and true concepts.

The Sultanate of Oman, however, tested the conceptual, but as yet unissued framework proposed by the Capital Market Authority. As state property may not easily be sold without a royal decree, the Ministry of Finance had to grant a percentage interest in the property to the issuer as a form of co-ownership. In the absence of trust laws, a declaration of agency was applied. This is consistent with existing domestic law.

The Omani riyal issuance was well received domestically and attracted non-Omani buyers. The issuance gives Oman’s Islamic banks and windows a useful treasury instrument, and supports the growth of the domestic Islamic financial market by creating a clear sovereign benchmark.

Honorable Mention: Malaysia Sovereign Sukuk, Emirates National Oil Company, and The Republic of Indonesia.

 

STRUCTURED FINANCE: Warba Bank
Deal Size:
KWD20 million (US$65.78 million)
Financier:
Warba Bank
Lawyers:
Al-Tamimi & Company, Kuwait
Rating:
Unrated
Date:
1st June and 2nd June 2015
Shariah Advisors:
Warba Bank and Al Mulla International Finance Company (portfolio manager)

The transaction is a secured commodity Murabahah transaction allowing the removal of auto receivables from the balance sheet of Al Mulla International Finance Company. The deal was closed in two tranches. The receivables were transferred as collateral for a commodity Murabahah transaction. Al Mulla International Finance Company was engaged as the manager of the portfolio for a fee.

Finally, in accordance with the parties’ commercial arrangement, a purchase undertaking by way of a Murabahah agreement was used to force the buy-back by Al Mulla International Finance Company of certain non-performing receivables.

Honorable Mention: Port & Free Zone World, Khadrawy, and Ihsan.

 

SUKUK: FCTC Sukuk State of the Côte d’Ivoire
Deal Size:
CFA150 billion (US$248.8 million)
Lead Arranger:
Islamic Corporation for the Development of the Private Sector
Lawyers:
Cleary Gottlieb Steen & Hamilton (legal advisor to the issuer), Hogan
Lovells International (legal advisor to the lead arranger)
Date:
21st December 2015
Rating:
‘B’
Shariah Advisors:
Shariah Board of the IDB

The Ivory Coast presents important challenges found in many African countries, especially those without Islamic banking and English style trust laws. The sovereign Ijarah was structured under the regional securitization framework which was the sole legal framework for the creation of an SPV company with limited capital and no employees. The structure was validated by Le Conseil Régional de l’Epargne Publique et des Marchés Financiers (CREPMF) and the Central Bank of West African States (BCEAO), approved the instrument as collateral. This further enhanced the marketability of the transaction, as investors were assured of the ability to generate liquidity against their investment in a similar manner as they might for a conventional government bond.

Honorable Mention: Khadrawy, Sapura Kencana TMC multicurrency Sukuk, APICORP, Oman Sovereign Sukuk, and Malaysia Sovereign Sukuk .

 

MURABAHAH/TRADE FINANCE: Yayla Agro

Deal Size:
US$25 million
Arranger:
International Islamic Trade Finance Corporation (ITFC)
Lawyers:
In-house for both the obligor and ITFC
Date:
16th September 2015
Rating:
None
Shariah Advisors:
ITFC

ITFC has been expanding operations in Turkey. Many of these involve improvements in supply chain finance for the agricultural sector. The Yayla deal is an exciting effort to provide for the funding of agricultural commodities. The Murabahah allows the ITFC to purchase grain during harvest time in licensed warehouses. The purchase is done through an electronic warehouse receipt issued in the commodity exchange. A collateral management company acts as an agent in the middle and arranges settlement in custody and an exchange bank for parties. The use of an organized exchange’s electronic platform is expected to be adopted by Islamic banks during harvest time. The concept should be replicable in almost every IDB member state.

Honorable Mention: Advanced Energy Systems Company and CTRM Aero Composits

 

SYNDICATED: Aujan Coca Cola Beverages Co
Deal Size:
AED600 million (US$163.33 million) syndicated term facility and AED300 million (US$81.66 million) syndicated revolving facility
Lead Arrangers:
Standard Chartered, Dubai Islamic Bank, First Gulf Bank, Mashreqbank, National Bank of Kuwait, and Samba Financial Group
Date:
11th November 2015
Lawyers:
Clifford Chance for the client and Dentons & Co for the banks
Rating:
Unrated
Shariah Advisors:
Standard Chartered

The Aujan Coca-Cola Beverages Co (ACCB) transaction marks their debut Islamic transaction. By extension as a joint venture with The Coca-Cola Company, this is an introduction to the Islamic finance market. The commodity Murabahah was funded by UAE, Saudi and Kuwaiti banks. This expanded ACCB’s banking relationships while facilitating the refinance of existing debt and providing for working capital as the company grows its regional business.

Honorable Mention: SAEI, Sapura Cancana TMC, Emirates National Oil Company, and Saudi ARAMCO.

 

RESTRUCTURING: Advanced Energy Systems Company
Deal Size:
US$170 million
Lead Arrangers:
European Bank for Reconstruction and Development (EBRD)
Date:
12th November 2015
Lawyers:
Clifford Chance for the client and Linklaters for the EBRD
Rating:
Unrated
Shariah Advisors:
Islamic Corporation for Investment in the Private Sector

Generally, the restructuring and rescheduling of debts is very secretive in the GCC and emerging markets. In 2015, many deals were salvaged, but few wished to show their positioning. In some cases, like Emirates Steel, the case is really a refinancing more than a restructuring of a troubled debt.

The Advanced Energy Systems deal is unique. As part of the restructuring of the Egyptian company’s conventional debts, its capital expenditure requirements were met via the Murabahah sale of oil rigs to the company. The deal demonstrated the capacity to execute parallel strategies, conventional and Islamic, for an obligor in a credit-impaired condition in an emerging Islamic finance market.

Honorable Mention: Emirates Steel Industries.

 

WAKALAH: Malaysia Sovereign Sukuk (Ministry of Finance, Malaysia)
Deal Size:
US$1 billion Reg S ten-year tranche
US$500 million 144A 30-year tranche
Joint Bookrunners and Joint Lead Managers:
CIMB Investment Bankd, The Hongkong and Shanghai Banking Corporation, and Standard Chartered Bank
Lawyers – Issuer:
Linklaters Singapore (counsel to the trustee and the government of Malaysia as to English law and US law); Treasury Solicitor of the government of Malaysia (counsel to the government of Malaysia as to Malaysian law); and Adnan Sundra & Low (counsel to the trustee as to Malaysian law)
Lawyers – Arrangers:
Clifford Chance (UAE) (counsel to the joint lead managers as to English law); Clifford Chance (Hong Kong) (counsel to the joint lead managers as to English law and US law); and Zaid Ibrahim & Co (counsel to the joint lead managers as to Malaysian law)
Date:
22nd April 2015
Rating:
Unrated
Shariah Advisors:
Shariah advisors to the joint bookrunners and the joint lead managers

The Sukuk is the first Wakalah issuance in the Islamic finance market to use transportation rights as part of the pool of underlying assets which also include Ijarah assets and a commodity Murabahah. In addition, the Sukuk are also believed to be the first time that the new IMF-recommended ICMA sovereign collective action clauses have been used for a sovereign Sukuk issuance (and modified to take into account the unique elements of a Sukuk). The transaction had Reg S and 144A tranches which sold well in the US. The deal paved the way for other Malaysian and Indonesian deals to be issued.

Honorable Mention: Garuda, APICORP and Ihsan.

 

HYBRIDS: Al Safi Danone for Dairy Production and Distribution (ASDI)

Deal Size:
US$18 million
Bankers:
International Finance Corporation
Lawyers:
Amereller Legal Consultants for the obligor and White & Case for the obligor
Rating:
Unrated
Date:
June 2015
Shariah Advisors:
Not stated

The hybrid method applied in this International Finance Corporation (IFC) deal is Istisnah-Ijarah for the construction of a new dairy plant in Iraq. The project is being funded by a combination of the sponsors’ equity and IFC long-term financing. The main purpose of the project is to partially replace the importation of processed dairy products with local production. The deal has an important impact in the reinvigoration of the domestic dairy industry, job creation, technology and know-how transfer as well as improving domestic food safety standards.

The deal crosses two new milestones: the IFC delivering a sophisticated Islamic finance deal and the testing of that in the emerging Iraq market.

Honorable Mention: APICORP, Ihsan and Khadrawy.

 

PERPETUAL: Mah Sing Group

Deal Size:
RM540 million (US$124.15 million)
Arranger:
CIMB
Bookrunners:
CIMB Investment Bank (CIMB), Maybank Investment Bank
Lawyers:
Shahrizat Rashid & Lee for the issuer and Adnan Sundra & Low for the arranger
Date:
31st March 2015
Rating:
Unrated
Shariah Advisors:
CIMB Islamic Bank

In 2015, banks continued to seek new capital. Previously, corporate perpetuals were more common in the GCC. Now, Malaysian corporates are in on the action. Not just corporates which are known players in the Islamic capital market, but corporations which are secular in their orientation. In the case of Mah Sing’s perpetual, the Sukuk represent a Musharakah participation in the risk of assets which include units on government-owned properties. The deal allows Mah Sing to enjoy an improved leverage ratio. Proceeds were eligible to reduce its conventional debt, working capital, and investment in Shariah compliant activities.

Honorable Mention: DIB Tier 1 Sukuk (2) and QIB Sukuk .

 

REGULATORY CAPITAL: Qatar Islamic Bank

Deal Size:
QAR2 billion (US$548.57 million)
Lawyers:
Allen & Overy for the issuer and Linklaters and Al Tamimi for the arrangers and Maples and Calder as Cayman Islands legal counsel for the issuer
Date:
30th June 2015
Rating:
Not rated
Shariah Advisors:
Qatar Islamic Bank Shariah Board

Regulatory capital issues slowed in 2015. The Turkish banks and Dubai Islamic Bank came to market. Qatar Islamic Bank is the largest Islamic bank and the third-largest bank in Qatar by assets. This is the first Sukuk issuance in the State of Qatar that will be recognized as Basel 3-compliant additional Tier 1 capital. The deal meets these standards pending full implementation of Basel 3 capital requirements by the Qatar Central Bank. This fundraising improves the bank’s ratios and improves its competitive position.

Honorable Mention: Albaraka Turk Katilim Bankasi and Qatar Islamic Bank.

 

SOCIAL IMPACT: Ihsan Sukuk

Size:
RM100 million (US$22.99 million)
Arrangers:
CIMB Investment Bank
Legal Counsel:
Zaid Ibrahim & Co for the issuer and arrangers
Guarantor:
Khazanah Nasional
Rating:
‘AAA’ by RAM Rating Services
Date:
18th June 2015
Shariah Advisors:
CIMB Islamic Bank, Amanie Advisors

The GAVI Alliance returned to market. The first round in 2014 drew in new donors to global immunization efforts. Kerian Energy was the first green energy syndication serving the Malaysian state of Perak. The Al Safi Danone deal will begin the restoration of domestic dairy production in Iraq. Ihsan, however, raised the bar on social impact Sukuk with two key elements. The first element is to use the Sukuk proceeds for non-corporate purposes. The second element is the ‘Pay-for-Success’ application of predetermined key performance indicators (KPIs) which are assessed over five years. If the KPIs are met, Sukukholders will forgo 6.22% of the nominal value due under the Sukuk at maturity, as part of their social obligation in recognizing the positive social impact generated by the Trust Schools Program. If these KPIs are not met, Sukukholders will be entitled to the nominal value due under the Sukuk in full, at maturity. That means that a portion of the investors’ funds might effectively be donated to good causes.

The proceeds from the inaugural issuance will be invested in schools under the Yayasan AMIR (YA)’s Trust Schools Program. YA is a not-for-profit foundation initiated by Khazanah to improve accessibility to quality education in Malaysia’s government schools through a public-private partnership with the Ministry of Education.

Moreover, the Ihsan RM1 billion (US$229.9 million) Sukuk program is the first program approved under the Securities Commission Malaysia’s Sustainable and Responsible Investment Sukuk framework.

The Sukuk apply the Wakalah Bi Al-Istithmar principle representing an investment participation in a specific universe of assets along with a separate commodity Murabahah transaction. This is similar to Khazanah’s previous issues.

Honorable Mention: Al Safi Danone for Dairy Production and Distribution, IFFIm Sukuk Company II and Kerian Energy.

 

MALAYSIA: Ihsan Sukuk

Size:
RM100 million (US$22.99 million)
Arrangers:
CIMB Investment Bank
Legal Counsel:
Zaid Ibrahim & Co for the issuer and arrangers
Guarantor:
Khazanah Nasional
Rating:
‘AAA’ by RAM Rating Services
Date:
18th June 2015
Shariah Advisors:
CIMB Islamic Bank, Amanie Advisors

The Ihsan RM1 billion (US$229.9 million) Sukuk program is the first program approved under the Securities Commission Malaysia’s Sustainable and Responsible Investment Sukuk framework. The proceeds from the inaugural issuance will be invested in schools under the Yayasan AMIR (YA)’s Trust Schools Program. YA is a not-for-profit foundation initiated by Khazanah to improve accessibility to quality education in Malaysia’s government schools through a public-private partnership with the Ministry of Education.

The social impact of this ‘Pay-for-Success’ structure is measured using a set of predetermined key performance indicators (KPIs) which are assessed over a five-year observation time frame. If these KPIs are met, Sukukholders will forgo 6.22% of the nominal value due under the Sukuk at maturity, as part of their social obligation in recognizing the positive social impact generated by the Trust Schools Program. If these KPIs are not met, Sukukholders will be entitled to the nominal value due under the Sukuk in full, at maturity.

The Sukuk were structured based on the Wakalah Bi Al-Istithmar principle representing an investment participation in a specific universe of assets with a separate commodity Murabahah transaction. This is similar to Khazanah’s previous issues.  

Honorable Mention: Jimah East Power, Malaysian Sovereign Sukuk, Purple Boulevard and Malakoff.

 

PAKISTAN: K-Electric

Deal Size:
PKR22 billion (US$207.37 million)
Exclusive Financial Advisor: Habib Bank
Joint Lead Arrangers:
Habib Bank and Meezan Bank
Legal Counsel:
Haidermota BNR & Co for the arrangers. The issuer used internal counsel
Date:
Subscription closed 29th May 2015. Listed on 25th June 2015 for trading.
Rating:
‘AA+’ by JCR VIS Credit Rating Agency and Islamic International Rating Agency, Bahrain
Shariah Advisors:
Prof Mufti Muneeb ur Rehman, Dr Muhammad Imran Ashraf Usmani, Mufti Irshad Ahmad Aijaz and Mufti Muhammad Yahya Asim

Pakistan is a hub of innovation and activity. Certainly, Dubai Islamic Bank Pakistan’s Musharakah for the Food Department of the Government of Punjab was a worthy deal. Pakistan International Airlines successfully tapped the market with the benefit of a credit support guarantee from the IDB subsidiary the Islamic Corporation for the Insurance of Investment and Export Credit. Habib Bank Pakistan’s listed diminishing Musharakah Sukuk for K-Electric (KE) applied a green shoe option and achieved retail distribution.

KE is a public listed power utility. The transaction included a green shoe option allowing the deal to be increased in order to protect price stability. The proceeds allowed the company to restructure its liabilities and cover working capital requirements. Habib Bank took the view that a capital markets instrument would provide the company with financial stability. The deal was the largest corporate debt issuance in Pakistan and achieved a successful distribution to retail and corporate investors.

Honorable Mention: Food Department of the Government of Punjab and Pakistan International Airlines.

 

SAUDI ARABIA: Saudi Aramco

Deal Size:
SAR11.25 billion (US$2.99 billion) in a syndicated US$10 billion  revolving credit
Financiers:
Riyad Bank, Alinma Bank and National Commercial Bank
Legal Counsels:
Clifford Chance for the banks,  White & Case for the obligor
Date:
6th February 2015
Rating:
Unrated
Shariah Advisors:
Shariah Supervisory Boards of the participating banks.

We are used to seeing Saudi Aramco on the end of the Islamic finance market. Typically, they support affiliated entities in the Islamic finance market.  In 2015, the Saudi Aramco syndication included a revolving credit facility divided into conventional and Islamic tranches. The Islamic tranches of SAR11.25 billion (US$2.99 billion) were sub-divided into a US$2 billion equivalent SAR-denominated five-year commodity Murabahah facility and a US$1 billion equivalent SAR-denominated 364-day commodity Murabahah facility.  

One of the largest syndications in 2015, the transaction involved 30 global and regional banks. Saudi Aramco achieved financial flexibility and improved its capacity to manage growth and market conditions.  The facilities replaced an existing US$4 billion facility due to mature later this year on favorable terms. 

Overall, the deal supports the Kingdom’s positioning during the hydrocarbon downturn. The syndication demonstrated the continued strong credit capacity of the Kingdom’s government-linked entities, the ongoing attractiveness of Saudi Aramco as a credit, and brought new names to Saudi Aramco’s banking portfolio.

Honorable Mention:  Jebel Omar Development Company and Arabian Company for Water and Power Development.

 

UAE: Khadrawy

Deal Size:
US$913.03 million
Bankers:
Citigroup Global Markets, HSBC Bank, JPMorgan Securities, National Bank of Abu Dhabi as joint structuring agents and joint lead managers.
Abu Dhabi Islamic Bank, Dubai Islamic Bank, Emirates NBD Capital and Standard Chartered Bank as joint lead managers. NCB Capital Company as co-lead manager
Citibank N.A., London Branch in separate capacities as delegate, principal paying agent, and ECA security agent.
Lawyers:
Norton Rose Fulbright (advising on US, UAE and English law) and Clifford Chance advised the joint lead managers and Hogan Lovells International and Allen & Overy for the guarantor
Date:
31st March 2015
Rating:
Unrated
Guarantor:
Her Britannic Majesty’s Secretary of State acting by the Export Credits Guarantee Department of the UK government (currently operating as UK Export Finance) (ECGD or UKEF).
Shariah Advisors:
The Shariah Supervisory Board of Citi Islamic Investment Bank, the Executive Shariah Committee of HSBC Saudi Arabia, the Shariah Committee of National Bank of Abu Dhabi, the Shariah Advisors of JPMorgan, the Shariah Supervisory Committee of Standard Chartered Bank and Dar Al Sharia

Emirates is the world’s leading international air carrier as measured by international revenue passenger kilometers, and enjoys an impressive track record and has recorded a profit every year since inception. With a fleet of more than 230 aircraft, Emirates currently flies to over 140 destinations in more than 80 countries around the world.

Listed on the London Stock Exchange and NASDAQ Dubai, the proceeds from the issuance of the Sukuk were used to fund the acquisition of four Airbus A380-800 aircraft. As the aircraft were being pre-funded, the key challenge from a Shariah perspective was to ensure tradability of the Sukuk from day 1. This was achieved by embedding an undivided beneficial ownership interest in certain rights to travel in an already complex Sukuk structure involving back-to-back arrangements with multiple SPVs.

The initial funding was a Wakalah structure based on ATKM (air transport kilometers) or rights to travel. Emirates will be appointed to procure the aircraft which will ultimately be leased to Emirates as a sub-lessee under a forward lease arrangement.

As the aircraft were delivered in April, May, June and July 2015, the structure became a lease to Emirates Airlines. With Reg S and 144A tranches, the Sukuk were distributed globally with 29% of the investors in the US.

Furthermore, the UK government, via UKEF, took a share of the borrower’s risk in order to provide investors with an instrument that is backed by the full faith and credit of the UK government. The obligations of the guarantor under the ECGD Guarantee will constitute obligations of the UK. The guaranteed obligations are intended to fund the payments due under the certificates. The sum of the guaranteed amounts guaranteed by the guarantor under the terms of the ECGD Guarantee will be equal to the amounts due under the certificates.

The structure allowed Emirates to raise the funding for the acquisition of the aircraft prior to their delivery. One of the main challenges of doing this was to create an instrument that was ‘tradable’ from a Shariah perspective from the issuance date; in order for the Shariah to recognize an instrument as being tradable at an amount other than par, as is common in secondary market trading, there needs to be ‘tangible’ assets in the structure. The aircraft would represent sufficient tangible assets once they had been delivered, but in the interim, the structure utilized capacity on Emirates’s aircraft operating on certain routes, represented by available tonne kilometers, as a tangible asset to overcome this hurdle.

This was the first time that a Sukuk has been used to pre-fund the acquisition of aircraft. This was the first occasion that this new, alternative source of funding had been used to acquire aircraft. Consequently, the work by all stakeholders in the transaction creates a precedent for the aviation industry to follow. This product also lays the foundation for similar ECA-backed financing to be utilized to facilitate the funding of other asset classes. The transaction therefore potentially represents one of the most significant Islamic finance transactions to have come to market in recent years. 

Honorable Mention: MAF Sukuk and Stanford Asia Holding Company.

 

INDONESIA: Garuda Indonesia Global Sukuk for Garuda Indonesia (Persero)

Deal Size:
US$500 million
Joint Lead Arrangers:
Standard Chartered, Maybank and National Bank of Abu Dhabi, Dubai Islamic Bank, Al Hilal Bank, ANZ, Deutsche Bank, Emirates NBD, First Gulf Bank, Noor Bank, Sharjah Islamic Bond, and Warba Bank
Co-Lead Managers:
BNI Securities, Mega Capital Indonesia and Trimegah Securities
Legal Counsel:
Clifford Chance (for English law), Linda Widyati Partners (for Indonesian law) for the arranger and Allen & Overy (for English law), Ginting & Reksodiputro (for Indonesian Law) for the issuer
Rating
Unrated
Date:
3rd June 2015
Shariah Advisors:
NBAD, Dar Al Sharia, Maybank and Standard Chartered Bank Shariah Boards

Garuda Indonesia issued the first unsecured US dollar benchmark Sukuk in global debt capital markets by an aviation issuer in Asia. They are also the first unrated issuer in Asia Pacific to raise US$500 million in the global Sukuk market. The transaction is based on ATKM (air transport kilometers) under which the airline acts as the Wakeel to sell the ATKM purchased by Sukukholders. The structure has become well established and allows the airline to use the proceeds for general corporate purposes and the refinancing of debt. An important landmark is that the issuance is Garuda’s first Asia Pacific national carrier to go to market without an explicit government guarantee. 

Honorable Mention: Perusahaan Penerbit SBSN Indonesia III and XL Axiata.

 

KUWAIT: National Industries Holding Group/International Sukuk Company

Deal Size:
KWD85 million (US$279.55 million) commodity Murabahah and KWD11.5 million (US$37.82 million) privately placed Sukuk
Arranger:
Warba Bank
Financiers:
Warba Bank, First Gulf Bank, Qatar Islamic Bank, Khaleeji Commercial Bank, International Sukuk Company and Kuwait Finance House. Sukuk subscribers: Kuwait Financial Center and Privatization Holding Company.
Legal Counsel:
ASAR for the obligor and issuer and King & Spalding and Al Bader Al Saud Law offices (Kuwait counsel) for the financiers and Maples and Calder as Cayman Islands legal counsel for the issuer
Guarantor:
Al Durra Real Estate Company
Rating
Unrated
Date:
9th August 2015
Shariah Advisors:
Sharia Advisory boards of Warba Bank and the participants

Kuwait is a market with a track record of competitiveness and creativity. With the Warba-Al Mulla securitization, the market moved Rasameel’s securitization technology from the capital markets to the banking market. Kuwait is finally upgrading its national and hydrocarbon infrastructure. Sulaibiya Wastewater Treatment was easily refinanced. But, National Industries Holding Group (NIG) and Warba Bank showed the Kuwaiti flair for creativity in NIG’s return to the market with an Islamic finance market for a multitranche and multicurrency financing.

The deal has a syndicated commodity Murabahah with a privately placed Sukuk bolted on. The Sukuk feature allows certain of the financiers to hold a tradable security based on the guarantor’s shares in Kuwait-based contractor Al Mabanee (listed on the Kuwaiti Stock Exchange). The shares were placed in a segregated custody account with a top-up feature that assures that the value of the shares are always equal to the volume of the financing. The top-up comes into effect if the share valuation drops below 85% of the financing. But if it exceeds 115% of the financing, there is a release provision. 

Honorable Mention: Warba Bank & Al Mulla and Sulaibiya Wastewater Treatment Plant.

 

AFRICA: FCTC Sukuk State of the Côte d’Ivoire

Deal Size:
CFA150 billion (US$248.8 million)
Lead Arranger:
Islamic Corporation for the Development of the Private Sector
Lawyers:
Cleary Gottlieb Steen & Hamilton (legal advisor to the issuer), Hogan
Lovells International (legal advisor to the lead arranger)
Date:
21st December 2015
Rating:
‘B’
Shariah Advisors:
Shariah Board of the IDB

Africa is still a largely untouched market for Islamic finance. The IDB’s affiliates ICD and ITFC are engaged in robust activities bringing Islamic finance to the continent. The ITFC alone executed deals in Senegal, Burkina Faso, Cameroon and Djibouti. Many of their endeavors are directly relevant to the needs of the people at the bottom rung of the economic ladder. Sidra Capital and a surprisingly limited group of private equity players are also supporting innovation and development in the market. Then there are the domestic banks and windows in Senegal, Nigeria, Egypt, Kenya and South Africa. Along with investment banks like Lotus Capital, they are contributing to the steady push to make Islamic finance relevant and profitable. In 2015, the pick of the African crop is fraught with difficulty.

With the Ivory Coast sovereign Sukuk, the ICD brings a new country into Islamic finance. The subtext of the recent civil war makes part of the Republic anxious along sectarian lines. The sovereign Sukuk is a current deal within the existing laws for the good of all Ivorians. With the successful launch achieved, one anticipates that the Ivory Coast will enable more Islamic finance transactions allowing a greater support for the common good.

A remarkable feature of the Ivory Coast deal is the use of the securitization law which is based on a similar law in France and resembles Egypt’s Capital Markets Law of 1992. The features of these laws show a useful alternative to English law and trust laws. As a result, the Ivory Coast sovereign Sukuk sets an example for the other former French and Belgian colonies in Africa.

Honorable Mention: Government of Cameroon Structured Trade Finance, SENELEC, and Advanced Energy Systems Company.

 

TURKEY: Kira Sertifikaları Varlık Kiralama

Deal Size:
RM800 million (US$183.92 million) in RM2 billion (US$459.8 million) program
Arrangers & Bookrunners:
CIMB Investment Bank, Kuwait Finance House (Malaysia), and Maybank Investment Bank
Legal Counsels:
Adnan Sundra & Low (as to Malaysian law) and Pekin & Bayar Law Firm (as to Turkish law) for the arrangers, Zaid Ibrahim & Co (as to Malaysian law) and Mutlu Avukatlik Ortakligi (as to Turkish law) for the issuer
Rating:
‘AA3(s)’ by RAM Rating Services
Date:
31st March 2015
Shariah Advisors:
CIMB Islamic Bank, Kuwait Finance House (Malaysia), and Maybank Islamic

With global and domestic liquidity being squeezed, the Turkish participation banks have struggled to keep their funding aligned with their business. Three of the five participation banks successfully tapped the markets (domestic and international).

Kuveyt Türk Katilim Bankasi follows Turkiye Finans with the issuance of Malaysian ringgit-denominated Sukuk. The transaction demonstrates that despite the Malaysian capital market’s domestic challenges, the key players in Malaysia can execute a significant transaction. The Malaysian-Turkish capital market bond is strengthened with a helping hand from Kuwait.

In a spring of anxiety, the deal provided clarity about the quality of the participation banks, the execution capacity of the Malaysian investment banks, and the long-term future of Kuveyt Türk Katilim Bankasi. 

Honorable Mention: Turkiye Finans, Albaraka Türk Katilim Bankasi and Aydın Deniz Isletmeciligi.

 

DEAL OF THE YEAR: Ihsan Sukuk

Size:
RM100 million (US$22.99 million)
Arrangers:
CIMB Investment Bank
Legal Counsel:
Zaid Ibrahim & Co for the issuer and arrangers
Guarantor:
Khazanah Nasional
Rating:
‘AAA’ by RAM Rating Services
Date:
18th June 2015
Shariah Advisors:
CIMB Islamic Bank, Amanie Advisors

The Ihsan RM1 billion (US$229.9 million) Sukuk program is the first program approved under the Securities Commission Malaysia’s Sustainable and Responsible Investment Sukuk framework. The proceeds from the inaugural issuance will be invested schools under the Yayasan AMIR (YA)’s Trust Schools Program. YA is a not-for-profit foundation initiated by Khazanah to improve accessibility to quality education in Malaysia’s government schools through a public-private partnership with the Ministry of Education.

The social impact of this ‘Pay-for-Success’ structure is measured using a set of predetermined key performance indicators (KPIs) which are assessed over a five-year observation time frame. If these KPIs are met, Sukukholders will forgo 6.22% of the nominal value due under the Sukuk at maturity, as part of their social obligation in recognizing the positive social impact generated by the Trust Schools Program. If these KPIs are not met, Sukukholders will be entitled to the nominal value due under the Sukuk in full, at maturity.

Over 20 transactions were nominated for Deal of the Year in 2015. This year the nominations are fewer than 2014, but more eclectic: The maiden Sukuk for the Sultanate of Oman, Malaysia Sovereign Sukuk, K-Electric, Khadrawy, Ihsan Sukuk, DIB Tier 1 Sukuk 2, Mah Sing Group, Jimah East Power, IFFIm Sukuk Company II, Food Department of the Government of Punjab, DIB Tier 1 Sukuk 2, and Saudi ARAMCO. The styles and approaches of each of these and other nominees are distinct. New models were tested, new rules established, and good causes served. 

The two standout deals in 2015 were Khadrawy and Ihsan Sukuk. Khadrawy combines two tried and true concepts – the sale of ATKM to investors with a Wakalah to the obligor to on-sell to the market, and the use of a described lease which becomes a lease ending in ownership. The fact that Khadrawy enjoyed an export credit agency guarantee makes it a standout deal. Now, the ‘but’ comes into play. Each element of Khadrawy had been done before. Aircraft deals were among the most common nominations in 2015. 

And that points us toward Ihsan which does something that the industry always discusses: ‘Good Deeds’. For the first time in the history of the industry, a marquee obligor goes to the capital market and uses its own credit to raise funds for a non-commercial public good. The Ihsan deal also lays over the project a charitable element. If the underlying beneficiaries achieve their key performance indicators (KPIs), then the investors will donate a portion of their rights to the beneficiaries. 

Even though the underlying commercial structure of the Sukuk is Khazanah’s signature hybrid, the reality is that this deal overcame significant challenges. Many fund managers were not allowed to buy the securities due to the fact that the capital and return were not guaranteed, ie that the achievement of KPIs may lead to a grant of capital to the beneficiaries. Other investors, having discussed for so long how much good Islamic finance can do, needed some convincing by Khazanah to join the deal. 

Imagine the needs of the Islamic countries and countries with large Muslim populations. Were some of the other leading sovereign wealth funds to follow Khazanah’s lead, then the constant appeal for donors might just decline and the structured solution to endemic problems with the delivery and quality of health care, education and food might grow in significance.