Sukuk Outlook 2010
Content
International Structured Finance
Europe, Middle East, Africa & Asia-Pacific
Special Report
Global Sukuk Issuance Surges as Effects of Credit Crisis Recede: Overview and Trend Analysis
Author
Faisal Hijazi Business Development Manager Rating Services and Islamic Finance +9714 401 9530 [email protected]
Table of Contents
Summary Global Sukuk Issuance Overview Sukuk Issuance Analysis Government and related entities enhancing sukuk market efficiency and price discovery New legislative developments and launch of sukuk funds, facilitating liquidity and increasing market size
Asia, Middle East and Islamic Finance Additional Contacts
Khalid Howladar Vice President – Senior Credit Officer Asset-Backed & Sukuk Finance +9714 401 9542 [email protected] Philipp Lotter Senior Vice President Corporate Finance Group +9714 401 9539 [email protected] Anouar Hassoune Vice President – Senior Credit Officer Financial Institutions Group +33 1 5330 3340 [email protected] Dominique Gribot-Carroz Vice President +852 2916 1120 [email protected]
Issue Rating: Islamic Development Bank’s MTN Sukuk Programme (Aaa, stable) Note on Data Appendix 1: Credit Outlook: Sukuk Resurgence is Efficient for Islamic Financial Institutions Appendix 2: Sukuk Transactions Rated by Moody’s Appendix 3: Glossary of Islamic Finance Terms Moody’s Related Research
SUMMARY
Global sukuk issuance surged by over 40% in the first ten months of 2009 compared to the same period last year. This marks a clear turnaround compared to the declining trend witnessed in the second half of 2008, when the impact of the global credit crisis started to be felt in many regions, including the Gulf Cooperation Council (GCC) and Asia Pacific. In the second quarter of 2009, sukuk issuance started rising compared to the two previous quarters, in which most of the effects of the crisis had been felt. The third quarter then witnessed a genuine recovery in issuance, the first in nearly 12 months, especially since the collapse of Lehman Brothers and the AAOIFI 1 critical statements on the Shari’ah compliance of sukuk. 2 Given the sluggish economic conditions, corporate entities are less likely to be major issuers of new sukuk. In contrast, sovereigns and government-related issuers (GRIs) have now become the most common sukuk issuers as they face a need to launch a variety of funding programmes amid declining economic activity, fiscal deficits and lower commodity prices. The lingering effects of the crisis and the gradual recovery in oil prices have resulted in fewer GCC governments recording a budget deficit, while several others boasted relative surpluses, for the first time in almost five years, driven by governments’ commitment to strategic sponsored projects, including infrastructure, education and tourism, mainly in Saudi Arabia, Qatar and Abu Dhabi. Moreover, the Dubai
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1 2
The Accounting and Auditing Organisation for Islamic Financial Institutions See Moody’s “The Future of Sukuk: Substance over Form”
9 November 2009
government (not rated), through the department of finance, is issuing nearly US$2 billion of sukuk, part of a US$6.5 billion funding programme. The recent surge in sovereign or government-backed issuance – amid continued uncertainty over the timing and magnitude of the economic recovery – is a longawaited development that should help create a more efficient and soundly based sukuk market. It should also help the market develop a more detailed yield curve, and hence a risk benchmark across several tenors and credit profiles. Overall, we view the surge in sukuk issuance by governments and government-related issuers as a necessary step towards creating a stronger sukuk market in the longer term, driving more corporate sukuk issuances that can be more transparently priced. In light of the overwhelming negative sentiment in the global capital and credit markets, many sukuk investors have opted to liquidate their sukuk holdings, deciding instead to place their cash in more defensive commodities and nearly risk-free cash accounts. According to the HSBC/DIFC sukuk index, yields have declined by over 50% since December 2008, from over 14% at the peak of the crisis earlier this year to less than 6% at the end of October. Many sukuk price declines have been seen as a reaction to negative sentiment related to the global crisis, rather than company-specific developments affecting the issuer’s credit or market profile. Many intermediaries and other asset management houses have seen value in either trading or launching sukuk funds for the more conservative and value investors, including pension, endowment, Takaful fund and other retail investors, which were until recently excluded from this asset class. Underperforming capital markets and weakened investor confidence in risky products have justified the value of such funds. In the first quarter of 2009, some of the earlier launched funds were producing returns in the range of 10% to 15%. We believe the gradual introduction of such funds will help create a secondary market for sukuk, whereby investors, including banks, can price their sukuk fairly, enhancing both liquidity and secondary market tradability. Legislative steps, including the introduction of the Tadawul sukuk market in Saudi Arabia, are improving the prospects of sukuk becoming an attractive issuance structure, especially for local and cross-border investors. 3 Recent similar reforms in South Korea and Indonesia should also support the longer-term viability of the primary sukuk market and the establishment of an active secondary market, which will benefit the longer-term prospects of sukuk as an investment instrument amongst issuers and investors alike. Moody’s welcomes such developments as timely steps that should both diversify Islamic finance assets and address investor needs, as well as adding depth to the market and enhancing transparency and efficiency amongst market participants.
3
Total Islamic finance assets account for only around 0.5% of total global assets (DIFC), whilst recent censuses show that the Muslim population accounts for nearly 25% of the world’s total population.
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Global Sukuk Issuance Surges as Effects of Credit Crisis Recede: Overview and Trend Analysis
GLOBAL SUKUK ISSUANCE OVERVIEW As global credit crisis continues, sukuk enjoys a recent marked upturn
In early 2009, amid the global economic downturn and investor churn, most corporates in emerging markets shied away from issuing new debt instruments, with the exception of issuances aimed at meeting refinancing needs. The Dubai Electricity and Water Authority (DEWA) (A3, negative outlook) was able to refinance US$2.2 billion by tapping into the bank syndication market, relying on better expert understanding of its business profile, expansion and financing needs. This is in contrast to previous issuances that had been raised through capital market operations. 4 This pattern was experienced by many other issuers in the first quarter of the year, reflecting investors’ low appetite and risk aversion
Gradual upsurge in sukuk issuance from sovereign, supranational and ultimately corporate entities
Sovereigns and supranational institutions rely heavily on raising new funds to finance their budgetary expansion requirements and development projects, mainly through open market operations. Earlier this year, faced with a grim economic outlook, the banking liquidity crisis and investor risk aversion, many governments in the GCC and Asia Pacific acted to stimulate economic growth, meet budget shortfalls and combat increasing levels of poverty and unemployment. In April, we saw the first Indonesian cross-border sukuk, a five-year US$650 million issue (Ba3, stable). In June, Bahrain (A2, negative) issued a five-year US$750 million sukuk. These sovereign issuances – although expected given the economic downturn – have brought some certainty to the viability of the sukuk market and helped gradually regain investor confidence. Another sukuk issuance by the Islamic Development Bank (Aaa, stable) also acted as a catalyst to strengthen the market’s recovery, as has the planned US$100 million issuance by the IFC (Aaa, stable). Moody’s assigned both issuances a Aaa rating with stable outlook. 5
The remainder of H2 could see more sovereign and corporate issuances and the gradual launch of several sukuk funds
So far in the second half of this year, there appears to be a more gradual return to issuance activity by GRIs, including Saudi Electricity (A1, positive), Tourism Development and Investment Company (Aa2, stable) and Petronas (A1, stable). We have also seen signs of privately owned corporates gradually coming into the market discussing funding programmes for planned acquisitions. We would expect this trend to accelerate as economic conditions improve, raising investors’ appetite and oil prices. We anticipate that sukuk structures that will and can be backed by assets, especially real estate or receivables, will gain traction, given the significant volume of assets in place and the continued high cost of raising funding on an unsecured level. The introduction of an active secondary sukuk market, where sukuk could be traded and liquidity enhanced, could further supplement the gradual increase in sukuk issuances by various types of issuer. Moreover, the important role of fund managers in actively setting up new sukuk funds and participating in new issuances will be essential for the longterm sustainability of a dynamic and active sukuk market, in which different market participants, including investors and issuers, can play an equally important role.
4 5
Both Unsecured and Secured (ABS). Issuance rating www.moodysmiddleeast.com/
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Global Sukuk Issuance Surges as Effects of Credit Crisis Recede: Overview and Trend Analysis
GLOBAL SUKUK ISSUANCE ANALYSIS Governments and related entities enhancing sukuk market efficiency and price discovery
Governments and GRIs have dominated sukuk issuance so far in 2009
Given the sluggish economic conditions, corporate entities are less likely to be major issuers of sukuk. In contrast, sovereigns and government-related issuers (GRIs) have become the most common sukuk issuers as they face a need to launch a variety of funding programmes amid declining economic activity, fiscal deficits and lower commodity prices. The recent surge in sovereign or government-backed issuance is a new but long-anticipated development in the relatively short life of the sukuk market that should help create a more efficient and soundly based market.
Chart 1 Type of Sukuk Issued
Corporates 180 160 140 Issuance Number 120 100 80 60 40 20 0 2002 2003 2004 2005 2006 2007 2008 Oct-09 Sovereigns/Supranationals
Corporate issuers cautious, new sovereign issuers upbeat
In particular, continued uncertainty over the timing and magnitude of the economic recovery has prompted sukuk issuances from the Indonesian government (Ba3, stable), Bahrain (not rated) 6 and the Islamic Development Bank (Aaa, stable). These issuances have been welcomed in helping the sukuk market develop a more detailed yield curve, and hence a risk benchmark across several tenors and credit profiles. The continued restricted access to funding and the gradual recovery in oil prices have resulted in fewer governments, especially in the GCC 7 , recording budget deficits, for the first time in almost five years, underpinned by continuous government spending needs for infrastructure and strategic projects, mainly in Saudi Arabia, Qatar and Abu Dhabi. The Qatar and Abu Dhabi governments have together issued nearly US$13 billion in debt programmes (conventional issuances) to fund planned projects, through government and government-related entities. In 2009, Saudi Electricity (A1, positive) was eventually the first GCC corporate to issue a multi-billion domestic sukuk: a SAR7 billion (US$1.87 billion) issue that attracted a strong order from domestic investors, mainly financial institutions, reaching nearly US$20 billion, three times the offered size. Benefiting from the company’s direct and indirect government ownership exceeding 81% and a robust business. This was favourably reflected in the pricing of just 160 bps over SIBOR 8 , given the long tenor of 20 years. Since the onset of the credit crisis, many issuers have realised the importance of diversifying, including the creation of an active sukuk market, in which a wider pool of
6 7 8
Moody’s sovereign rating for the Kingdom of Bahrain is A2, negative. Projected by IMF(October 2009) This is by far higher than the 45 bps priced in the first SEC Sukuk in 2008.
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Global Sukuk Issuance Surges as Effects of Credit Crisis Recede: Overview and Trend Analysis
investors – both institutional and retail – play an active role in their primary market contribution and secondary market trading. The announcement of the establishment of the Tadawul sukuk platform by CMA 9 in Saudi Arabia, a market for the trading and pricing of sukuk, is expected in the longer term to create an active secondary market, where issuances can be fairly priced and existing investors, mainly banks, can overcome liquidity constraints. Similar legislative and regulatory (tax-related) developments are gradually introduced in several other markets in the GCC and Asia Pacific. Recent actions taken by governments in the GCC and Asia Pacific have created an environment of confidence, especially amongst international issuers, sovereign and corporates alike, including those in the UK, Asia, the US and Russia. This change in climate is especially marked following the difficult environment on the sukuk market earlier this year, when issuances declined by nearly 50% due to the credit crisis and critical comments on the Shari’ah compliance of some of the structures issued. In addition, regulatory actions to improve sukuk offerings in new markets are raising its appeal as an issuance structure, especially for cross-border subscription. Such recent actions include the tax waiver by the South Korean government on sukuk return income and the Indonesian government’s recent passing of a law scrapping double taxation on Islamic financial institutions. In the second half of this year, we have seen an active build-up of issuers planning sukuk issuances for later in the year or as early as the first quarter of next year, with many returning to markets after the solid book-building for sukuk in Bahrain, Indonesia, Saudi Arabia and the UAE. The recovery in oil prices and improved economic growth projections 10 in the GCC and wider Middle East have also created a favourable sentiment among investors, both regional and international. Recent declines in sukuk yields to more realistic levels, around 6% for the HSBC/DIFC index, have encouraged many issuers to gradually tap the sukuk market. The Dubai government (not rated), through the department of finance, was the latest to tap the market raising US$1.93 billion through a two-tranche five-year issuance. The US$1.25 billion tranche will pay a coupon of 6.39%, while a AED2.5 billion (US$680 million) local currency tranche has a 5.65% coupon. Both issues have been reported to attract strong demand with an order book of over US$6.30 billion.
The financial and, to a lesser extent, real estate sectors are gradually tapping the market
In the GCC, the financial and, to a lesser extent, the real estate sectors were the first to benefit from the improvement in market conditions. At the time of writing this report, we are expecting both HSBC’s MTN programme (A1, negative) and Tourism and Development Investment Company (TDIC) (Aa2, stable) to have tapped the sukuk market for US$5 billion and US$1.45 billion, respectively.
New legislative developments and the launch of sukuk funds, facilitating liquidity and increasing market size
The decline in confidence in the credit and capital markets has created an opportunity for the launch of a new investment product amongst leading GCC investment banks. Several sukuk funds were launched as an alternative investment product for many retail and institutional investors. According to the HSBC/DIFC index, sukuk yields 11 reached their peak in February 2009, at around 14%, representing an average price of 74.75. The decline in price was seen as a reflection of the severe global credit conditions, rather than company-specific news affecting their credit or market profile. Moreover, since hitting a low weighted price of 73 in mid–February, prices started recovering rapidly, as signs of a gradual credit market recovery, corporate news and generous returns have caused returns to decline by nearly 50% to around 6%. In addition, greater confidence in the government of Dubai’s commitment to meeting its debt obligations has seen a surge in pricing of the US$3.52 billion Nakeel Sukuk (not rated), which is due for repayment on 14 December 2009.
9 10 11
Capital Market Authority IMF in its recent revisions expected ME GDP growth to reach 4.4% - October 2009 http://www.hsbcdifxindices.com/
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Global Sukuk Issuance Surges as Effects of Credit Crisis Recede: Overview and Trend Analysis
Chart 2 Sukuk Yields Movement
16 14 12 Yields (%) 10 8 6 4 2 0 1/2/2009
3/2/2009
5/2/2009
7/2/2009
9/2/2009
11/2/2009
The increasing role of fund managers in actively participating in sukuk investment, subscription and trading will be important for the long-term sustainability of a dynamic and active sukuk market, in which different market participants, including new investors, help diversify the investor base, leading to an active secondary market in which sukuk can be fairly priced. According to HSBC, one of the lead book runners for the Islamic Development Bank’s US$850 million issue, fund managers have subscribed to nearly 35% of the value of the sukuk underwritten. The value created by these funds was justified by investors’ low risk appetite and declining global capital markets. In the first quarter of 2009, some of these funds were producing returns in the range of 10% to 15%. However, sukuk funds are still in their infancy due to the limited number of sukuk that meet the investment criteria that many fund managers set. Nonetheless, the recovery in the global economic outlook, improvement in investor sentiment, new market and jurisdiction issuances should support the gradual introduction of such funds as a new asset class, enhancing both trading and price efficiency in the secondary market. Moreover, the launch of such funds will benefit a wider investor universe, including pensions, Takaful funds and a large segment of retail investors. The early 2009 announcement of the establishment of the Tadawul sukuk platform in Saudi Arabia, a market for the trading and pricing of sukuk, was a noteworthy development that should, over the longer term, create an active and regulated secondary market in the kingdom. We would also expect issuers to be willing to tap the market for new issuances, as transfer of ownership, tradability and market liquidity can be facilitated at minimum transactional cost. This legislative development is a positive step towards strengthening the longer-term sustainability of the sukuk market; this would attract a larger segment of investors into the market, including institutional investors. Over the past seven years, Moody’s has been actively involved in the rating of several global sukuk. 12 Hence, we have recently been asked to look into rating a number of sukuk funds. The box below summarises the principal criteria and parameters that we consider when assigning a rating to a sukuk fund.
12
Appendix 1
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Global Sukuk Issuance Surges as Effects of Credit Crisis Recede: Overview and Trend Analysis
Sukuk Funds: Fund Credit Rating Approach
Moody’s analysts obtain and rely on relevant data from public sources and, where available, non-public sources. While this data may vary according to the type and location of the fund, the following information is typically used in the rating process: Prospectus, fund guidelines and related documents, including Shari’ah scholar’s opinion report. Fund portfolio data such as historic fund holdings, tracking error and performance history of the fund and benchmark. Public filings, industry publications and marketing materials describing the advisor’s structure, investment philosophy, decision-making process and performance track record Legal and financial databases, including regulatory disclosures, periodicals and newsletters Market analyses – Fund manager analysis of the local market from a credit and market risk perspective. This may include a review of current market trends as well as a credit write-up of a potential investment. Industry surveys, studies and special reports.
In addition, Moody’s encourages a continuous dialogue with the fund company’s management. Moody’s analysts may meet with company representatives for a discussion of the relevant factors in connection with the assignment of an initial rating, and on a periodic basis thereafter.
SUKUK ISSUE RATING Islamic Development Bank Sukuk Trust
In the second half of 2009, Moody's assigned a Aaa rating, with a stable outlook, to the Islamic Development Bank’s US$1.5 billion sukuk MTN programme. Under the proposed sukuk structure, trust certificates (“certificates”) will be issued by IDB Trust Services Limited, a Jersey-based finance vehicle. The net proceeds of the issue of such certificates will be used to purchase a portfolio of sukuk assets, which may comprise ijarah assets, murabaha contracts, istisna’a contracts and the Islamic Development Bank's investments in equity and sukuk certificates. The rating of the certificates is in line with the Aaa long-term foreign currency rating of the bank’s Ordinary Capital Resources. Moody’s regards the certificates as senior unsecured obligations, without any preference or priority, among all trust certificates of the same series and with all other present and future trust certificates. The bank's Aaa rating was assigned in June 2006. It is a multilateral development bank (MDB) based in Jeddah in Saudi Arabia. Like other MDBs, it is governed solely by international law and is not subject to any particular sovereign jurisdiction. Also, like other MDBs, the bank benefits from preferred creditor status. Virtually all of the bank’s operational assets (equivalent to development loans for other MDBs) benefit from sovereign, government-owned bank or highly rated commercial bank guarantees. The bank enjoys a high level of liquidity and a very low level of debt, partly because of the Islamic, asset-based nature of its operations that is unique among MDBs. Despite a risky operating environment, inherent in its role as a development bank, the bank’s operational assets continue to perform well, with a very low level of impairment. Moreover, the most risky portion of its operational assets (those extended to the poorest member countries on a concessional basis) will gradually be transferred to a new poverty reduction fund (the Islamic Solidarity Development Fund) that is financially separated from the bank. This should raise its profitability and enhance its risk profile. The sukuk were successfully placed during the last part of Ramadan, a period of relative calm and in preparation for Eid. Nevertheless, nearly 70% of the issuance was well placed within Middle Eastern and Asian investors; moreover, banks, including IFIs, were the largest subscribers, accounting for 75% of the issue. In a welcome development, at the expense of financial institutions, fund managers, including those investing in sukuk funds, took nearly 35% of the issue – a sign of a growing interest on the part of investors that were previously isolated from this market, due to its nascent nature and
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Global Sukuk Issuance Surges as Effects of Credit Crisis Recede: Overview and Trend Analysis
strict approach to liquidity. The offering was well subscribed by 90 investors to the tune of US$2 billion (i.e. an order book 2.3 times the US$850 million issued) at a pricing of 5-year mid-swap plus 40 basis points to yield a fixed return of 3.172% per annum. The bank issued a fixed-rate sukuk due to the overwhelming demand for such an issue. To meet its pricing policy for financing member countries, the funds were swapped into floating rate for the full fiveyear term, at a fairly attractive rate.
Note on Data:
This report aims to capture and discuss the volumes of Islamic finance issuance in EMEA and Asia-Pacific, mainly Shari’ah-compliant securities (sukuk). The volumes reported include all publicly rated and unrated transactions that closed or launched between 1 January 2002 and 31 October 2009. 13 For issued sukuk, a number of resources were used to account for total issued volume and accumulated issued sizes since inception. Sources include Moody's, the Malaysian Securities Commission, Bloomberg and Zawya. Moody’s is aware of other sources of information related to sukuk in the market domain that can be different from those quoted in this report. Every effort has been made to include and quote the majority of data sources that are accessible to Moody’s. All currencies have been converted into US dollars to facilitate easy comparison. The exchange rate was taken at the time of the transaction closing. Moody’s is aware of the different schools of law – or Fiqh (Islamic jurisprudence) – among different countries across the Middle East and Asia-Pacific. Hence, these schools differ in the Fiqh methodology and the acceptance of certain sukuk structures. Furthermore, Moody’s review of sukuk transactions has been made on the basis of their legal binding and contractual features that affect the creditworthiness of the sukuk, without opining on their compliance with Shari’ah law.
13
Appendix 1 includes all Sukuk issues rated by Moody's Investors Service since inception.
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Global Sukuk Issuance Surges as Effects of Credit Crisis Recede: Overview and Trend Analysis
APPENDIX 1: SUKUK RESURGENCE IS POSITIVE FOR ISLAMIC FINANCIAL INSTITUTIONS
14
There have been significant developments in the Islamic financial sector recently, which we believe will have positive implications for Islamic financial institutions globally, especially from a liquidity and overall risk management point of view: On 21 October, the Government of Dubai became the latest issuer to tap the sukuk market with the announcement of a $6.5 billion funding exercise split between a $4 billion conventional note programme and a $2.5 billion sukuk programme. The previous week, the UK Treasury published regulatory guidance on the issuance of sukuk, or more formally “alternative finance investment bonds”, which paves the way for the UK government to issue sovereign sukuk and meet a commitment it made in 2007. In the same week, the International Finance Corporation (IFC), the financing arm of the World Bank, became the first non-Islamic multilateral organisation to announce a sukuk issue.
Together, these initiatives will result in the supply of significant amounts of Aaa-rated sukuk, which will help the liquidity management of Islamic financial institutions while allowing them to remain Shariah compliant. By broadening the base of “repo-able” Islamic financial instruments and by increasing the range of maturities available to Shariah-compliant institutions for investment, these initiatives provide depth and flexibility from a liquidity point of view. Given the relative small size of the Islamic financial market globally, we view this trend as being supportive of the credit quality of Islamic financial institutions. The Dubai and IFC sukuk issuances are significant in terms of size, and they also appease some concerns raised about the depth of the sukuk market in the Gulf after the governments of Qatar and Abu Dhabi decided to issue conventional bonds recently. The IFC’s sukuk is listed on NASDAQ Dubai. The UK regulatory guidance seeks to align the regulatory treatment of sukuk with conventional debt securities. Classifying sukuk under existing regulatory frameworks has posed challenges in the UK and other jurisdictions. Although most Islamic financial instruments are designed to replicate the economic functions of conventional ones, their legal structure and risk characteristics may be different, making it difficult to map these products into conventional, western-style legal framework. The fix announced by the FSA removes the last roadblock preventing the UK government to issue sukuk, a commitment it made to support the growing UK-based Islamic financial sector and community. These most recent developments follow other recent issuances of importance from the Islamic Development Bank (Aaa), Indonesia (Ba3) and Abu Dhabi’s Tourism Development & Investment Company TDIC (Aa2). All these issuances are, of course, tradable globally.
14
This appendix was originally published by Moody’s as a contribution to the Weekly Credit Outlook dated 2 November 2009.
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Global Sukuk Issuance Surges as Effects of Credit Crisis Recede: Overview and Trend Analysis
APPENDIX 2: SUKUK TRANSACTIONS RATED BY MOODY’S
Originator Name Issuance Issue Rating/ Amount Rating of Senior Notes A2 A1 A3 A3 A3 A1 Baa1 Baa1 Aa2 A3 A3 Aa2 Aa3 A3 Baa1 A3 Ba3 A2 A1 Ba3 Aaa Aaa
Country
Issuer
UAE ADIB Sukuk Co. Ltd. Abu Dhabi Islamic Bank 5,000 UAE DIB Sukuk Co. Ltd. Dubai Islamic Bank PJSC 750 UAE DP World Sukuk Ltd. DP World 1,500 UAE Dubai Sukuk Center Ltd. DIFC Investments LLC 1,250 UAE DEWA Funding Ltd* Dubai Electricity and Water Authority 872 UAE EIB Sukuk Co. Ltd. Programme Emirates Islamic Bank PJSC 1,000 UAE JAFZ Sukuk Ltd.* Jebel Ali Free Zone FZE 2,043 UAE Tamweel Sukuk Ltd Tamweel PJSC 272 UAE Tamweel Residential ABS CI (1) Ltd.Tamweel PJSC 210 UAE DB Sukuk Ltd Dubai Bank PJSC 5,000 UAE Sukuk Funding (No. 2) Ltd.* Aldar Properties PJSC 1,021 UAE TDIC Sukuk Ltd. Tourism Development and Investment Company 1,450 UAE Sun Finance Ltd. Sorouh Real Estate 1,009 Malaysia Malaysia Global Sukuk Inc. Government of Malaysia 600 Malaysia Sarawak Corporate Sukuk Inc. State of Sarawak 350 Malaysia MBB Sukuk Inc. (Subordinated) Maybank 300 Kuwait NIG Sukuk Ltd. National Industries Group Holding S.A.K. 475 Qatar Qatar Alaqaria Sukuk Co. Qatar Real Estate Investment Co 300 Malaysia Petronas Global Sukuk Ltd. Petroliam Nasional Berhad 1500 Indonesia Indonesia Global Sukuk Republic Of Indonesia 650 Saudi ArabiaIDB Trust Services Ltd. Islamic Development Bank 850 USA Al Hilal Sukuk IFC 100 Total amount of Sukuk issuances rated by Moody's: 26,502
* Actual Issuance in AED, USD Equivalent listed
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Global Sukuk Issuance Surges as Effects of Credit Crisis Recede: Overview and Trend Analysis
APPENDIX 3: GLOSSARY OF ISLAMIC FINANCE TERMS
al adl: a trusted and honourable person, selected by both parties to a transaction. Somewhat analogous to a trustee. al Maqasid al Shari’ah: the objective of Shari’ah. amana/amanah: literally means reliability, trustworthiness, loyalty and honesty, and is an important value of Islamic society in mutual dealings. It also refers to deposits in trust, sometimes on a contractual basis. bai/bay: contract of sale, sale and purchase. bai al-salam: advance payment for goods. While normally the goods need to exist before a sale can be completed, in this case the goods are defined (such as quantity, quality, workmanship) and the date of delivery fixed. Usually applied in the agricultural sector where money is advanced for inputs to receive a share in the crop. Diminishing Musharaka: a form of partnership that ends with the complete ownership of a partner who purchases the share of another partner in that project by a redeeming mechanism agreed between both of them. fatwa (pl. al fatawa): an authoritative legal opinion based on the Shari’ah. fiqh: practical Islamic jurisprudence. Can be regarded as the jurists’ understanding of the Shari’ah. There are four Islamic jurisprudence, including al-Shaifi, al-Hanifi, al-Maliki and al-Hanbali. gharar: uncertainty in a contract or sale in which the goods may or may not be available or exist (e.g. the bird in the air or the fish in the water). Also, ambiguity in the consideration or terms of a contract – as such, the contract would not be valid. hadith: the narrative record of the sayings, doings and implicit approval or disapproval of the Prophet. halal: permissible, allowed, lawful. In Islam, there are activities, professions, contracts and transactions that are explicitly prohibited (haram) by the Qur’an or the Sunnah. Barring these, all others are halal. An activity may be economically sound but may not be allowed in Islamic society if it is not permitted by the Shari’ah. haram: unlawful, forbidden (see halal). Describes activities, professions, contracts and transactions that are explicitly prohibited by the Qur’an or the Sunnah. hawala: bill of exchange, promissory note, cheque or draft. A debtor passes on the responsibility of payment of his debt to a third party who owes the former a debt. Thus, the responsibility of payment is ultimately shifted to a third party. Hawala is used in developing countries as a mechanism for settling international transactions by book transfers. ijarah/ijara: lease, hire or the transfer of ownership of a service for a specified period for an agreed lawful consideration. This is an arrangement under which an Islamic bank leases equipment, a building or other facility to a client for an agreed rental. ijarah wa iqtina/ijarah muntahla bittamleek: a leasing contract used by Islamic financial institutions that includes a promise by the lessor to transfer the ownership of the leased property to the lessee, either at the end of the lease or by stages during the term of the contract. ijtihad: literally effort, exertion, industry, diligence. As a legal term, it means the effort of a qualified Islamic jurist to interpret or reinterpret sources of Islamic law in cases where no clear directives exist. istisna’a/istisna: a contract of sale of specified goods to be manufactured with an obligation on the manufacturer to deliver them on completion. It is a condition in istisna that the seller provides either the raw material or the cost of manufacturing the goods. maisir/maysir: the forbidden act of gambling or playing games of chance with the intention of making an easy or unearned profit. manfa’a: a form of contract in which one party gains the right to use or benefit from the use of an asset. mudaraba/mudarabah: a form of contract in which one party (the rab-al-maal) brings capital and the other (the mudarib) personal effort. The proportionate share in profit is determined by mutual consent, but the loss, if any, is borne by the owner of the capital,
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Global Sukuk Issuance Surges as Effects of Credit Crisis Recede: Overview and Trend Analysis
unless the loss has been caused by negligence or violation of the terms of the contract by the mudarib. A mudaraba is typically conducted between an Islamic financial institution or fund as mudarib and investment account holders as providers of funds. mudarib: the managing partner or entrepreneur in a mudaraba contract (see above), see also rab almal. murabaha: a contract of sale with an agreed profit mark-up on the cost. There are two types of murabaha sale: in the first type, the Islamic bank purchases the goods and makes them available for sale without any prior promise from a customer to purchase them, and this is termed a normal or spot murabaha; the second type involves a promise from a customer to purchase the item from the bank, and this is called murabaha to the purchase order. In this latter case, there is a pre-agreed selling price that includes the pre-agreed profit mark-up. Normally, it involves the bank granting the customer a murabaha credit facility with deferred payment terms, but this is not an essential element. musharaka/musharakah: an agreement under which the Islamic bank provides funds that are mingled with the funds of the business enterprise and possibly others. All providers of capital are entitled to participate in management, but are not necessarily obliged to do so. The profit is distributed among the partners in a pre-determined manner, but the losses, if any, are borne by the partners in proportion to their capital contribution. It is not permitted to stipulate otherwise. qard al hasan/qard hassan: a virtuous loan in which there is no interest or mark-up. The borrower must return the principal sum in the future without any increase. rab-al-maal: the investor or owner of capital in a mudaraba contract (see above). rahn: a mortgage or pledge. riba: interest. Sometimes equated with usury, but its meaning is broader. The literal meaning is an excess or increase, and its prohibition is meant to distinguish between an unlawful exchange in which there is a clear advantage to one party in contrast to a mutually beneficial and lawful exchange. riba al-buyu: a sale transaction in which a commodity is exchanged for the same commodity but unequal in amount or quality, or the excess over what is justified by the counter-value in an exchange/business transaction. sadaqa: voluntary charity. salam: a contract for the purchase of a commodity for deferred delivery in exchange for immediate payment. Shari’a/Shariah/Shari’ah: in legal terms, the law as extracted from the sources of law (the Qur’an and the Sunnah). However, Shari’ah rules do not always function as rules of law as they incorporate “obligations, duties and moral considerations that serve to foster obedience to the Almighty”. shirkat al-aqad: a joint-venture partnership. shirkat al-milk: a co-ownership partnership. saak: participation securities, coupons, investment certificates. Plural sukuk. Sunnah: the way of the Prophet Mohammed including his sayings, deeds, approvals and disapprovals as preserved in the hadith literature. It is the second source of revelation after the Qur’an. Takaful: a Shari’ah-compliant system of insurance based on the principle of mutual support. The company’s role is limited to managing the operations and investing the contributions. tawarruq: literally monetisation. The term is used to describe a mode of financing, where the commodity sold is not required by the borrower but is bought on deferred terms and then sold to a third party for a lower amount of cash, so becoming “monetised”. The reverse of murabaha. ummah: the community or nation. Used to refer to the worldwide community of Muslims. urf: the customs of a community. wa’d: a promise or unilateral undertaking. wadiah: a deposit.
12 • Moody’s Investors Service
Global Sukuk Issuance Surges as Effects of Credit Crisis Recede: Overview and Trend Analysis
wakala: agency, an agency contract that generally includes in its terms a fee for the agent. wakeel al-Istithamr: an investment agent. waqf: a charitable endowment. zakah/zakat: a tax that is prescribed by Islam on all persons having wealth above an exemption limit at a rate fixed by Shari’ah. Its objective is to collect a portion of the wealth of the well-to-do and distribute it to the needy. The way it is distributed is set out in the Qur’an. It may be collected by the state, but otherwise it is down to each individual to distribute the zakat.
MOODY’S RELATED RESEARCH
For a more detailed explanation of Moody’s approach to this type of transaction, as well as similar transactions, please refer to the following reports:
Rating Methodologies:
Securitisation in New Markets: Moody’s Perspective, September 2006 (SF74362) Moody’s Approach to Rating RMBS in Emerging Securitisation Markets – EMEA, June 2007 (SF97186) Islamic Banks: Their Strategies and Ratings, May 2009(115565) The Future of Sukuk: Substance over Forum, May 2009 (154199) Frequently Asked Questions: Islamic Finance, Oil Prices and the Global Crisis, February 2009 (114816) Global Sukuk Issuance: 2008 Slowdown Mainly Due to Credit Crisis, But Some Impact from Shari’ah Compliance Issues, January 2009 (SF149211) Gulf Islamic Banks Resilient Amid Global Credit Woes, November 2008 (112431) Frequently Asked Questions: Notable Trends in Global Islamic Finance, August 2008 (110404) Islamic Finance in France: Strong Potential, But Key Obstacles Persist, July 2008 (109676) Islamic Finance: Glossary of Usual Terms and Core Principles, June 2008 (109441) Islamic Banking in East Asia - Growing but not without Challenges, April 2008 (108469) Islamic Banks and Sukuk: Growing Fast, but Still Fragmented, April 2008 (108331) Islamic Finance Explores New Horizons in Africa, March 2008 (108071) Islamic Banks in the GCC: a Comparative Analysis, March 2008 (107856) The Benefits of Ratings for Islamic Financial Institutions and What They Address, February 2008 (107502) Risk Issues at Islamic Financial Institutions, January 2008 (107175) Understanding Moody’s Approach to Unsecured Corporate Sukuk, August 2007 (103919) Asian Sukuk Poised for Fast Growth: Market Review and Introduction to Moody’s Rating Approach, August 2007 (104446) Moody’s Approach to Analyzing Takaful Companies, May 2007 (102910) Takaful: A Market with Great Potential, October 2006 (98913) Shari’ah and Sukuk: A Moody’s Primer, May 2006 (103338) A Guide to Rating Islamic Financial Institutions, April 2006 (97226) Moody’s involvement in Rating Islamic Financial Institutions, April 2006 (97113) Regulation and Supervision: Challenges for Islamic Finance in a Riba-Based Global System, January 2004 (81128) Culture or Accounting: What Are The Real Constraints for Islamic Finance in a RibaBased Global Economy?, January 2001 (63369)
Special Comments:
13 • Moody’s Investors Service
Global Sukuk Issuance Surges as Effects of Credit Crisis Recede: Overview and Trend Analysis
Transaction Reports:
Sun Finance Limited, July 2008 (SF136098) Tamweel Residential ABS CI (1) Ltd, June 2007 (SF101479) Tamweel PJSC, November 2007 (105926) UAE CMBS Vehicle No. 1 Limited, June 2007 (SF101325) Dubai Electricity and Water Authority, November 2007 (105503) Jebel Ali Free Zone FZE, November 2007 (105696) Qatar Real Estate Investment Company, July 2007 (103653) DP World, June 2007 (102891) Saad Trading Contracting & Financial Services Company, May 2007 (102659) DIFC Investments LLC, May 2007 (103068) National Industries Group Holding NIG, April 2007 (102600) Malaysia Global Sukuk Inc. US$ 600,000,000 Trust Certificates Due 2007, July 2002 (SF15069)
To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report and that more recent reports may be available. All research may not be available to all clients.
Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck.
SF184627isf
CREDIT RATINGS ARE MIS'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MIS DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS DO NOT CONSTITUTE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS ARE NOT RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. CREDIT RATINGS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MIS ISSUES ITS CREDIT RATINGS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. © Copyright 2009, Moody's Investors Service, Inc. and/or its licensors and affiliates including Moody's Assurance Company, Inc. (together, "MOODY'S"). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, such information is provided “as is” without warranty of any kind and MOODY’S, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall MOODY’S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY’S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY’S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings and financial reporting analysis observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding or selling. MOODY’S hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MOODY’S have, prior to assignment of any rating, agreed to pay to MOODY’S for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,400,000. Moody’s Corporation (MCO) and its wholly-owned credit rating agency subsidiary, Moody’s Investors Service (MIS), also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually on Moody’s website at www.moodys.com under the heading “Shareholder Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”
14 • Moody’s Investors Service
Global Sukuk Issuance Surges as Effects of Credit Crisis Recede: Overview and Trend Analysis
Europe, Middle East, Africa & Asia-Pacific
Special Report
Global Sukuk Issuance Surges as Effects of Credit Crisis Recede: Overview and Trend Analysis
Author
Faisal Hijazi Business Development Manager Rating Services and Islamic Finance +9714 401 9530 [email protected]
Table of Contents
Summary Global Sukuk Issuance Overview Sukuk Issuance Analysis Government and related entities enhancing sukuk market efficiency and price discovery New legislative developments and launch of sukuk funds, facilitating liquidity and increasing market size
Asia, Middle East and Islamic Finance Additional Contacts
Khalid Howladar Vice President – Senior Credit Officer Asset-Backed & Sukuk Finance +9714 401 9542 [email protected] Philipp Lotter Senior Vice President Corporate Finance Group +9714 401 9539 [email protected] Anouar Hassoune Vice President – Senior Credit Officer Financial Institutions Group +33 1 5330 3340 [email protected] Dominique Gribot-Carroz Vice President +852 2916 1120 [email protected]
Issue Rating: Islamic Development Bank’s MTN Sukuk Programme (Aaa, stable) Note on Data Appendix 1: Credit Outlook: Sukuk Resurgence is Efficient for Islamic Financial Institutions Appendix 2: Sukuk Transactions Rated by Moody’s Appendix 3: Glossary of Islamic Finance Terms Moody’s Related Research
SUMMARY
Global sukuk issuance surged by over 40% in the first ten months of 2009 compared to the same period last year. This marks a clear turnaround compared to the declining trend witnessed in the second half of 2008, when the impact of the global credit crisis started to be felt in many regions, including the Gulf Cooperation Council (GCC) and Asia Pacific. In the second quarter of 2009, sukuk issuance started rising compared to the two previous quarters, in which most of the effects of the crisis had been felt. The third quarter then witnessed a genuine recovery in issuance, the first in nearly 12 months, especially since the collapse of Lehman Brothers and the AAOIFI 1 critical statements on the Shari’ah compliance of sukuk. 2 Given the sluggish economic conditions, corporate entities are less likely to be major issuers of new sukuk. In contrast, sovereigns and government-related issuers (GRIs) have now become the most common sukuk issuers as they face a need to launch a variety of funding programmes amid declining economic activity, fiscal deficits and lower commodity prices. The lingering effects of the crisis and the gradual recovery in oil prices have resulted in fewer GCC governments recording a budget deficit, while several others boasted relative surpluses, for the first time in almost five years, driven by governments’ commitment to strategic sponsored projects, including infrastructure, education and tourism, mainly in Saudi Arabia, Qatar and Abu Dhabi. Moreover, the Dubai
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1 2
The Accounting and Auditing Organisation for Islamic Financial Institutions See Moody’s “The Future of Sukuk: Substance over Form”
9 November 2009
government (not rated), through the department of finance, is issuing nearly US$2 billion of sukuk, part of a US$6.5 billion funding programme. The recent surge in sovereign or government-backed issuance – amid continued uncertainty over the timing and magnitude of the economic recovery – is a longawaited development that should help create a more efficient and soundly based sukuk market. It should also help the market develop a more detailed yield curve, and hence a risk benchmark across several tenors and credit profiles. Overall, we view the surge in sukuk issuance by governments and government-related issuers as a necessary step towards creating a stronger sukuk market in the longer term, driving more corporate sukuk issuances that can be more transparently priced. In light of the overwhelming negative sentiment in the global capital and credit markets, many sukuk investors have opted to liquidate their sukuk holdings, deciding instead to place their cash in more defensive commodities and nearly risk-free cash accounts. According to the HSBC/DIFC sukuk index, yields have declined by over 50% since December 2008, from over 14% at the peak of the crisis earlier this year to less than 6% at the end of October. Many sukuk price declines have been seen as a reaction to negative sentiment related to the global crisis, rather than company-specific developments affecting the issuer’s credit or market profile. Many intermediaries and other asset management houses have seen value in either trading or launching sukuk funds for the more conservative and value investors, including pension, endowment, Takaful fund and other retail investors, which were until recently excluded from this asset class. Underperforming capital markets and weakened investor confidence in risky products have justified the value of such funds. In the first quarter of 2009, some of the earlier launched funds were producing returns in the range of 10% to 15%. We believe the gradual introduction of such funds will help create a secondary market for sukuk, whereby investors, including banks, can price their sukuk fairly, enhancing both liquidity and secondary market tradability. Legislative steps, including the introduction of the Tadawul sukuk market in Saudi Arabia, are improving the prospects of sukuk becoming an attractive issuance structure, especially for local and cross-border investors. 3 Recent similar reforms in South Korea and Indonesia should also support the longer-term viability of the primary sukuk market and the establishment of an active secondary market, which will benefit the longer-term prospects of sukuk as an investment instrument amongst issuers and investors alike. Moody’s welcomes such developments as timely steps that should both diversify Islamic finance assets and address investor needs, as well as adding depth to the market and enhancing transparency and efficiency amongst market participants.
3
Total Islamic finance assets account for only around 0.5% of total global assets (DIFC), whilst recent censuses show that the Muslim population accounts for nearly 25% of the world’s total population.
2 • Moody’s Investors Service
Global Sukuk Issuance Surges as Effects of Credit Crisis Recede: Overview and Trend Analysis
GLOBAL SUKUK ISSUANCE OVERVIEW As global credit crisis continues, sukuk enjoys a recent marked upturn
In early 2009, amid the global economic downturn and investor churn, most corporates in emerging markets shied away from issuing new debt instruments, with the exception of issuances aimed at meeting refinancing needs. The Dubai Electricity and Water Authority (DEWA) (A3, negative outlook) was able to refinance US$2.2 billion by tapping into the bank syndication market, relying on better expert understanding of its business profile, expansion and financing needs. This is in contrast to previous issuances that had been raised through capital market operations. 4 This pattern was experienced by many other issuers in the first quarter of the year, reflecting investors’ low appetite and risk aversion
Gradual upsurge in sukuk issuance from sovereign, supranational and ultimately corporate entities
Sovereigns and supranational institutions rely heavily on raising new funds to finance their budgetary expansion requirements and development projects, mainly through open market operations. Earlier this year, faced with a grim economic outlook, the banking liquidity crisis and investor risk aversion, many governments in the GCC and Asia Pacific acted to stimulate economic growth, meet budget shortfalls and combat increasing levels of poverty and unemployment. In April, we saw the first Indonesian cross-border sukuk, a five-year US$650 million issue (Ba3, stable). In June, Bahrain (A2, negative) issued a five-year US$750 million sukuk. These sovereign issuances – although expected given the economic downturn – have brought some certainty to the viability of the sukuk market and helped gradually regain investor confidence. Another sukuk issuance by the Islamic Development Bank (Aaa, stable) also acted as a catalyst to strengthen the market’s recovery, as has the planned US$100 million issuance by the IFC (Aaa, stable). Moody’s assigned both issuances a Aaa rating with stable outlook. 5
The remainder of H2 could see more sovereign and corporate issuances and the gradual launch of several sukuk funds
So far in the second half of this year, there appears to be a more gradual return to issuance activity by GRIs, including Saudi Electricity (A1, positive), Tourism Development and Investment Company (Aa2, stable) and Petronas (A1, stable). We have also seen signs of privately owned corporates gradually coming into the market discussing funding programmes for planned acquisitions. We would expect this trend to accelerate as economic conditions improve, raising investors’ appetite and oil prices. We anticipate that sukuk structures that will and can be backed by assets, especially real estate or receivables, will gain traction, given the significant volume of assets in place and the continued high cost of raising funding on an unsecured level. The introduction of an active secondary sukuk market, where sukuk could be traded and liquidity enhanced, could further supplement the gradual increase in sukuk issuances by various types of issuer. Moreover, the important role of fund managers in actively setting up new sukuk funds and participating in new issuances will be essential for the longterm sustainability of a dynamic and active sukuk market, in which different market participants, including investors and issuers, can play an equally important role.
4 5
Both Unsecured and Secured (ABS). Issuance rating www.moodysmiddleeast.com/
3 • Moody’s Investors Service
Global Sukuk Issuance Surges as Effects of Credit Crisis Recede: Overview and Trend Analysis
GLOBAL SUKUK ISSUANCE ANALYSIS Governments and related entities enhancing sukuk market efficiency and price discovery
Governments and GRIs have dominated sukuk issuance so far in 2009
Given the sluggish economic conditions, corporate entities are less likely to be major issuers of sukuk. In contrast, sovereigns and government-related issuers (GRIs) have become the most common sukuk issuers as they face a need to launch a variety of funding programmes amid declining economic activity, fiscal deficits and lower commodity prices. The recent surge in sovereign or government-backed issuance is a new but long-anticipated development in the relatively short life of the sukuk market that should help create a more efficient and soundly based market.
Chart 1 Type of Sukuk Issued
Corporates 180 160 140 Issuance Number 120 100 80 60 40 20 0 2002 2003 2004 2005 2006 2007 2008 Oct-09 Sovereigns/Supranationals
Corporate issuers cautious, new sovereign issuers upbeat
In particular, continued uncertainty over the timing and magnitude of the economic recovery has prompted sukuk issuances from the Indonesian government (Ba3, stable), Bahrain (not rated) 6 and the Islamic Development Bank (Aaa, stable). These issuances have been welcomed in helping the sukuk market develop a more detailed yield curve, and hence a risk benchmark across several tenors and credit profiles. The continued restricted access to funding and the gradual recovery in oil prices have resulted in fewer governments, especially in the GCC 7 , recording budget deficits, for the first time in almost five years, underpinned by continuous government spending needs for infrastructure and strategic projects, mainly in Saudi Arabia, Qatar and Abu Dhabi. The Qatar and Abu Dhabi governments have together issued nearly US$13 billion in debt programmes (conventional issuances) to fund planned projects, through government and government-related entities. In 2009, Saudi Electricity (A1, positive) was eventually the first GCC corporate to issue a multi-billion domestic sukuk: a SAR7 billion (US$1.87 billion) issue that attracted a strong order from domestic investors, mainly financial institutions, reaching nearly US$20 billion, three times the offered size. Benefiting from the company’s direct and indirect government ownership exceeding 81% and a robust business. This was favourably reflected in the pricing of just 160 bps over SIBOR 8 , given the long tenor of 20 years. Since the onset of the credit crisis, many issuers have realised the importance of diversifying, including the creation of an active sukuk market, in which a wider pool of
6 7 8
Moody’s sovereign rating for the Kingdom of Bahrain is A2, negative. Projected by IMF(October 2009) This is by far higher than the 45 bps priced in the first SEC Sukuk in 2008.
4 • Moody’s Investors Service
Global Sukuk Issuance Surges as Effects of Credit Crisis Recede: Overview and Trend Analysis
investors – both institutional and retail – play an active role in their primary market contribution and secondary market trading. The announcement of the establishment of the Tadawul sukuk platform by CMA 9 in Saudi Arabia, a market for the trading and pricing of sukuk, is expected in the longer term to create an active secondary market, where issuances can be fairly priced and existing investors, mainly banks, can overcome liquidity constraints. Similar legislative and regulatory (tax-related) developments are gradually introduced in several other markets in the GCC and Asia Pacific. Recent actions taken by governments in the GCC and Asia Pacific have created an environment of confidence, especially amongst international issuers, sovereign and corporates alike, including those in the UK, Asia, the US and Russia. This change in climate is especially marked following the difficult environment on the sukuk market earlier this year, when issuances declined by nearly 50% due to the credit crisis and critical comments on the Shari’ah compliance of some of the structures issued. In addition, regulatory actions to improve sukuk offerings in new markets are raising its appeal as an issuance structure, especially for cross-border subscription. Such recent actions include the tax waiver by the South Korean government on sukuk return income and the Indonesian government’s recent passing of a law scrapping double taxation on Islamic financial institutions. In the second half of this year, we have seen an active build-up of issuers planning sukuk issuances for later in the year or as early as the first quarter of next year, with many returning to markets after the solid book-building for sukuk in Bahrain, Indonesia, Saudi Arabia and the UAE. The recovery in oil prices and improved economic growth projections 10 in the GCC and wider Middle East have also created a favourable sentiment among investors, both regional and international. Recent declines in sukuk yields to more realistic levels, around 6% for the HSBC/DIFC index, have encouraged many issuers to gradually tap the sukuk market. The Dubai government (not rated), through the department of finance, was the latest to tap the market raising US$1.93 billion through a two-tranche five-year issuance. The US$1.25 billion tranche will pay a coupon of 6.39%, while a AED2.5 billion (US$680 million) local currency tranche has a 5.65% coupon. Both issues have been reported to attract strong demand with an order book of over US$6.30 billion.
The financial and, to a lesser extent, real estate sectors are gradually tapping the market
In the GCC, the financial and, to a lesser extent, the real estate sectors were the first to benefit from the improvement in market conditions. At the time of writing this report, we are expecting both HSBC’s MTN programme (A1, negative) and Tourism and Development Investment Company (TDIC) (Aa2, stable) to have tapped the sukuk market for US$5 billion and US$1.45 billion, respectively.
New legislative developments and the launch of sukuk funds, facilitating liquidity and increasing market size
The decline in confidence in the credit and capital markets has created an opportunity for the launch of a new investment product amongst leading GCC investment banks. Several sukuk funds were launched as an alternative investment product for many retail and institutional investors. According to the HSBC/DIFC index, sukuk yields 11 reached their peak in February 2009, at around 14%, representing an average price of 74.75. The decline in price was seen as a reflection of the severe global credit conditions, rather than company-specific news affecting their credit or market profile. Moreover, since hitting a low weighted price of 73 in mid–February, prices started recovering rapidly, as signs of a gradual credit market recovery, corporate news and generous returns have caused returns to decline by nearly 50% to around 6%. In addition, greater confidence in the government of Dubai’s commitment to meeting its debt obligations has seen a surge in pricing of the US$3.52 billion Nakeel Sukuk (not rated), which is due for repayment on 14 December 2009.
9 10 11
Capital Market Authority IMF in its recent revisions expected ME GDP growth to reach 4.4% - October 2009 http://www.hsbcdifxindices.com/
5 • Moody’s Investors Service
Global Sukuk Issuance Surges as Effects of Credit Crisis Recede: Overview and Trend Analysis
Chart 2 Sukuk Yields Movement
16 14 12 Yields (%) 10 8 6 4 2 0 1/2/2009
3/2/2009
5/2/2009
7/2/2009
9/2/2009
11/2/2009
The increasing role of fund managers in actively participating in sukuk investment, subscription and trading will be important for the long-term sustainability of a dynamic and active sukuk market, in which different market participants, including new investors, help diversify the investor base, leading to an active secondary market in which sukuk can be fairly priced. According to HSBC, one of the lead book runners for the Islamic Development Bank’s US$850 million issue, fund managers have subscribed to nearly 35% of the value of the sukuk underwritten. The value created by these funds was justified by investors’ low risk appetite and declining global capital markets. In the first quarter of 2009, some of these funds were producing returns in the range of 10% to 15%. However, sukuk funds are still in their infancy due to the limited number of sukuk that meet the investment criteria that many fund managers set. Nonetheless, the recovery in the global economic outlook, improvement in investor sentiment, new market and jurisdiction issuances should support the gradual introduction of such funds as a new asset class, enhancing both trading and price efficiency in the secondary market. Moreover, the launch of such funds will benefit a wider investor universe, including pensions, Takaful funds and a large segment of retail investors. The early 2009 announcement of the establishment of the Tadawul sukuk platform in Saudi Arabia, a market for the trading and pricing of sukuk, was a noteworthy development that should, over the longer term, create an active and regulated secondary market in the kingdom. We would also expect issuers to be willing to tap the market for new issuances, as transfer of ownership, tradability and market liquidity can be facilitated at minimum transactional cost. This legislative development is a positive step towards strengthening the longer-term sustainability of the sukuk market; this would attract a larger segment of investors into the market, including institutional investors. Over the past seven years, Moody’s has been actively involved in the rating of several global sukuk. 12 Hence, we have recently been asked to look into rating a number of sukuk funds. The box below summarises the principal criteria and parameters that we consider when assigning a rating to a sukuk fund.
12
Appendix 1
6 • Moody’s Investors Service
Global Sukuk Issuance Surges as Effects of Credit Crisis Recede: Overview and Trend Analysis
Sukuk Funds: Fund Credit Rating Approach
Moody’s analysts obtain and rely on relevant data from public sources and, where available, non-public sources. While this data may vary according to the type and location of the fund, the following information is typically used in the rating process: Prospectus, fund guidelines and related documents, including Shari’ah scholar’s opinion report. Fund portfolio data such as historic fund holdings, tracking error and performance history of the fund and benchmark. Public filings, industry publications and marketing materials describing the advisor’s structure, investment philosophy, decision-making process and performance track record Legal and financial databases, including regulatory disclosures, periodicals and newsletters Market analyses – Fund manager analysis of the local market from a credit and market risk perspective. This may include a review of current market trends as well as a credit write-up of a potential investment. Industry surveys, studies and special reports.
In addition, Moody’s encourages a continuous dialogue with the fund company’s management. Moody’s analysts may meet with company representatives for a discussion of the relevant factors in connection with the assignment of an initial rating, and on a periodic basis thereafter.
SUKUK ISSUE RATING Islamic Development Bank Sukuk Trust
In the second half of 2009, Moody's assigned a Aaa rating, with a stable outlook, to the Islamic Development Bank’s US$1.5 billion sukuk MTN programme. Under the proposed sukuk structure, trust certificates (“certificates”) will be issued by IDB Trust Services Limited, a Jersey-based finance vehicle. The net proceeds of the issue of such certificates will be used to purchase a portfolio of sukuk assets, which may comprise ijarah assets, murabaha contracts, istisna’a contracts and the Islamic Development Bank's investments in equity and sukuk certificates. The rating of the certificates is in line with the Aaa long-term foreign currency rating of the bank’s Ordinary Capital Resources. Moody’s regards the certificates as senior unsecured obligations, without any preference or priority, among all trust certificates of the same series and with all other present and future trust certificates. The bank's Aaa rating was assigned in June 2006. It is a multilateral development bank (MDB) based in Jeddah in Saudi Arabia. Like other MDBs, it is governed solely by international law and is not subject to any particular sovereign jurisdiction. Also, like other MDBs, the bank benefits from preferred creditor status. Virtually all of the bank’s operational assets (equivalent to development loans for other MDBs) benefit from sovereign, government-owned bank or highly rated commercial bank guarantees. The bank enjoys a high level of liquidity and a very low level of debt, partly because of the Islamic, asset-based nature of its operations that is unique among MDBs. Despite a risky operating environment, inherent in its role as a development bank, the bank’s operational assets continue to perform well, with a very low level of impairment. Moreover, the most risky portion of its operational assets (those extended to the poorest member countries on a concessional basis) will gradually be transferred to a new poverty reduction fund (the Islamic Solidarity Development Fund) that is financially separated from the bank. This should raise its profitability and enhance its risk profile. The sukuk were successfully placed during the last part of Ramadan, a period of relative calm and in preparation for Eid. Nevertheless, nearly 70% of the issuance was well placed within Middle Eastern and Asian investors; moreover, banks, including IFIs, were the largest subscribers, accounting for 75% of the issue. In a welcome development, at the expense of financial institutions, fund managers, including those investing in sukuk funds, took nearly 35% of the issue – a sign of a growing interest on the part of investors that were previously isolated from this market, due to its nascent nature and
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strict approach to liquidity. The offering was well subscribed by 90 investors to the tune of US$2 billion (i.e. an order book 2.3 times the US$850 million issued) at a pricing of 5-year mid-swap plus 40 basis points to yield a fixed return of 3.172% per annum. The bank issued a fixed-rate sukuk due to the overwhelming demand for such an issue. To meet its pricing policy for financing member countries, the funds were swapped into floating rate for the full fiveyear term, at a fairly attractive rate.
Note on Data:
This report aims to capture and discuss the volumes of Islamic finance issuance in EMEA and Asia-Pacific, mainly Shari’ah-compliant securities (sukuk). The volumes reported include all publicly rated and unrated transactions that closed or launched between 1 January 2002 and 31 October 2009. 13 For issued sukuk, a number of resources were used to account for total issued volume and accumulated issued sizes since inception. Sources include Moody's, the Malaysian Securities Commission, Bloomberg and Zawya. Moody’s is aware of other sources of information related to sukuk in the market domain that can be different from those quoted in this report. Every effort has been made to include and quote the majority of data sources that are accessible to Moody’s. All currencies have been converted into US dollars to facilitate easy comparison. The exchange rate was taken at the time of the transaction closing. Moody’s is aware of the different schools of law – or Fiqh (Islamic jurisprudence) – among different countries across the Middle East and Asia-Pacific. Hence, these schools differ in the Fiqh methodology and the acceptance of certain sukuk structures. Furthermore, Moody’s review of sukuk transactions has been made on the basis of their legal binding and contractual features that affect the creditworthiness of the sukuk, without opining on their compliance with Shari’ah law.
13
Appendix 1 includes all Sukuk issues rated by Moody's Investors Service since inception.
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APPENDIX 1: SUKUK RESURGENCE IS POSITIVE FOR ISLAMIC FINANCIAL INSTITUTIONS
14
There have been significant developments in the Islamic financial sector recently, which we believe will have positive implications for Islamic financial institutions globally, especially from a liquidity and overall risk management point of view: On 21 October, the Government of Dubai became the latest issuer to tap the sukuk market with the announcement of a $6.5 billion funding exercise split between a $4 billion conventional note programme and a $2.5 billion sukuk programme. The previous week, the UK Treasury published regulatory guidance on the issuance of sukuk, or more formally “alternative finance investment bonds”, which paves the way for the UK government to issue sovereign sukuk and meet a commitment it made in 2007. In the same week, the International Finance Corporation (IFC), the financing arm of the World Bank, became the first non-Islamic multilateral organisation to announce a sukuk issue.
Together, these initiatives will result in the supply of significant amounts of Aaa-rated sukuk, which will help the liquidity management of Islamic financial institutions while allowing them to remain Shariah compliant. By broadening the base of “repo-able” Islamic financial instruments and by increasing the range of maturities available to Shariah-compliant institutions for investment, these initiatives provide depth and flexibility from a liquidity point of view. Given the relative small size of the Islamic financial market globally, we view this trend as being supportive of the credit quality of Islamic financial institutions. The Dubai and IFC sukuk issuances are significant in terms of size, and they also appease some concerns raised about the depth of the sukuk market in the Gulf after the governments of Qatar and Abu Dhabi decided to issue conventional bonds recently. The IFC’s sukuk is listed on NASDAQ Dubai. The UK regulatory guidance seeks to align the regulatory treatment of sukuk with conventional debt securities. Classifying sukuk under existing regulatory frameworks has posed challenges in the UK and other jurisdictions. Although most Islamic financial instruments are designed to replicate the economic functions of conventional ones, their legal structure and risk characteristics may be different, making it difficult to map these products into conventional, western-style legal framework. The fix announced by the FSA removes the last roadblock preventing the UK government to issue sukuk, a commitment it made to support the growing UK-based Islamic financial sector and community. These most recent developments follow other recent issuances of importance from the Islamic Development Bank (Aaa), Indonesia (Ba3) and Abu Dhabi’s Tourism Development & Investment Company TDIC (Aa2). All these issuances are, of course, tradable globally.
14
This appendix was originally published by Moody’s as a contribution to the Weekly Credit Outlook dated 2 November 2009.
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APPENDIX 2: SUKUK TRANSACTIONS RATED BY MOODY’S
Originator Name Issuance Issue Rating/ Amount Rating of Senior Notes A2 A1 A3 A3 A3 A1 Baa1 Baa1 Aa2 A3 A3 Aa2 Aa3 A3 Baa1 A3 Ba3 A2 A1 Ba3 Aaa Aaa
Country
Issuer
UAE ADIB Sukuk Co. Ltd. Abu Dhabi Islamic Bank 5,000 UAE DIB Sukuk Co. Ltd. Dubai Islamic Bank PJSC 750 UAE DP World Sukuk Ltd. DP World 1,500 UAE Dubai Sukuk Center Ltd. DIFC Investments LLC 1,250 UAE DEWA Funding Ltd* Dubai Electricity and Water Authority 872 UAE EIB Sukuk Co. Ltd. Programme Emirates Islamic Bank PJSC 1,000 UAE JAFZ Sukuk Ltd.* Jebel Ali Free Zone FZE 2,043 UAE Tamweel Sukuk Ltd Tamweel PJSC 272 UAE Tamweel Residential ABS CI (1) Ltd.Tamweel PJSC 210 UAE DB Sukuk Ltd Dubai Bank PJSC 5,000 UAE Sukuk Funding (No. 2) Ltd.* Aldar Properties PJSC 1,021 UAE TDIC Sukuk Ltd. Tourism Development and Investment Company 1,450 UAE Sun Finance Ltd. Sorouh Real Estate 1,009 Malaysia Malaysia Global Sukuk Inc. Government of Malaysia 600 Malaysia Sarawak Corporate Sukuk Inc. State of Sarawak 350 Malaysia MBB Sukuk Inc. (Subordinated) Maybank 300 Kuwait NIG Sukuk Ltd. National Industries Group Holding S.A.K. 475 Qatar Qatar Alaqaria Sukuk Co. Qatar Real Estate Investment Co 300 Malaysia Petronas Global Sukuk Ltd. Petroliam Nasional Berhad 1500 Indonesia Indonesia Global Sukuk Republic Of Indonesia 650 Saudi ArabiaIDB Trust Services Ltd. Islamic Development Bank 850 USA Al Hilal Sukuk IFC 100 Total amount of Sukuk issuances rated by Moody's: 26,502
* Actual Issuance in AED, USD Equivalent listed
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APPENDIX 3: GLOSSARY OF ISLAMIC FINANCE TERMS
al adl: a trusted and honourable person, selected by both parties to a transaction. Somewhat analogous to a trustee. al Maqasid al Shari’ah: the objective of Shari’ah. amana/amanah: literally means reliability, trustworthiness, loyalty and honesty, and is an important value of Islamic society in mutual dealings. It also refers to deposits in trust, sometimes on a contractual basis. bai/bay: contract of sale, sale and purchase. bai al-salam: advance payment for goods. While normally the goods need to exist before a sale can be completed, in this case the goods are defined (such as quantity, quality, workmanship) and the date of delivery fixed. Usually applied in the agricultural sector where money is advanced for inputs to receive a share in the crop. Diminishing Musharaka: a form of partnership that ends with the complete ownership of a partner who purchases the share of another partner in that project by a redeeming mechanism agreed between both of them. fatwa (pl. al fatawa): an authoritative legal opinion based on the Shari’ah. fiqh: practical Islamic jurisprudence. Can be regarded as the jurists’ understanding of the Shari’ah. There are four Islamic jurisprudence, including al-Shaifi, al-Hanifi, al-Maliki and al-Hanbali. gharar: uncertainty in a contract or sale in which the goods may or may not be available or exist (e.g. the bird in the air or the fish in the water). Also, ambiguity in the consideration or terms of a contract – as such, the contract would not be valid. hadith: the narrative record of the sayings, doings and implicit approval or disapproval of the Prophet. halal: permissible, allowed, lawful. In Islam, there are activities, professions, contracts and transactions that are explicitly prohibited (haram) by the Qur’an or the Sunnah. Barring these, all others are halal. An activity may be economically sound but may not be allowed in Islamic society if it is not permitted by the Shari’ah. haram: unlawful, forbidden (see halal). Describes activities, professions, contracts and transactions that are explicitly prohibited by the Qur’an or the Sunnah. hawala: bill of exchange, promissory note, cheque or draft. A debtor passes on the responsibility of payment of his debt to a third party who owes the former a debt. Thus, the responsibility of payment is ultimately shifted to a third party. Hawala is used in developing countries as a mechanism for settling international transactions by book transfers. ijarah/ijara: lease, hire or the transfer of ownership of a service for a specified period for an agreed lawful consideration. This is an arrangement under which an Islamic bank leases equipment, a building or other facility to a client for an agreed rental. ijarah wa iqtina/ijarah muntahla bittamleek: a leasing contract used by Islamic financial institutions that includes a promise by the lessor to transfer the ownership of the leased property to the lessee, either at the end of the lease or by stages during the term of the contract. ijtihad: literally effort, exertion, industry, diligence. As a legal term, it means the effort of a qualified Islamic jurist to interpret or reinterpret sources of Islamic law in cases where no clear directives exist. istisna’a/istisna: a contract of sale of specified goods to be manufactured with an obligation on the manufacturer to deliver them on completion. It is a condition in istisna that the seller provides either the raw material or the cost of manufacturing the goods. maisir/maysir: the forbidden act of gambling or playing games of chance with the intention of making an easy or unearned profit. manfa’a: a form of contract in which one party gains the right to use or benefit from the use of an asset. mudaraba/mudarabah: a form of contract in which one party (the rab-al-maal) brings capital and the other (the mudarib) personal effort. The proportionate share in profit is determined by mutual consent, but the loss, if any, is borne by the owner of the capital,
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unless the loss has been caused by negligence or violation of the terms of the contract by the mudarib. A mudaraba is typically conducted between an Islamic financial institution or fund as mudarib and investment account holders as providers of funds. mudarib: the managing partner or entrepreneur in a mudaraba contract (see above), see also rab almal. murabaha: a contract of sale with an agreed profit mark-up on the cost. There are two types of murabaha sale: in the first type, the Islamic bank purchases the goods and makes them available for sale without any prior promise from a customer to purchase them, and this is termed a normal or spot murabaha; the second type involves a promise from a customer to purchase the item from the bank, and this is called murabaha to the purchase order. In this latter case, there is a pre-agreed selling price that includes the pre-agreed profit mark-up. Normally, it involves the bank granting the customer a murabaha credit facility with deferred payment terms, but this is not an essential element. musharaka/musharakah: an agreement under which the Islamic bank provides funds that are mingled with the funds of the business enterprise and possibly others. All providers of capital are entitled to participate in management, but are not necessarily obliged to do so. The profit is distributed among the partners in a pre-determined manner, but the losses, if any, are borne by the partners in proportion to their capital contribution. It is not permitted to stipulate otherwise. qard al hasan/qard hassan: a virtuous loan in which there is no interest or mark-up. The borrower must return the principal sum in the future without any increase. rab-al-maal: the investor or owner of capital in a mudaraba contract (see above). rahn: a mortgage or pledge. riba: interest. Sometimes equated with usury, but its meaning is broader. The literal meaning is an excess or increase, and its prohibition is meant to distinguish between an unlawful exchange in which there is a clear advantage to one party in contrast to a mutually beneficial and lawful exchange. riba al-buyu: a sale transaction in which a commodity is exchanged for the same commodity but unequal in amount or quality, or the excess over what is justified by the counter-value in an exchange/business transaction. sadaqa: voluntary charity. salam: a contract for the purchase of a commodity for deferred delivery in exchange for immediate payment. Shari’a/Shariah/Shari’ah: in legal terms, the law as extracted from the sources of law (the Qur’an and the Sunnah). However, Shari’ah rules do not always function as rules of law as they incorporate “obligations, duties and moral considerations that serve to foster obedience to the Almighty”. shirkat al-aqad: a joint-venture partnership. shirkat al-milk: a co-ownership partnership. saak: participation securities, coupons, investment certificates. Plural sukuk. Sunnah: the way of the Prophet Mohammed including his sayings, deeds, approvals and disapprovals as preserved in the hadith literature. It is the second source of revelation after the Qur’an. Takaful: a Shari’ah-compliant system of insurance based on the principle of mutual support. The company’s role is limited to managing the operations and investing the contributions. tawarruq: literally monetisation. The term is used to describe a mode of financing, where the commodity sold is not required by the borrower but is bought on deferred terms and then sold to a third party for a lower amount of cash, so becoming “monetised”. The reverse of murabaha. ummah: the community or nation. Used to refer to the worldwide community of Muslims. urf: the customs of a community. wa’d: a promise or unilateral undertaking. wadiah: a deposit.
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wakala: agency, an agency contract that generally includes in its terms a fee for the agent. wakeel al-Istithamr: an investment agent. waqf: a charitable endowment. zakah/zakat: a tax that is prescribed by Islam on all persons having wealth above an exemption limit at a rate fixed by Shari’ah. Its objective is to collect a portion of the wealth of the well-to-do and distribute it to the needy. The way it is distributed is set out in the Qur’an. It may be collected by the state, but otherwise it is down to each individual to distribute the zakat.
MOODY’S RELATED RESEARCH
For a more detailed explanation of Moody’s approach to this type of transaction, as well as similar transactions, please refer to the following reports:
Rating Methodologies:
Securitisation in New Markets: Moody’s Perspective, September 2006 (SF74362) Moody’s Approach to Rating RMBS in Emerging Securitisation Markets – EMEA, June 2007 (SF97186) Islamic Banks: Their Strategies and Ratings, May 2009(115565) The Future of Sukuk: Substance over Forum, May 2009 (154199) Frequently Asked Questions: Islamic Finance, Oil Prices and the Global Crisis, February 2009 (114816) Global Sukuk Issuance: 2008 Slowdown Mainly Due to Credit Crisis, But Some Impact from Shari’ah Compliance Issues, January 2009 (SF149211) Gulf Islamic Banks Resilient Amid Global Credit Woes, November 2008 (112431) Frequently Asked Questions: Notable Trends in Global Islamic Finance, August 2008 (110404) Islamic Finance in France: Strong Potential, But Key Obstacles Persist, July 2008 (109676) Islamic Finance: Glossary of Usual Terms and Core Principles, June 2008 (109441) Islamic Banking in East Asia - Growing but not without Challenges, April 2008 (108469) Islamic Banks and Sukuk: Growing Fast, but Still Fragmented, April 2008 (108331) Islamic Finance Explores New Horizons in Africa, March 2008 (108071) Islamic Banks in the GCC: a Comparative Analysis, March 2008 (107856) The Benefits of Ratings for Islamic Financial Institutions and What They Address, February 2008 (107502) Risk Issues at Islamic Financial Institutions, January 2008 (107175) Understanding Moody’s Approach to Unsecured Corporate Sukuk, August 2007 (103919) Asian Sukuk Poised for Fast Growth: Market Review and Introduction to Moody’s Rating Approach, August 2007 (104446) Moody’s Approach to Analyzing Takaful Companies, May 2007 (102910) Takaful: A Market with Great Potential, October 2006 (98913) Shari’ah and Sukuk: A Moody’s Primer, May 2006 (103338) A Guide to Rating Islamic Financial Institutions, April 2006 (97226) Moody’s involvement in Rating Islamic Financial Institutions, April 2006 (97113) Regulation and Supervision: Challenges for Islamic Finance in a Riba-Based Global System, January 2004 (81128) Culture or Accounting: What Are The Real Constraints for Islamic Finance in a RibaBased Global Economy?, January 2001 (63369)
Special Comments:
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Transaction Reports:
Sun Finance Limited, July 2008 (SF136098) Tamweel Residential ABS CI (1) Ltd, June 2007 (SF101479) Tamweel PJSC, November 2007 (105926) UAE CMBS Vehicle No. 1 Limited, June 2007 (SF101325) Dubai Electricity and Water Authority, November 2007 (105503) Jebel Ali Free Zone FZE, November 2007 (105696) Qatar Real Estate Investment Company, July 2007 (103653) DP World, June 2007 (102891) Saad Trading Contracting & Financial Services Company, May 2007 (102659) DIFC Investments LLC, May 2007 (103068) National Industries Group Holding NIG, April 2007 (102600) Malaysia Global Sukuk Inc. US$ 600,000,000 Trust Certificates Due 2007, July 2002 (SF15069)
To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report and that more recent reports may be available. All research may not be available to all clients.
Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck.
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CREDIT RATINGS ARE MIS'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MIS DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS DO NOT CONSTITUTE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS ARE NOT RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. CREDIT RATINGS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MIS ISSUES ITS CREDIT RATINGS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. © Copyright 2009, Moody's Investors Service, Inc. and/or its licensors and affiliates including Moody's Assurance Company, Inc. (together, "MOODY'S"). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, such information is provided “as is” without warranty of any kind and MOODY’S, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall MOODY’S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY’S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY’S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings and financial reporting analysis observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding or selling. MOODY’S hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MOODY’S have, prior to assignment of any rating, agreed to pay to MOODY’S for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,400,000. Moody’s Corporation (MCO) and its wholly-owned credit rating agency subsidiary, Moody’s Investors Service (MIS), also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually on Moody’s website at www.moodys.com under the heading “Shareholder Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”
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