Post on 11-Mar-2020
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Developments in the Global Sukuk Market
IIFM Awareness Seminar on Islamic Finance
Monday, 2nd December 2019
Gulf Convention Centre, The Gulf Hotel, Manama, Kingdom of Bahrain
Ijlal Ahmed Alvi
Chief Executive Officer
IIFM
Total Sukuk Issuances
IIFM Awareness Seminar on Islamic Finance, 2nd December 2019, Bahrain
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Total GLOBAL Sukuk Issuances (Jan 2001 - Estimated August 2019) - All Tenors, All Currencies (in USD Millions)
Source: IIFM Sukuk Database➢ Total GLOBAL Sukuk Issuances Estimated As Of August 2019, USD 1192,902 Millions (Approximately)
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66,830
50,184
24,337
37,927
53,125
93,173
137,599 135,557
107,300
67,818
87,784
116,717123,150
91,401
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
2001-2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 EstimatedAug 2019
Total INTERNATIONAL Sukuk Issuances (Jan 2001 - Estimated August 2019) - All Tenors, All Currencies (in USD Millions)
➢ Total INTERNATIONAL Sukuk Issuances Estimated As Of August 2019,USD 277,740 Millions (Approximately)
21,556
14,002
2,210
7,023
4,248
8,684
20,269
22,992
26,730
21,880
31,210
37,648
32,988
26,301
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2001-2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 EstimatedAug 2019
Source: IIFM Sukuk Database
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Total DOMESTIC Sukuk Issuances (Jan 2001 - Estimated August 2019)- All Tenors, All Currencies (in USD Millions)
➢ Total DOMESTIC Sukuk Issuances As of August 2019 USD 915,162 Millions (Approximately )
45,275
36,182
22,127
30,904
48,877
84,490
117,331112,565
80,570
45,938
56,574
79,069
90,162
65,100
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
2001-2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 EstimatedAug 2019
Source: IIFM Sukuk Database
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Total SHORT-TERM (GLOBAL) Sukuk Issuances (Jan 2001 - Dec 2018) - All Currencies, Tenor 12 Months or Less, in USD Millions
14,667
3,671
8,552
20,932
35,264
43,365
65,22762,725
56,601
15,990
23,340
17,074
34,459
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2001-2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
➢ Total Global Short Term Sukuk Issuance 401,869 Millions Source: IIFM Sukuk Database
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Total SHORT-TERM (INTERNATIONAL ) Sukuk Issuances (Jan 2001 – Dec 2018) - All Currencies, Tenor 12 Months or Less, in USD Millions
1,910
48 0 0 19 0 0
1,018
5,800
7,576
9,3009,850
8,110
0
2,000
4,000
6,000
8,000
10,000
12,000
2001-2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
➢ Total International Short Term Sukuk Issuance 43,631Millions Source: IIFM Sukuk Database
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Total SHORT-TERM (DOMESTIC) Sukuk Issuances (Jan 2001 – Dec 2018) - All Currencies, Tenor 12 Months or Less, in USD Millions
12,757
3,623
8,552
20,932
35,245
43,365
65,22761,708
50,801
8,414
14,040
7,224
26,323
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2001-2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
➢ Total Domestic Short Term Sukuk Issuance 358,211Millions Source: IIFM Sukuk Database
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Total SHORT-TERM (GLOBAL) Sukuk Issuances (Jan 2001 – Dec 2018)– All Currencies, Tenor 12 Months or Less, in USD Millions
ASIA & FAR EAST Number of Issues Amount USD Millions % of Total Value
Brunei Darussalam 136 8,571 2.13%
Bangladesh 4 37 0.01%
Indonesia 77 7,759 1.93%
Malaysia 2,864 342,384 85.20%
Pakistan 8 141 0.04%
Singapore 3 221 0.05%
Total 3,092 359,113 89.4%
GCC & MIDDLE EAST Number of Issues Amount USD Millions % of Total Value
Bahrain 340 15,995 3.98%
Oman 1 130 0.03%
Saudi Arabia 6 1,301 0.32%
United Arab Emirates 1 100 0.02%
Yemen 1 234 0.06%
Total 349 17,760 4.4%
AFRICA Number of Issues Amount USD Millions % of Total Value
Gambia 252 365 0.09%
Sudan 21 16,520 4.11%
Total 273 16,885 4.2%
Europe & OTHERS Number of Issues Amount USD Millions % of Total Value
Turkey 265 8,112 2.02%
Total 265 8,112 2.02%
Grand Total 3,979 401,869 100%Source: IIFM Sukuk Database
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Total SHORT-TERM (GLOBAL) Sukuk Issuances (Jan 2018- Dec 2018) – All Currencies, Tenor 12 Months or Less, Amount In USD Millions)Currency Breakdown
BHD, 1,897, 5.51%GMD, 228, 0.66%
IDR, 3,674, 10.66%
MYR, 15,853, 46.01%
SDG, 86, 0.25%
TRY, 4,611, 13.38%
USD, 8,110, 23.54%
Source: IIFM Sukuk Database
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Corporate, 5,333, 15.48%
FI’s, 4,955, 14.38%
Quasi-Sovereign, 9,487, 27.53%
Sovereign, 14,684, 42.61%
Total SHORT-TERM (GLOBAL) Sukuk Issuances (Jan 2018- Dec 2018) – All Currencies, Tenor 12 Months or Less, Amount In USD Millions)Breakdown by Issuer Type
Source: IIFM Sukuk Database
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Hybrid Sukuk , 472, 1%
Hybrid Sukuk - Wakalah /Murabahah, 7, 0.02%
Sukuk Al Ijarah, 4,482, 13%
Sukuk Al Mudharabah, 3,264, 10%
Sukuk Al Murabahah, 11,026, 32%
Sukuk Al Musharakah, 469, 1.36%
Sukuk Al Salam, 1,368, 4%
Sukuk Al Wakalah, 13,371, 39%
Total SHORT-TERM (GLOBAL) Sukuk Issuances (Jan 2018- Dec 2018) – All Currencies, Tenor 12 Months or Less, Amount In USD Millions)Structure Breakdown
Source: IIFM Sukuk Database
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Sukuk Issuances Breakupby Issuer Status
Total GLOBAL SOVEREIGN Sukuk Issuances (Jan2001-Dec2018) - All Tenors, All Currencies (in USD Millions)
➢ Total Sovereign Sukuk Issuance USD 606,391 Million
11,324
6,874 7,58510,637
24,881
34,071
67,765
87,09383,211
68,788
33,429
41,255
62,097
67,381
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
2001-2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: IIFM Sukuk Database
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Total GLOBAL CORPORATE Sukuk Issuances (Jan2001-Dec2018) - All Tenors, All Currencies (in USD Millions)
➢ Total Corporate Sukuk Issuance USD 278,459 Million
19,185
23,420
39,702
12,549
8,856
14,77816,052
23,235
34,585
12,675
14,731
19,817
16,835
22,039
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2001-2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: IIFM Sukuk Database
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Total GLOBAL QUASI-SOVEREIGN Sukuk Issuances (Jan2001-Dec2018) - All Tenors, All Currencies (in USD Millions)
➢ Total Global Quasi-Sovereign Sukuk Issuance USD 158,864 Million
1,979 1,448 1,497855
3,996
2,881
5,651
21,649
12,793
21,635
11,503
21,317
28,622
23,038
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2001-2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: IIFM Sukuk Database
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Total GLOBAL FI’s Sukuk Issuances (Jan2001-Dec2018) – All Tenors, All Currencies (in USD Millions)
➢ Total FI’s Sukuk Issuance USD 57,789 Million
735
1,8641,400
296 193
1,395
3,706
5,6234,969
4,202
8,155
5,395
9,163
10,693
0
2,000
4,000
6,000
8,000
10,000
12,000
2001-2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: IIFM Sukuk Database
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Global Sukuk IssuancesBy Currency Breakdown
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GLOBAL Sukuk Issuances (Jan 2001-Dec2018) - All Tenors (in USD Millions)by Currency Breakdown
AED, 8,324, 0.76%
BDT, 37, 0.00%
BHD, 19,453, 1.77%
BND, 10,257, 0.93%
CFA, 1,434, 0.13%
CNY, 236, 0.02%
EURO, 2,151, 0.20%
GBP, 1,385, 0.13%
GMD, 383, 0.03%
IDR, 62,889, 5.71%
JOD, 483, 0.04%
KWD, 332, 0.03%
LKR, 5, 0.00%
MAD, 105, 0.01%
MVR , 10, 0.001%
MYR, 611,373, 55.50%
NGN , 714, 0.06%
OMR , 1,070, 0.10%
PKR, 12,523, 1.14%
QAR, 16,816, 1.53%
SAR, 70,492, 6.40%
SDG, 19,516, 1.77%
SGD, 2,735, 0.25%
TRY, 17,711, 1.61%
USD, 240,816, 21.86%
YER, 253, 0.02%
Source: IIFM Sukuk Database
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Global Sukuk Issuance Breakup by Sukuk Structure
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INTERNATIONAL Sukuk Issuances (Jan2018-Dec2018)- All Tenors (in USD Millions) by Structure Breakdown
Hybrid Sukuk , 1000, 3%
Hybrid Sukuk - Wakalah /Murabahah, 2,100, 7%
Hybrid Sukuk -Ijarah/Murabahah, 900, 3%
Hybrid Sukuk -Ijarah/Musharakah, 351, 1%
Hybrid Sukuk -Murabahah/ Mudharabah, 2,000, 6%
Sukuk Al Ijarah, 5,722, 17%
Sukuk Al Mudarabah/Wakalah, 1,690, 5%
Sukuk Al Mudharabah, 1,955, 6%
Sukuk Al Murabahah, 700, 2%
Sukuk Al Wakalah, 16,570, 50%
Source: IIFM Sukuk Database
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Hybrid Sukuk , 1,512, 2% Hybrid Sukuk - Wakalah /Murabahah, 509, 1%
Hybrid Sukuk -Murabahah/ Mudharabah, 14,108, 16%
Sukuk Al Ijarah, 17,342, 19%
Sukuk Al Mudharabah, 4,186, 5%
Sukuk Al Murabahah, 37,442, 41%
Sukuk Al Musharakah, 2,172, 2%
Sukuk Al salam, 1,386, 1%
Sukuk Al Wakalah, 11,506, 13%
DOMESTIC Sukuk Issuances (Jan2018-Dec2018) - All Tenors (in USD Millions) by Structure Breakdown
Source: IIFM Sukuk Database
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Challenges In Sukuk Market
Challenges in Sukuk Market
1) Limited availability of tangible assets leads to over reliance on certain Sukuk structures
2) Asset title transfer law particularly for sovereign assets
3) Investor’s preference and risk appetite tilted towards balance-sheet risk rather than direct risk on a tangible asset
4) Utilization of Sukuk in liquidity management & product range
5) Absence of insolvency & close-out netting law in most of OIC Countries leads to structuring challenges (title transfer versus security interest)
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6) Legal Framework & Enhancement of Shari’ah monitoring (Dana Gas Sukuk legal case)
7) Corporate Sukuk issuances below par contribution
8) Equity linked Sukuk issuances to be encouraged i.e Exchangeable Sukuk
9) Tax Neutrality
10) Quasi Sovereign Sukuk Implicit and Explicit Government Guarantee
Challenges in Sukuk Market (Continued)
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1) Use of Sukuk/Islamic Securities as Collateral
➢ IIFM Collateralized Murabahah Standard
2) Currency and Rate of Return Risk Mitigation
➢ IIFM Hedging Standards
3) Established conventional bond issuance process vs Sukuk issuance process (structuring, documentation, market guidelines)
➢ IIFM Sukuk Standards and Guidelines Under Development
Solutions to Challenges
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Update on IIFM Standardized Sukuk Documentation Initiative
Key Considerations
▪ Objective: create non-jurisdictional specific, English law benchmark suite of Islamic finance documents for Sukuk Al-Ijarah and Sukuk Al-
Mudarabah (both senior unsecured and also a subordinated, Tier 1 issuance)
▪ Market preference is asset based Sukuk not asset backed
▪ Defaults and recourse to underlying assets
▪ Asset backed Sukuk documentation may be considered at a later stage
▪ Structuring Tier 1 transactions (Mudarabah transactions)
▪ Governing law
▪ Shari’ah representation
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Market Update - Shari’ah Representation
Inclusion of standard Shari’ah representation in Sukuk documentation due to market developments:
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.
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Sukuk Standards
Sukuk Al-Ijara h(senior unsecured):
▪ Sale and Purchase Agreement
▪ Ijarah Agreement
▪ Service Agency Agreement
▪ Purchase Undertaking
▪ Sale and Substitution Undertaking
▪ Skeleton Prospectus – summary of principal transaction documents and structure diagram and principal cashflows.
▪ Declaration of Trust
Note: capital market documents (subscription agreement, agency agreement) are not part of the current standardisation project; the key is to have a template suite of Islamic finance documentation.
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Sukuk Standards
Sukuk Al-Mudarabah (senior unsecured):
▪ Mudarabah Agreement
▪ Skeleton Prospectus – summary of principal transaction documents and structure diagram and principal cashflows
▪ Declaration of Trust
Note: No purchase undertaking. Take full risk on the performance of the Mudaraba.
Sukuk Al-Mudaraba h(Tier 1, subordinated issuance):
▪ Mudarabah Agreement
▪ Skeleton Prospectus – summary of principal transaction documents and structure diagram and principal cashflows
▪ Declaration of Trust
However, Tier 1 regime is entirely linked to the regulatory regime in the applicable jurisdiction and must tie into Shari’ah requirements of the relevant organisation / jurisdiction.
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Process and Timeline
Clifford Chance appointed to prepare suite of standardised Sukuk documentation.
Working group consisting of financial, legal and Shari’ah institutions to review documents.
Sukuk Al-Ijarah
▪ Initial drafts circulated in February 2018 to working group.
▪ Responses from working group received from April to June 2019.
▪ Second drafts circulated in October 2018.
▪ Responses from working group received in January 2019.
▪ Third drafts circulated in February 2019.
▪ Working party call on 14 March 2019.
▪ Responses on third drafts received in March 2019.
▪ Revised drafts circulated in April 2019 for IIFM Shari’ah guidance process.
▪ First Shari’ah guidance meeting in July 2019.
▪ Revised drafts incorporating Shari’ah guidance recommendations circulated in September 2019.
▪ Shari’ah guidance process to continue in December 2019.
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Process and Timeline
Sukuk Al-Mudarabah
▪ Initial drafts were circulated in November 2019.
▪ Working group comments received March 2019.
▪ Second drafts circulated in April 2019.
▪ Working group comments received in July 2019.
▪ Revised drafts to be circulated in November 2019.
▪ Working party call and Shari’ah guidance process to follow thereafter with expected completion date of Q1 2020.
Sukuk market guidelines
▪ Currently under assessment
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ShukranWassalamu ‘Alaikum
International Islamic Financial Market (IIFM)Office 72, 7th Floor, Zamil Tower , Government Avenue, P.O. Box: 11454, Manama, Kingdom of BahrainTel: +973 17500161 , Fax: +973 17500171, Email: info@iifm.net, Website: www.iifm.net
Disclaimer: The information herein has been obtained from sources believed to be reliable but cannot be guaranteed. The views or opinions expressed are subjected to change at any time. Neither the information nor any opinion expressed can be construed as a solicitation for the purchase or sale of any securities. International Islamic Financial Market disclaims liability in this respect.
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