T h e Wo r l d s G l o b a l I s l a m i c F i n a n c e N e w s P r ov i d e r
7th November 2012
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RED (All Cap)
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W T F S S M T curse for the industry are we moving
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Volume 9 Issue 44
IFN Rapids .........................................................2
Islamic Finance news .........................................6
IFN Reports: A possible catalyst; Dana Gas fails
to repay debt on time reaches standstill with
creditors; US$1.73 billion Sukuk to buy planes for
ailing national carrier Malaysia Airline System.....10
IFN Correspondents: Indonesia .........................12
Insider: Al Hilal Bank strengthens investment
banking capabilities....................................................13
Case study:
TH Plantations US$65.23 million Sukuk
Murabahah .........................................................14
Features:
Australia a new Islamic finance hub? ............15
Examining Malaysias Shariah governance
frameworks provisions on Shariah advisors .....16
Islamic finance: A growth strategy model .........19
Islamic Investor
The REIT investment.........................................21
Market Commentary ......................................22
Funds Focus: Amana Developing Fund ..........23
Funds Data .......................................................24
Takaful News
Government includes Takaful in 2013 budget ..26
Forum................................................................27
Meet the Head: Sufyan Maysara Yassin, head
of Shariah audit and compliance, BankMuscat -
Meethaq Islamic Banking .............................. 30
Deal Tracker .....................................................31
REDmoney Indexes ........................................32
Performance League Tables...........................34
Events Diary.....................................................38
Company Index ...............................................39
Subscription Form ...........................................39
www.islamicfinancenews.com
The increasing sophistication of
Sukuk
Alongside the record growth and
exceptional investor demand of the
booming Sukuk market lies a parallel
story: the ongoing development and
increasing complexity of Sukuk
structures. Yet is this a blessing or a
in the right direction, or is our appetite
for sophistication hampering the true
course of Shariah compliant instruments?
This week we explore the innovations
taking place at the cutting edge of the
Sukuk sector, and what this means for the
industry.
Sukuk is undeniably the most popular
investment instrument in the Islamic
capital market, bringing a unique value
proposition to both investors and issuers
and promoting a diverse and flexible means
of harnessing the liquidity and strength of
the industry. For investors, Sukuk oer the
advantage of portfolio diversification in
the form of new asset classes, while issuers
benefit from increased liquidity along
with compliant and accessible fundraising
through tapping into the growing demand
for Shariah compliant investment products.
According to Bank Negara Malaysia in its
recent report on the Development of the
Financial Sector: The strength of Sukuk
lies in its distinct structure. The flexibility
of Sukuk structures is a key factor that
has led to its growing acceptance. Over
the years, Sukuk structures have evolved
from debt-based structures which are
premised on cost-plus sale agreements
(Murabahah), to lease-based (Ijarah), profit-
sharing (Musharakah) and manufacturing
contracts-based (Istisnah) Sukuk, as well as
hybrid structures based on combinations
of Shariah contracts that appeal to a wider
range of investors.
Islamic versus economic
This evolution can be broadly separated
into two categories. Nick Stadtmiller, the
head of fixed income research at Emirates
NBD, explains that: When you refer to a
complicated structure, there are two things
you could mean. One is the structuring
of the cash flows is it a Murabahah, a
Wakalah, an Ijarah the Islamic side. The
other is the actual economic aspect of the
transaction: in other words, what are the
risks and what are the pay-os.
Issuer advantage
Islamic structures for Sukuk remain the
fundamental building blocks, but the
industry is seeing a growing number of
innovative transactions that develop and
expand these structures in order to create
new transactions based on the needs of
the company. As demand continues to far
outpace supply, issuers are able to leverage
this in order to create structures that meet
their own specific requirements.
Anzal Mohammed, a partner and the head
of the Sukuk practice at Allen & Overy
continued on page 3
Considering the complexities
Editors Note
As the favorite method of Shariah
compliant fundraising, Sukuk has
shown increased levels of complexity
this past year, in tandem with the record
number and value of issuances in 2012.
This week, our cover story explores
the increasing sophistication of Sukuk;
and whether the structures growing
maturity will prove to be a boon or a
bane to the Islamic finance industry.
continued on page 5
 IFN RAPIDS

DEALS Sri Lanka's Amana Bank

Abu Dhabi Islamic Bank
holds investor meeting for
proposed Sukuk
TH Plantations issues first
tranche of US$327.1 million
Sukuk
Indonesia looks to issue
global Sukuk
Dialog Axiata plans US$366
million Sukuk sale
Tunisia's 2013 draft federal
budget to be financed through
Sukuk
Almarai Company to issue
second tranche of US$513.17
million Sukuk program
Arcapita awaits approval for
US$100 million bankruptcy
financing
NEWS
Takaful Insurance of Africa
calls for more Takaful
incentives from authorities
targets expansion in rural
areas
Indian Center for Islamic
Finance questions the need
for Islamic banking law
IFSBs draft standards in line
with Basel III
Accounting Research
Institute of Malaysia's
Universiti Teknologi
MARA develops Islamic
corporate social responsibility
framework
Al Baraka Bank (Pakistan) to
oer more products
Shariah compliant funds part
of Private Retirement Scheme
portfolio
Takaful protection for paddy
farmers could be extended
to other farming activities,
says ministry of agriculture of
Malaysia
National Bank of Abu Dhabi
enters South Korea
Faisal Private Bank to convert
into family oce
KFH Research and World
Bank sign MoU to facilitate
global Islamic financing
growth
Turkey sovereign Sukuk
boosts standing
Al Madina Financial
& Investment Services
Company and Amanie
Advisors sign MoU on
Islamic investment
Standard Chartered Saadiq
oers financing for local SMEs
QIIB announces higher
profits in the third quarter of
2012
Tadhamon International
Islamic Bank oers gold
savings accounts
Alizz Islamic Bank initial
public oering raises
US$119.3 million
Oman's draft rules exclude
commodity Murabahah and
Tawarruq
Dubai Islamic Bank
announces US$232.44 million
in nine-month profit
RATINGS
RAM lifts developing Rating
Watch on Cerah Samas
US$124.35 million IMTN
Fitch assigns expected rating
on upcoming governments
US$3 billion global Sukuk
MOVES
Etiqa Takaful appoints
Ahmad Rizlan Azman as new
CEO
Emirates NBD Asset
Management appoints David
Marshall as new senior
executive ocer
University of East London
appoints Dr Gaar Khalid
as new director of Islamic
finance center
Central Bank of the UAE
appoints Khalifa Mohammed
al-Kindi as chairman

Accounting and Reporting for

Shariah Compliant Derivatives
25th 27th November 2012, Dubai
Key Highlights:

Applying IFRS Denitions to Shariah

Compliant Derivatives

Applying IFRS Recognition Principles to

Shariah Compliant Derivatives

Applying AAOIFI Standards to Shariah

Compliant Derivatives

Accounting Issues for Embedded

Derivatives & Other Products

Prospective Derivative Guidance under IFRS

www.islamicfinancetraining.com
enquiry@redmoneytraining.com

Disclaimer: Islamic Finance news invites leading practitioners and academics to contribute short reports each week. Whilst
we have used our best endeavors and eorts to ensure the accuracy of the contents we do not hold out or represent that the
respective opinions are accurate and therefore shall not be held responsible for any inaccuracies. Contents and copyright
remain with REDmoney.

2 7th November 2012


The increasing sophistication of Sukuk
Continued from page 1
in Dubai, comments that: Given the
dierent type of issuers that are accessing
the Sukuk market, we are seeing the
development of innovative structures
such as the use of airtime (Etisalat and
Axiata) and the combination of structures
(the same issuers and the likes of Majid
Al Futtaim Properties who used self-
use assets as part of an Ijarah-based
structure).
New combinations
Anzal also notes that: As 100% tangible
asset-based structures are dicult
for corporate and financial institution
issuers in particular, we have seen
combined Mudarabah and Murabahah-
based structures becoming the norm for
subordinated Sukuk issuance by banks in
Saudi Arabia. We will continue to see this
development as well as further project
Sukuk transactions coming to market
following the very successful issuance
last year as part of the Jubail project
financing in Saudi Arabia.
Intangible assets
Craig Nethercott, a partner at Latham
& Watkins, explains that: Traditionally,
the most common Islamic financing
structures require the use of an
underlying tangible asset as the basis
of the financing which has restricted
the ability of some companies to access
the increasingly liquid Islamic markets
(specifically in the context of the Sukuk
capital markets).
However, this is now changing and one
of the most exciting features of the new
sophistication in Sukuk structures is the
growing use of intangible assets as the
underlying basis.
Airtime innovation
Prime examples of this are the recent
Sukuk issuances from mobile operators,
based on airtime assets. In March 2012
Saudi Arabian mobile
service provider
Etihad Etisalat
Company (Mobily),
completed a
SAR10 billion
(US$2.7 billion)
refinancing using
an innovative
airtime facility
structure
along with
COVER STORY
a more conventional Murabahah-
Tawarruq structure.The airtime structure
was first introduced by Mobily in
2007, and allowed the operator to sell
minutes of airtime to investors and
use the revenues generated as the
basis for the Sukuk, in the absence
of tangible assets. The success of the
structure led to its subsequent use by
Mobilys principal shareholder, Emirates
Telecommunications Corporation
(Etisalat), for its own Sukuk program in
2010.
One step further
The 2012 facility took the structure a step
further by introducing multiple term
tranches, which according to Nethercott:
Granted greater flexibility to Mobily
and more closely aligned the terms of
the financing with its corporate needs.
The facility was supplemented by two
Murabahah-Tawarruq facilities: one
providing a revolving working capital
facility while the other replicated the
same commercial terms as the airtime
facility. Nethercott notes that: Whilst the
introduction of multiple tranches initially
led to some complex drafting issues (and
interesting discussions with the Shariah
boards of the financiers), the structure
will now no doubt serve as a template for
other companies seeking to raise multi-
tranche Islamic finance.
This turned out to be the case, with
Malaysian operator Axiata launching
a US$1.5 billion multi-currency Sukuk
program in September 2012 based on
airtime minutes.
Saudi sophistication
The popularity and success of the airtime
structure clearly shows that the use of
intangible assets as a basis for Islamic
finance is growing more popular, as
well as demonstrating the growing
sophistication of the Sukuk market in
Saudi Arabia and the wider Middle East.
In February 2012 the Saudi Arabian
General Authority of Civil Aviation
issued its debut SAR15 billion (US$4
billion) Sukuk, based on a sale of its
rights to charge and collect fees from
airlines. In November 2011 the Saudi
International Petrochemical Company
(Sipchem) issued a SAR1.8 billion
(US$480 million) Sukuk using its right
continued...
3 7th November 2012
CLOSING BELL
Dana Gas formally
acknowledges payment
failure
UAE: Dana Gas, which on the 31st
October became the first UAE-based
corporate entity unable to repay its
US$920 million Sukuk, has formally
acknowledged its failure to do so
through an announcement to the London
Stock Exchange, where the debt is listed.
It has also asked investors of the Sukuk
to decide on their course of action: which
includes liquidating the Sukuk, claiming
the assets backing it or agreeing to
restructure the facility.
Islamic Bank of Thailand to
sell Sukuk in 2013
THAILAND: The Islamic Bank of
Thailand is planning to sell up to THB5
million (US$162,015)-worth of local
currency-denominated Sukuk, followed
by a US dollar-denominated US$250
million Sukuk oering, in the first
quarter of 2013, according to Dheerasak
Suwannayos, its managing director and
president.
MBSB grows Takaful business
MALAYSIA: Malaysia Building Society
(MBSB) aims to boost income from its
bancaTakaful business to RM30 million
(US$9.8 million) by the end of 2013,
backed by its collaboration with AIA
AFG Takaful. MBSB also reported an
increase of 9% in net profit to RM263
million (US$85.85 million) for the third
quarter ended the 30th September 2012,
while its revenue grew by 44% to RM1.3
billion (US$424.37 million).
Morocco to set up national
Zakat fund
MOROCCO: The country is in the midst of
setting up a national Zakat fund which will
be used to fund social welfare, according
to Mohamed Najib Boulif, its minister of
general aairs and governance.
Listing Shariah compliant
stocks
PHILIPPINES: The Philippine Stock
Exchange is drawing up a list of local
Shariah compliant companies to attract
more investors interested in Islamic
investing, according to Hans Brinker
Makasiar Sicat, its CEO and president.

The increasing sophistication of Sukuk
Continued from page 3
to receive distributions and other
payments from its subsidiaries as the
underlying revenue-generating assets
for the Sukuk.
Sipchem structure
The innovation in the Sipchem
deal lies in its asset basis. A Sukuk
normally requires that the issuer has
unencumbered tangible assets available,
which in the case of Sipchem was a
problem as the firm was a holding
company with relatively few assets of its
own and encumbrances at the operating
level. The challenge was therefore to
broaden the asset base of the holding
company to accommodate a Shariah
compliant structure based on real assets.
The Sipchem deal therefore involved an
innovative Mudarabah Sukuk structure
centered around the intangible rights
between a holding company and its
subsidiaries. This made the right of the
holding company to receive distributions
and payments from its subsidiaries the
key underlying revenue-generating
asset of the Sukuk basically stripping
out equity and using it as a asset
basis for a Mudarabah structure. At
the launch of the deal Dipti Thakar, a
counsel at Latham & Watkins in Dubai,
commented that: This Sipchem Sukuk
structure further reflects the increasing
sophistication of the available products in
the Saudi Arabian market. This product
is a great addition to the toolkit available
to corporate treasurers in the market.
Sophistication through
simplicity
Along with the growing use of intangible
assets and new structures lies another
trend: the development of hybrid
structures using simple Islamic building
blocks in order to create instruments that
suit the specific needs of issuers.
Stadtmiller explains that: Essentially
a standard Sukuk is just an Islamic
bond and the simple structure has a
coupon payment with a profit rate and
repayments until the end. But you can
make Islamic structures with other
features. For example the Dana Gas
Sukuk; which has a structure which
combines standard bond-like features
such as fixed payments and repayment of
principle with an option to convert into
shares.
COVER STORY
Another recent example is the US$500
million First Gulf Bank (FGB) Sukuk in
January 2012, which comprised a hybrid
Wakalah and Mudarabah structure.
Perpetual popularity
Hybrid Sukuk are garnering increasing
attention and perpetual bonds are one of
the most attractive new forms; brought
into the spotlight by the Malaysia
Airlines (MAS) RM2.5 billion (US$816
million) perpetual junior Sukuk program.
Launched in June 2012, the first tranche
of RM1 billion (US$326.4 million) was
fully subscribed by Malaysian retirement
fund Kumpulan Wang Persaraan
(KWAP) with MAS claiming to have
received firm commitments for the rest of
the program.
Unlike normal bonds, perpetual bonds
do not have a redemption date; and the
holders receive a coupon only when the
company issues dividends, rather than
receiving a periodic fixed coupon. The
perpetual Sukuk has the advantage of
being recognized as equity capital under
Malaysian accounting standards, while
still giving a long-term funding rate of
6.9%. It therefore provides equity at a
relatively lower cost of capital compared
to common equity, whilst oering an
attractive yield to investors. Rafe Haneef,
CEO of HSBC Amanah Malaysia, noted
at the launch of the transaction that the
hybrid Sukuk was an attractive option for
companies which have reached a certain
debt-to-equity ratio level. It is just
emerging as a concept and hopfully you
will see the market trend move towards
that. It will gain popularity here among
companies which do not want to dilute
their shareholding and at the same time
are constrained by debt levels.
Tier 1 trend
This new trend towards equity-style Sukuk
is growing increasingly popular as issuers
figure out how to structure their Sukuk
to meet their balance sheet requirements.
Most recently, Abu Dhabi Islamic Bank
(ADIB) announced the launch of an
innovative new Shariah compliant hybrid
Tier 1 non-call perpetual notes issue,
which is expected to be benchmark sized at
around US$500 million and will be the first
international perpetual Sukuk. The key
feature of the Reg S deal is its simplicity,
however, with one banker commenting
that: It was specifically designed to avoid
being over-engineered.
4 7th November 2012
Stadtmiller explains
that: A Tier 1
capital issue has
economic features
that are similar to
fixed income from the
investors perspective,
but the issuer can record
them as equity on
their balance sheet.
The transaction has
been compared to
the preferred shares hybrid Tier 1 deals
done by US banks, as because the notes
will be accounted for as equity instead
of liability, they will not be required
by Basel III to include loss-absorption
provisions. The ADIB Sukuk is designed
to comply with the Basel committees
criteria for additional Tier 1 capital
in anticipation of possible Basel III
implementation in the UAE, yet despite
its hybrid nature will be based on a very
simple Mudarabah structure. This is
very straightforward, said another
banker. The most challenging part of the
structuring was converging Islamic rules
with Basel rules.
Sabanas convertible first
Over in Singapore, the country is
making its own contribution towards
pushing back the boundaries with
the issuance in October of the first
convertible Sukuk since 2009, Sabana
REITs SGD80 million (US$65.3 million)
4.5% convertible Sukuk due in 2017. The
structure was specifically tailored to the
REITs needs; combining the concepts
of Murabahah, Ijarah and Wakalah to
allow the Sukuk to acquire property
assets which then formed the basis for
the underlying revenue-generation for
the Sukukholders.
Gregory Man, a senior associate with
Cliord Chance representing Morgan
Stanley as sole lead manager and
bookrunner, explained that: We needed
to execute the transaction in two stages
because Sabana REIT required the
funding from this issue to acquire the
real estate asset that would ultimately
underlie the Sukuk. We entered into
a Murabahah transaction to provide
Sabana with its acquisition funding,
and then the asset was injected into the
structure so that the transaction going
forward was part-Murabahah and
Ijarah.
continued...

The increasing sophistication of Sukuk
Continued from page 4
The deal represents one of the most
sophisticated Sukuk structures ever seen
on the market, with Man commenting
that the most dicult aspect was in
creating the complex structural flexibility
for convertibility features that investors
required. However, the team that worked
on the transaction have high hopes
for the future with the Sabana REIT
structure acting as a template for new
issuances. Matt Fairclough, a partner
at Cliord Chance, commented on the
launch that: Islamic finance is becoming
more sophisticated and we have seen the
development of both hybrid Sukuk as
well as more sophisticated convertible
Sukuk such as this. We will continue to
see these sorts of developments as the
Islamic finance industry continues to
grow.
Compliance complaints
However, a vital issue holding back
the complexity of Sukuk transactions is
the lack of standardization regarding
Shariah compliance. While in Malaysia
the market benefits from a single Shariah
board which decides whether a structure
is permissible, in the Middle East there
is no common board which can cause
considerable problems. They have to
get more stakeholders on board; and
sometimes a complex structure will
Considering the complexities
Editors Note
As the favorite method of Shariah
compliant fundraising, Sukuk has
shown increased levels of complexity
this past year, in tandem with the
record number and value of issuances
in 2012. This week, our cover story
explores the increasing sophistication
of Sukuk; and whether the structures
growing maturity will prove to be a
boon or a bane to the Islamic finance
industry.
Despite the strides seen in Sukuk
structuring however, some aspects
of the industry lag behind in their
development, such as those discussed
in a feature by Umer Majid, the head of
Islamic finance at UK Shariah advisory
firm Halal Investments, which considers
the options for improving legal
COVER STORY
be approved by some Shariah boards
and not by others, and that limits
the potential investor base, explains
Stadtmiller. So having a more complex
structure means getting more Shariah
boards in the region on board with the
idea and getting them comfortable with
the underlying structure as Shariah
compliant.
A key example of this was the Goldman
Sachs deal, which proposed a structure
that used commodity contracts which
had the potential to be traded away from
par on the Irish exchange. This led to
vehement controversy between Shariah
scholars as to the Shariah compliance
of the deal and eventually halted the
process entirely.
As the transactions get more complex in
terms of Islamic structure it does open up
the possibility of dierent opinions, and
it will take more time and more eort to
get a more complex structure that a wide
range of parties will agree to, warns
Stadtmiller.
Investor concern
Market players have also expressed
concern at whether Islamic investors
will buy into the new hybrid structures.
Sukukholders are traditionally
issues underpinning Islamic finance
transactions.
A further issue that remains mired in
controversy in the Islamic finance space
includes the role of Shariah advisors;
and this week, Sherin Kunhibava of
Wisdom Management Consultancy
contributes a feature on the role,
responsibilities and independence of
the Shariah Advisory Board under
Malaysias Shariah governance
framework.
Notwithstanding our industrys existing
shortcomings, bright spots remain,
providing a myriad of opportunities
for the industrys further growth; as
discussed by Nigel Denison of the Bank
of London and The Middle East in his
contribution on Australias potential as
a new hub for Islamic finance.
5 7th November 2012
conservative, with little appetite for
innovation and a preference for short-
term vanilla Sukuk of five years or less.
So while issuers may be excited about
the new opportunities oered by more
complex Sukuk structures, there is no
guarantee that the market will respond.
Stadtmiller explains that: As institutions
that are dedicated to using Islamic
finance grow, inevitably they will want
to try dierent structures. But in terms
of what can actually be done in the
marketplace, I would say that one of the
major limiting factors is investor appetite.
Particularly in the Middle East, people
have historically been very content with
plain vanilla Sukuk, with a fixed coupon
and secure return. So the challenge
is to engage with the Islamic investor
community and see whether they are
prepared to take new risks with slightly
more complex products.
Perhaps this should stand as a warning
for the industry. Innovation is vital, but
not for its own sake. Sophistication of
Sukuk should develop in the cause of
advancement and improvement; oering
real benefits to investors and enhancing
rather than impeding compliance with
Shariah which is of course the highest
goal of all. LM
This week, our issue also covers
developments in Indonesia by our
IFN Correspondent there; while our
IFN Reports look at Islamic finance in
South Africa and an impending US$1.73
billion Sukuk issuance from Malaysia to
help national carrier Malaysian Airline
System build its fleet of aircraft. Insider
talks to Lim Say Cheong, the executive
vice-president of investment banking at
Al Hilal Bank.
Meet the Head profiles Sufyan Maysara
Yassin, the head of Shariah audit and
compliance at BankMuscats Islamic
window, Meethaq Islamic Banking;
and our Case Study highlights TH
Plantations US$65.23 million Sukuk
Murabahah.

DEALS
ADIB looking to issue Sukuk
UAE: Abu Dhabi Islamic Bank (ADIB)
held its first investor meeting on the
30th October to discuss a possible Sukuk
issuance to boost the banks capital.
HSBC Holdings, Morgan Stanley,
National Bank of Abu Dhabi and
Standard Chartered Bank have been
mandated by the bank to arrange
roadshows for the proposed benchmark-
sized, Tier 1 perpetual dollar-
denominated Sukuk.
TH Plantations first Sukuk
tranche deployed
MALAYSIA: TH Plantations, a
subsidiary of national pilgrim fund
manager Lembaga Tabung Haji,
specializing in palm oil plantations,
launched the first tranche of its RM1
billion (US$327.1 million) Sukuk
program, worth RM200 million (US$65.42
million), on the 30th October.
The Sukuk, which will mature on the 29th
October 2027, holds a profit rate of 6.6%
per year and is payable semi-annually.
Global Sukuk to meet funding
deficit
INDONESIA: Indonesias domestic
Sukuk, issued on the 30th October via
government auction, was more than five
times oversubscribed, attracting over
IDR2.65 trillion (US$275.18 million) and
exceeding the initial issuance target of
IDR500 billion (US$52 million).
Dahlan Siamat, the director of Islamic
finance policy at the ministry of finance
Indonesia, revealed in a statement that
the government is not looking to issue
any more domestic Sukuk in the next
month as it has met its domestic Sukuk
target for 2012.
DEAL TRACKER
ISSUING
ISSUER
CURRENCY
Dialog Axiata Sri Lanka LKR
Malaysia sovereign RM
Almarai Company SAR
Sumberdaya Sewatama IDR
MNRB Holding RM
Banque Saudi Fransi SAR
NEWS
The finance ministrys debt management
oce has so far raised IDR47.5 trillion
(US$4.94 billion) from Sukuk issuances,
but is still short of its target of IDR57
trillion (US$5.93 billion) to finance the
2012 state budget deficit. To meet the
target, we plan to raise the remaining
funds from foreign currency global
Sukuk by the end of this year, added
Dahlan.
Dialog Axiata plans Sukuk
SRI LANKA: Dialog Axiata, a subsidiary
of Malaysian telecommunications firm
Axiata Group, has announced a plan to
issue LKR51 billion (US$366 million)-
worth of Sukuk with a tenor of 15 years.
Funds raised from the issuance, which
remains subject to regulatory approval,
will be used to refinance existing debt
and finance capital expenditure and
working capital.
Sukuk for state budget
TUNISIA: The government will utilize
Sukuk to finance the federal budget 2013
of around TND1 million (US$631,592),
according to Slim Besbes, the countrys
acting finance minister.
Almarais second tranche
soon
SAUDI ARABIA: Local dairy food
producer Almarai Company will issue
the second tranche of its SAR2.3 billion
(US$513.17 million) Sukuk program
within the next few months, subject to
market conditions.
In an announcement to the Saudi
stock exchange, Almarai said that the
second tranche will be sold via a private
placement to investors in the kingdom.
Almarai raised SAR1 billion (US$266.6
million) from its first tranche of the
program in a sale in March this year.
Full Deal Tracker on page 31
DATE
SIZE (US$)
ANNOUNCED
366 million 2nd November 2012
1.73 billion 6th November 2012
513.57 million 6th November 2012
1.04 million 24th October 2012
48.95 million 16th October 2012
666.6 million 15th October 2012
6 7th November 2012
Arcapita awaits approval for
US$100 million bankruptcy
financing
GLOBAL: Embattled Shariah compliant
investment bank Arcapita is awaiting
approval from the US Bankruptcy Court
to secure a US$100 million bankruptcy
financing from Fortress Investment
Group as it tries to protect its assets and
avoid a creditor-led restructuring.
In an announcement to the court, where
Arcapita filed for bankruptcy protection
on the 19th March 2012, the bank said
that while the financing is less than a
package it first sought from investment
advisor Silver Point Capital, the facility
from Fortress can be increased to
US$150 million, the amount it originally
requested from Silver Point.
Arcapita also said that the financing from
Fortress is on substantially better terms
than those oered by any other potential
lender, with lower fees and permission
for the Bahrain-based bank to seek
refinancing.
A hearing is scheduled for the 5th
November for the US Bankruptcy Court
to rule on whether Arcapita will be
allowed to pay Fortress the commitment
fees required to unlock the financing.
The bank is also continuing to evaluate
whether its bankruptcy plan will only
include financing from Fortress or an
investment from a third party. Arcapita
must file its plan by the 14th December
and receive approval for it by the
first quarter of next year to avoid a
restructuring led by its creditors, who are
already waiting in the wings with their
own plans for the Bahraini bank. Those
creditors include three hedge funds
which own or manage US$195 million of
the US$1.1 billion owed by Arcapita.
Arcapitas case is the first bankruptcy
filing of a Shariah compliant financial
institution. At the time it filed for
bankruptcy, the bank had assets worth
US$7 billion.
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AFRICA
Calling for support
KENYA: Takaful Insurance of Africa
(TIA) has urged the government and
the Insurance Regulatory Authority
(IRA) to oer incentives supporting the
development of Takaful in the country.
Hassan Bashir, CEO of TIA, noted that
tough licensing requirements by the IRA
and the high cost of running Takaful
operations has contributed to the lack
of distribution of Islamic insurance
products in the country.
ASIA
Capitalizing on rural areas
SRI LANKA: Amana Bank plans to
expand its business in rural areas by
adding five new branches this year and
nine more branches in 2013 to bring its
total network to 28, according to Faizal
Salieh, its CEO.
The bank, which reported a profit of
NEWS
LKR178 million (US$1.37 million) and
total assets of LKR18 billion (US$138.06
million) for the period ended the
30th September 2012, is also targeting
unbanked individuals and the countrys
small and medium-sized enterprise
sector for its expansion plans.
Questioning RBI
INDIA: H Abdul Raqeeb, the general
secretary of the Indian Center for Islamic
Finance, has questioned the countrys
central bank, the Reserve Bank of India
(RBI)s, decision not to allow the practice
of Islamic banking in the country under
the current Banking Regulation Act.
Dr D Subbarao, the governor of RBI,
said on the 30th October 2012 that the
government needs to first introduce
a law specifically for Islamic banking
before it is practiced in the country.
However, Abdul Raqeeb noted that
Islamic banking can be accommodated
through an executive order from the
government, therefore bypassing the
need for the establishment of a new and
separate Islamic banking law.
7 7th November 2012
IFSBs draft standards in line
with Basel III
GLOBAL: The Islamic Financial Services
Board (IFSB) has released new draft
guidelines on capital adequacy for
Islamic banks and risk management for
Takaful companies.
Its capital adequacy guidelines are in
alignment with the upcoming Basel III
requirements, allowing Islamic banks to
issue Sukuk against their assets in order
to meet minimum regulatory capital
requirements. The minimum maturity of
the Sukuk is recommended at five years
and should not have step-up features
to encourage the issuers to redeem the
papers.
The guidelines also include Islamic
windows and the application of capital
requirements, and also how Islamic
profit-rate swaps should be calculated.
However, it is ultimately up to each
countrys regulators to incorporate the
guidelines.
Its draft on the risk management of
Takaful companies outlines the risks
faced by Takaful operators; along with
best practices to manage risks, to create a
level playing field with the conventional
insurance industry. However, the
standard does not prescribe specific
quantitative standards, which the IFSB
says is for practical reasons due to
the dierences in environment where
the Takaful undertakings operate, as
well as dierences in their operational
framework.
The IFSB said: Following the
approach taken by the IFSBs Articles
of Agreement, this document sets out
minimum standards to be applied to
the Takaful industry, in parallel with
perspectives set out by the International
Association of Insurance Supervisors,
in order to bring the Takaful industry to
the desired level of eective supervision
and regulation, on a par with the
conventional insurance industry, subject
always to the constraints imposed by
Shariah principles.
So far as features of risk management
that are in common with conventional
insurance are concerned, users of this
Standard should have regard to the
standards issued by the management,
for the direction and guidance of Takaful
operators, as well as insurance/ Takaful
supervisors.

Framework for Islamic CSR
MALAYSIA: The Accounting Research
Institute (ARI) of Universiti Teknologi
MARA (UiTM) is developing an Islamic
corporate social responsibility (i-CSR)
general practice framework for Islamic
financial institutions.
Associate professor Dr Faizah Darus said
that the implementation of the i-CSR
framework will require the endorsement
of the Malaysian central bank.
Al Baraka to grow in Pakistan
PAKISTAN: Al Baraka Bank (Pakistan)
will open more branches and launch
new products as part of its expansion
plan in the country, according to Adnan
Ahmed Yousif, the chairman of Al
Baraka Islamic Bank and the president
and chief executive of Al Baraka
Banking Group.
PRS to launch offering
MALAYSIA: The Private Retirement
Scheme (PRS), a voluntary retirement
saving scheme structured by private
sector fund managers, expects to launch
24 funds by mid-November; some of
which will be Shariah compliant. The
funds are currently pending approval
from Securities Commission Malaysia.
The approved providers are
AmInvestment Management, American
International Assurance, CIMB-Principal
Asset Management, Hwang Investment
Management, ING Funds, Manulife
Unit Trust, Public Mutual and RHB
Investment Management.
Farming Takaful
MALAYSIA: Noh Omar, the minister of
agriculture and agro-based industry, has
said that a government-backed Takaful
protection scheme for paddy farmers
might be extended to other farming
sectors in the country.
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NEWS
However, the decision to do so will
depend on the success of the scheme for
paddy farmers.
GLOBAL
NBAD in South Korean foray
GLOBAL: National Bank of Abu Dhabi
(NBAD), which has a Shariah compliant
window, will see its first venture into
South Korea via a cooperation with the
administrative organization of South
Koreas capital, the Seoul Metropolitan
Government.
This is to help facilitate the Seoul
International Financial Centers
development into a regional financial
hub.
Faisal Private Bank to
transform
GLOBAL: Swiss-based Faisal Private
Bank, which is owned by Bahrains
Ithmaar Bank, will be converted into a
family oce managing the capital of a
single family, announced Ithmaar on the
1st November 2012.
Ithmaar did not disclose the family
involved in the deal. The move will also
enable the parent bank to focus on its
core retail and commercial business, with
both banks having struggled following
the 2008 financial crisis.
Facilitating global Islamic
financing growth
GLOBAL: KFH Research, a subsidiary
of Kuwait Finance House, has signed
a memorandum of understanding
(MoU) with the World Bank aimed at
developing the Islamic finance industry.
The MoU will enable both parties to
exchange expertise and professional
continued...
8 7th November 2012
Turkey sovereign Sukuk
boosts standing
GLOBAL: Turkeys debut international
sovereign Sukuk, worth US$1.5 billion,
which was issued on the 18th September
this year, has propelled the country
to second place in the primary Sukuk
market for the month of September, after
Malaysia. A report by KFH-Research
revealed: By country of domicile,
Malaysia topped the primary Sukuk
market with total issuances of US$10
billion or 85.3% of market share in
September 2012. This was followed by
Turkey at US$1.5 billion or 12.8% market
share, and Bahrain at US$99.9 million or
0.9% market share.
Ringgit-denominated paper accounted
for RM9.8 billion (US$3.2 billion) or
8.93% of total Sukuk issued, followed
by US-dollar denominated paper. Total
volume of Sukuk issued in the first nine
months of this year has reached US$103
billion; of which US$11.6 billion was
issued in the month of September. This
was a 135% increase compared to the
corresponding period in 2011.
According to the report, Murabahah is
currently the favored mode of Sukuk
issuance, representing 61.4% of global
Sukuk issued, followed by Ijarah at
US$2.1 billion, or 18.3%, and Musharakah
at US$1.7 billion, or 14.5% of total
issuances.
The Turkey Sukuk, which matures in
2018 and has a yield of 2.8%, received
book orders of up to US$8 billion; or five
times oversubscribed. However, some
have argued that the 58% uptake by
Middle East investors will not bode well
for the Sukuk in the secondary markets
as it is too heavily concentrated on a
single region. It was reported that the
sovereign Sukuk dropped to US$98 cents
on the dollar in the secondary market
after its issuance, and has remained
below par since then.
 NEWS

continued... Alizz Islamic bank IPO RATINGS

views regarding the industry, said Fahad
Al-Mukhaizeem, the chairman of KFH
Research.
Al Madina in Islamic
investment MoU
GLOBAL: Omans Al Madina Financial
& Investment Services Company and
Malaysia-based Amanie Advisors have
signed a memorandum of understanding
(MoU) to work together in the area of
Islamic investments.
oversubscribed
OMAN: The IPO of Omans first Islamic
bank, Alizz Bank, which was launched
in September, is reported to have raised
RO46 million (US$119.3 million) after
closing on the 21st October. Although the
issue manager has yet to announce the
ocial subscription figure, the issue is
said to have been oversubscribed by 1.15
times; with a major portion subscribed by
retail investors.
Liquidity management could
suffer
Outlook improves
MALAYSIA: RAM has lifted its
developing Rating Watch on Cerah
Samas RM380 million (US$US$124.35
million) Islamic medium-term notes
(IMTN) and rearmed its long-term
rating on the papers at AA3, with a
stable outlook.
Strong expectations
INDONESIA: Fitch has assigned an
expected BBB-(EXP) rating on the
Indonesian governments upcoming 10-

MIDDLE EAST OMAN: The countrys draft rules

for Islamic banking have excluded
year US$3 billion global Sukuk.

Financing for Bahrains SMEs commodity Murabahah and Tawarruq,

BAHRAIN: Standard Chartered Saadiq is
now oering Shariah compliant financing
to the kingdoms small and medium-
sized enterprises sector, according to
Sultan Ali Haider, a Dubai-based general
manager for consumer Islamic banking.
He added that the bank is also
developing its businesses in the UAE.
QIIB reports growth
QATAR: Qatar International Islamic
Bank (QIIB) announced a net profit of
QAR53 million (US$14.56 million) for the
third quarter of 2012, 5.4% higher than a
year earlier.
Total assets rose to QAR24.5 million
(US$6.73 million) from QAR22.2 million
(US$6.1 million) at the end of 2011, as its
spurring Islamic finance players to
question the ability for eective liquidity
Are you reading
management in the market. us on your
DIB announces results iPad /
UAE: Dubai Islamic Bank (DIB)
announced an increase in its net profit to iPhone?
AED854 million (US$232.44 million) for
the nine months to the 30th September
2012, in comparison to a profit of AED850
million (US$231.35 million) in the same
period of 2011.
Total assets rose 3.5% to AED93.7 billion
(US$25.5 billion) from the end of last MOVES
year.
Etiqa Takaful
MALAYSIA: Etiqa Takaful has appointed
Coming up... Ahmad Rizlan Azman as its new CEO.

financing portfolio increased to QAR12.6
million (US$3.46 million) from QAR10.6
million (US$2.91 million).
Bank offers gold account
YEMEN: Tadhamon International
Islamic Bank has signed an agreement
with Dubai-based Gold Arab Emirate,
an online gold and silver trading firm,
which will allow the banks customers to
hold gold instead of cash in their savings
accounts.
Volume 9 Issue 45 14th November 2012
Meet the Head
Khalfan Abdallah Salim, head of product
development and Shariah compliance,
Amana Bank, Tanzania
Features
The awakening of the IBF dragon; By
Amirullah Haji Abdullah, advisor of
Islamic banking & finance at Nova
Training and Education Institute, Hong
Kong.
Microfinance: A challenge that Islamic
finance can meet; By Mohammad
Abdullah Dewaya, head of Shariah audit
and compliance, Dhofar Bank Oman.
Islamic microfinance in Tanzania; By
Khalfan Abdallah, head of product
development and Shariah compliance at
Amana Bank Tanzania.
He was previously the chief sales ocer
of Maybank Asset Management.
Emirates NBD Asset
Management
UAE: Emirates NBD Asset Management
has named David Marshall as its new
senior executive ocer. Prior to his
appointment, he was the head of product
and distribution at the firm.
University of East London
UK: The University of East London has
appointed Dr Gaar Khalid as the new
director of its Islamic finance center.
Central Bank of the UAE
UAE: The Central Bank of the UAE has
appointed Khalifa Mohammed al-Kindi
as its new chairman, replacing Khalil
Foulathi, whose four-year term expired
in July this year.

9 7th November 2012


A possible catalyst
Last month, South Africas quasi-
sovereign body Trans-Caledon Tunnel
Authority announced that it was
considering the issuance of Sukuk to
fund two large infrastructure projects
worth about ZAR26 billion (US$3.06
billion). The announcement comes in
the wake of the federal governments
own revelation that it was to issue
its first sovereign Sukuk, slated for
March 2013. The authority stated the
sovereign issuance would be gauged
as a benchmark on whether it would
proceed towards the Islamic route.
South Africa is one of the oldest Islamic
markets in the continent, with fully-
fledged Islamic bank Al Baraka Bank first
opening its doors in 1989. This paved
the way for other conventional financial
institutions such as First National Bank,
HBZ Bank and Absa Bank eventually
incorporating Islamic windows alongside
their conventional practices.
However, as in so many other Islamic
finance jurisdictions, South Africa faces a
common challenge in the lack of Islamic
investment tools. South African fund
managers compromise by investing
in local money market instruments
and equities that are deemed Shariah
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IFN REPORTS
compliant, but thus obviously have a far
narrower universe than the conventional
fund universe.
Mogammad Saliegh Salaam, an
investment manager at Old Mutual
Investment Group, said in a report that
the Islamic investment community needs
a lot more products from the various
investment banks. They need to provide
us a lot more Shariah compliant products
or avenues in which to deploy our
cash. That is probably by far the biggest
challenge.
There is also the issue of Shariah
compliance. According to Saliegh, the
products of these investment banks may
not necessarily satisfy the other parties
Shariah boards. We need to make sure
that all the products satisfy our Shariah
boards.
When contacted by Islamic Finance
news, Abdulazeez Davids, the head of
research and portfolio manager at Kagiso
Asset Management, explained that he
welcomed the state authoritys decision
to consider a Sukuk issuance as Islamic
bonds were sorely needed to enable
better pricing, greater diversity and
healthy competition amongst issuers.
10
Our key challenges as investors are to
obtain a suitable spread of Sukuk input
portfolios as required by Regulation 28
(of the Pension Funds Act) and to also
close the yield gap between Sukuk and
bonds. Ultimately we would also like
to see the development of a secondary
tradable market for domestic Sukuk.
Last year, regulators amended Regulation
28 a provision that allows employees of
a company to choose the types of assets
a retirement annuity, preservation fund
or pension/provident fund may invest
in, and what maximum percentage of the
portfolio may be invested in specific asset
classes. Termed as member level choice,
only Shariah compliant balanced funds
have been approved to be oered to
these investors. There are currently three
asset management companies oering
such funds: namely Oasis, Old Mutual
and Kagiso.
With Sukuk the most popular product
in the Islamic finance industry at the
moment, this is the perfect timing for
quasi-sovereign and corporate bodies
to raise capital via the Islamic route and
perhaps provide South Africa with much-
needed exposure to the industry. RW
7th November 2012

Dana Gas fails to repay debt on time reaches standstill with
creditors
Speculation on Dana Gas failure to
repay US$920 million outstanding on its
US$1 billion Sukuk has materialized.
The company has reached a standstill
which is eective for up to six months
with its creditors, including BlackRock,
Ashmore Group and Spinnaker Capital.
In a press release to investors, the
company announced that it was in
discussions with the Sukukholders, and
believes that a consensual solution
in the best interest of all stakeholders
would be reached.
However it is not all doom and gloom
as analysts at investment bank Beltone
Financial believe that any chances of
the Sukuk maturity being deferred for
three to four years will be a positive
development for the group. In a
statement the bank said: We notice
the increased risk post the latest news
that has just come out on the Sukuk.
Assuming the worst case scenario of a
default, and Dana Gas giving up on its
Egyptian assets, would yield us a fair
value of AED0.35 (US$0.09) per share, or
a 22% downside from the current share
price of AED0.45 (US$0.12) per share.
Any chances of the Sukuk maturity
getting deferred by about three to four
years would mean positive news for
the group, both in terms of near-term
liquidity as well as valuation.
Meanwhile Dana Gas has issued a
statement claiming that it is unaware
US$1.73 billion Sukuk to buy planes for ailing national carrier
Malaysia Airline System
The sale of a RM5.3 billion (US$1.73
billion) Sukuk to fund the purchase
of aircraft which will be leased to
ailing national carrier Malaysia Airline
System (MAS) is expected to come to
market soon.
The Sukuk represents the second phase
of the carriers funding plan, unveiled
in May this year, which includes a
landmark perpetual Sukuk sold in two
tranches in June and September as well
as plans for a commercial loan.
The new Sukuk will reportedly be
sold by special purpose vehicle (SPV)
Turus Pesawat, which is owned by the
IFN REPORTS
of any action by investors of its US$920
million Sukuk to put a claim on the firms
Egyptian assets as they seek repayment
for the Sukuk.
The company, which has now become
the first UAE-based company unable
to pay its Sukuk upon maturity, also
commented that its discussions with the
ad hoc committee of its Sukukholders are
continuing to progress constructively.
The company, which has grown to
become the largest regional private sector
natural gas company in the Middle East,
saw its shares drop by 8.9% leading up
to the announcement of the standstill.
Earlier in the month, Dana Gas stocks
fell by 2.4% after seeing an 11% boost in
September; and at one point being the
most traded stock by volume.
In an earlier interview with Islamic
finance news, a Dubai-based lawyer
revealed that the implications of a
potential Dana Gas default could be
detrimental to the UAE Sukuk market
and the Middle East Islamic finance
industry; as well as the UAE credit
credibility. He said: We are looking
at an upward trend throughout, so the
impact of something like this, in which
Dana Gas might default, is very negative
to the trend. Also when Nakheel was
not able to make its repayment in 2009,
it negatively impacted the entire Dubai
economy.
ministry of finance. Funds raised from
the transaction will be used to buy eight
new aircraft which MAS will lease from
the SPV.
Islamic Finance news understands that
CIMB Islamic and Maybank Investment
Bank (Maybank IB) are the joint lead
managers for the Sukuk sale.
MASs perpetual Sukuk deal was solely
managed by Maybank IB.
The first-of-its-kind deal was issued
in tranches of RM1 billion (US$326.44
million) and RM500 million (US$163.22
million). The first issuance was fully
11
The main contributing factor to Dana
Gas credit woes, market watchers
believe, is its heavy concentration on
Egypt which in the past year has had
a less than stable economic and political
environment. The companys Egyptian
assets, investment bank Exotix estimates,
are currently worth US$800 million; and
the company is said to be owed millions
of dollars by the Egyptian government
for past production.
In a press statement issued in January
this year by Dana Gas with reference
to the status of its convertible Sukuk,
the company said: With regard to
its convertible Sukuk which are not
due until the 31st October 2012, the
company has been proactive in taking the
initiative to mandate advisors including
an international financial advisor and
will update the market with its plans
in good time and due course. Dana
Gas over the last four years has timely
and consistently paid on or before the
due date the Sukuk profit amount and
will continue to do so pursuant with
its obligations. Dana Gas maintains
strong positive relationships with its
host governments, and is progressing
constructive discussions with the
Egyptian government covering the
delayed payments due from government
owned entities owing to the unrest in
that country over the past year. NH
taken up by local pension fund,
Kumpulan Wang Persaraan. The second
tranche was also privately placed, but
MAS has not disclosed the investor of the
papers.
MAS has said that the third phase of its
funding plan, comprising commercial
funding for aircraft capital expenditure,
is expected to be implemented after the
completion of the first two phases. The
commercial funding will likely comprise
operating leases, finance leases and
commercial debt. LR
7th November 2012

Islamic trade finance: Potential for Indonesia?
INDONESIA
By Farouk Abdullah Alwyni,
IFN Correspondent
The 2nd Annual Indonesia Trade &
Commodity Finance Conference
was recently held in Jakarta on the
16th October 2012. One of the topics
discussed was assessing increased
appetite for Islamic finance within
trade.
Representatives of the International
Islamic Trade Finance Corporation
(ITFC), Maybank Islamic, Bank
Muamalat Indonesia and myself
participated in the above panel
moderated by Paul Wouters, a member
of the advisory board of Islamic Finance
news. The panel discussed issues relating
to Islamic trade finance in general and
the specific potential for the Islamic trade
finance in Indonesia.
Indonesia is one of major trading
countries among OIC member countries
and IDB member countries. Indonesias
exports and imports to and from the
world in 2011 reached US$203.5 billion
and US$177.4 billion respectively. This
puts Indonesia in fourth place for both
export and import values among the IDB
member countries.
Similarly, Indonesia is also a major
exporter and importer to and from OIC
member countries. In fact, Indonesias
intra-OIC exports and imports have
Islamic Treasury Management & Derivatives
18th 20th November 2012, DOHA
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IFN CORRESPONDENTS
been increasing over time, to 12.22%
and 17.16% in 2009 from 8.3% and 13.9%
in 2000, respectively. However, despite
Indonesias trade potential, the Islamic
banking industry in general has not
really benefited from this. Only a few
Islamic banks and windows have oered
trade finance services to their clients.
Out of the 11 fully-fledged Islamic
banks, there are only four banks that
have foreign exchange licenses and
only two that are already oering the
service. These are Bank Syariah Mandiri
(BSM) and Bank Muamalat Indonesia
(BMI). Despite already having a foreign
exchange license for more than 10 years
and being the oldest Shariah bank in
the country (established in 1991), BMI
only started to develop its trade finance
activities in 2009/10. Similarly, out of
the 26 Shariah windows (Unit Usaha
Syariah [UUS]), there are only seven
whose parent companies have foreign
exchange licenses. Of these seven UUS,
there are only three already oering the
service. These are Bank Permata Syariah,
Bank Danamon Syariah and CIMB Niaga
Syariah.
There are a number of reasons why
the Islamic banking industry has not
really benefited from the trade finance
business potential. Firstly, the Islamic
banking industry in Indonesia is still
relatively an infant industry. The focus
of business activities are still in the
areas of traditional banking activities
such financing and funding. Most of the
www.islamicfinancetraining.com | enquiry@redmoneytraining.com
12
income still comes from the financing
margin. Fee-based income from
transactional banking activities such
as trade finance and remittance is still
negligible.
Secondly, most of the Islamic banks
and/or UUS still do not have foreign
exchange licenses that will enable them
to perform trade finance transactions,
especially cross- border trade finance.
Thirdly, oering trade finance business
will need good support systems such
as an international banking network,
proper contracts, IT systems and
qualified human resources to perform the
necessary tasks.
Despite the above facts, considering the
large Indonesian trade values, it is indeed
a great opportunity for Islamic banking
industry (both local and global) to tap
into the Indonesian trade finance market.
In fact, by its nature, trade finance is
one financing activity that is really in
line with Islamic finance technique.
Furthermore, to be more competitive
and move to the next level of banking,
Islamic banks need to diversify their
sources of income more toward fee-based
income by entering transactional banking
activities, and trade finance is a major
part of this.
Farouk A Alwyni is CEO of Alwyni
International Capital (AIC) and the chairman
of the Center for Islamic Studies in Finance
Economics and Development (CISFED). He
can be reached at falwyni@alwyni.com.
7th November 2012

Al Hilal Bank strengthens investment banking capabilities
At just a little over four years old,
Abu Dhabi-based Al Hilal Bank has
spent the past year strengthening its
investment banking proposition as it
seeks to capitalize on the increasing
number of Sukuk transactions in the
Middle East.
In an exclusive interview with Islamic
Finance news, Lim Say Cheong, the
executive vice-president of the banks
investment banking group, said that in
addition to its concerted eort to win
Sukuk mandates for this year and next,
the bank also has plans to grow its fund
oerings, while keeping a keen eye on
business opportunities outside of the
UAE.
Sukuk has been in the limelight this last
year, with most of the funding completed
in the Middle East done through Sukuk;
and with low pricing, issuers have had
a good time issuing Sukuk. Al Hilal has
spent a lot of eort in the last eight to nine
months pitching for Sukuk mandates,
said Lim, adding that the bank is always
talking to potential issuers.
He also noted that Sukuk has emerged
as a crucial alternative for governments
and corporates to move away from
direct financing, with expectations
that the Islamic bond market will gain
further momentum next year, especially
as issuers look to raise fresh capital to
replace older borrowings.
On his expectations for the Sukuk market
next year and Al Hilals role in arranging
Islamic bond issuances, Lim noted that:
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Sukuk is expected to continue growing
in 2013, with more from the GCC, such as
from Qatar, Saudi Arabia and the UAE,
to fund infrastructure.
The bank will look at Sukuk origination
in earnest next year and more
aggressively pitch for business as
it builds on the momentum it has
developed this year.
Al Hilal will
look at Sukuk
origination in
earnest next
year
Additionally, Islamic financing has
become increasingly important in the
Middle East, as European banks lower
their credit exposure as the ongoing crisis
in Europe causes them to draw back
from the market. Lim however warned
that the Eurozone crisis still poses the
biggest danger for the credit markets
next year, with even expectations of
Sukuk issuances for 2013 to hinge on
developments in Europe.
Nonetheless, the bank expects to play
a more active role in the Sukuk market
in 2013; despite its investment banking
business hitherto being dominated by
direct financing transactions rather than
Sukuk deals.
13
This year, the bank participated in a
US$200 million financing for Tpra,
Turkeys sole oil refiner. Ahli United
Bank, Barwa Bank, Commercial Bank of
Qatar, Doha Bank, Dubai Islamic Bank,
First Gulf Bank, Qatar Islamic Bank
and QInvest were also involved in the
financing. Were slowly starting to put
our foot out in the international arena
were very bullish on Turkey, noted Lim.
According to Dealogic data, Al
Hilal managed six Islamic financing
transactions worth US$224 million in the
12 months to the 6th November 2012.
The growth in the Middle East Sukuk
market has also increasingly attracted
Al Hilals eye for the expansion of
its business activities. Lim cautioned
however that the bank will first focus on
its business in the MENA region before
expanding its presence outside the
region, although it will consider other
opportunities which may arise; including
setting up a presence in Asia. Currently,
the bank is also present in Kazakhstan,
after launching its business there in 2010.
Meanwhile, apart from its financing
business, the bank also launched its
Global Sukuk Fund in March this
year. As at the end of September, the
fund has more than doubled in size to
US$40 million from US$16 million at its
inception.
According to Lim, the bank is now
in the midst of putting something
together in terms of a new fund
oering, which may be a real estate
fund or a balanced fund. EB
7th November 2012
 CASE STUDY

TH Plantations US$65.23 million Sukuk

Murabahah
TH Plantations, a unit of pilgrims fund
manager Lembaga Tabung Haji (TH),
issued a RM200 million (US$65.23
million) Sukuk on the 30th October
2012, pursuant to its Sukuk Murabahah
program of up to RM1 billion
(US$326.16 million).
The 15-year notes represent the first
tranche of its program.
to fully repay its existing commodity
Murabahah term financing-i facilities TH Plantations US$326.16 million
and to finance its capital expenditure Sukuk Murabahah program
requirements.
US$65.23 million
The company is engaged in oil
palm plantations in Malaysia. It is
also involved in oil palm plantation
operations in Indonesia via its subsidiary,
THP Agro Management, which also
manages teak and rubber plantations in

Proceeds from
the Malaysian state of Sabah.

Pricing and placement

the issuance The oering, which bears a coupon of
30th October 2012

will be used to 6.6% payable semi-annually in arrears,

was privately placed to its majority Issuer and TH Plantations
fully repay its shareholder, TH. TH Plantations also said
that its program did not require approval
obligor
Issuance RM200 million (US$65.23
existing commodity from Securities Commission Malaysia
as all issuances from the facility will be
amount
Tenor
million)
15 years
Murabahah term issued to TH, with the notes to be non-
tradable and non-transferable.
Coupon rate /
return
6.6%

financing-i facilities Payment Semi-annual

Existing debt
and to finance its
Currency Ringgit
The company also has an existing RM200 Maturity date 29th October 2027

capital expenditure million Bai Murabahah medium-term

notes program of up to 10 years first
Lead arrangers
RHB Investment Bank and
Hong Leong Islamic Bank

requirements issued in 2009. It has fully drawn down

the program after issuing RM50 million
Co-arranger
Hong Leong Investment
Bank
(US$16.3 million)-worth of notes from Malaysia
Governing law
that program in March this year, in three
Utilization of proceeds tranches each with six-year maturities. Structure /
instrument
Murabahah

Proceeds from the issuance will be used EB

Shariah Audit and Compliance

for Islamic Banking

1st 2nd November 2012, Kuala Lumpur

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14 7th November 2012


Australia a new Islamic finance hub?
Australias political stability, sizable domestic economy, supportive infrastructure and developed financial system
adds to its chance of becoming a hub for Islamic finance in the region. NIGEL DENISON discusses.
Islamic finance has a long history.
However, it has only developed on a
global scale over the last 30 years. In
that relatively short space of time the
industry has grown rapidly and the
global market now exceeds US$1 trillion.
Many will find it surprising that
Australia was one of the first developed
countries to establish Islamic finance.
Shariah compliant cooperatives have
been oering personal and small
business financial services such as
mortgages from the 1990s. Since then
growth has been modest; however we
expect the pace of development to pick
up exponentially in the coming years,
with the Australian Islamic finance
industry diversifying and expanding
away from its traditional base of small
cooperative oerings into larger financial
organizations and asset managers.
Many
people feel
disillusioned with
and disenfranchised
by the large
conventional banks
and are turning to
ethical
providers
This is already starting to happen with
the first Australian Islamic fund launched
in 2009. This fund was quickly followed
by other Islamic funds including the
first fully Shariah compliant cash
management fund and the first Islamic
international equity fund, launched by
Crescent Wealth in 2012. We expect to
see a similar growth trajectory to that of
the UK which now has over 25 financial
institutions oering Shariah compliant
services and products.
Muslim population
Australia has a small but wealthy
Muslim population that is the natural
FEATURE
initial target client base. The last
census indicated that there were just
over 475,000 Australian Muslims,
equalling approximately 1.7% of the
total population. At first glance this
may appear small when compared to
other countries such as the UK which
has a Muslim population in excess of 2.5
million. However it is a solid base from
which to expand and it is also important
to examine the wider potential market.
At the Bank of London and The Middle
East (BLME) we have found that all faiths
and cultures are attracted to Islamic
finance with the majority of our clients
being non-Muslim.
Attraction to Islamic finance
So if clients are not choosing to use
Islamic finance purely on religious
grounds what is the attraction? From
BLMEs experience, one of the primary
motivating factors is financial. Clients are
looking for competitive returns from their
investments and competitive financing
costs when they wish to borrow. It is vital
that an Islamic bank or asset manager
oers a comparable service, both in terms
of product and performance, to their
conventional counterparts in order to
compete in the financial market place.
BLME has found that by providing
returns that meet or exceed those of
conventional providers we have become
an alternative option for any client seeking
an investment or financing.
The strong similarities between Shariah
and ethical principles are also attracting
clients. Many people feel disillusioned
with and disenfranchised by the large
conventional banks and are turning
to ethical providers. Islamic financial
institutions seek to generate a fair and
equitable return from transactions and
funds that are backed by real assets.
In addition they are prohibited from
investing in conventional banking and
insurance, weapons manufacturing,
pork-related products, alcohol,
pornography and gambling. Many of
these prohibitions and the principles of
fairness, integrity and transparency are
shared with the ethical finance sector.
Shariah compliant organizations also
employ methods of financing that avoid
speculation, short-selling and excessive
15
credit creation and encourage sound risk-
management procedures.
These ethical principles will prove as at-
tractive to the Australian market as they
have in the UK. Ethical and responsible
investment is well-established in Australia
and according to the Responsible Invest-
ment Association Australasia (RIAA) has
in many areas outperformed the conven-
tional market. A 2011 RIAA report states
that core responsible investment rose 8%
between 2010 and 2011 from AU$18.12
billion (US$18.7 billion) to AU$19.55 bil-
lion (US$20.24 billion). Islamic financial
institutions are well positioned to play a
part in this market.
These markets will be the key drivers of
growth for Islamic finance in Australia.
In addition, Australias proximity to and
growing relationships with Asia will
be an important factor. For example
the demand for commodities from
developing counties such as China
and India continues to increase and of
Australias top 10 trading partners, eight
are in the Asia Pacific region. Malaysia
has a free trade agreement with Australia
which provides a strong link to a country
that has an established Islamic finance
market. Indeed according to Standard
Chartered Bank, Malaysia issued 62%
of all Sukuk between 2007-11. Indonesia
has the largest Muslim population in the
world but currently only 5% of the total
banking assets are Shariah compliant
(CityUK, 2011 Islamic Finance Report).
Future for Australia in Islamic
finance
Many of the key Asian economies have
shown substantial and sustained growth
in recent years and investors are looking
for Islamic investment opportunities that
balance their need for an attractive return
with a low appetite for risk. Australia is
tapping into this market with companies
such as Crescent Wealth partnering with
experienced providers such as BLME to
oer investors access to the Sukuk and
Islamic equity markets via competitive
and ethical funds.
Nigel Denison is the head of asset
management and treasury at BLME. He can
be contacted at Nigel.Denison@Blme.com.
7th November 2012

Examining Malaysias Shariah governance
frameworks provisions on Shariah advisors
SHERIN KUNHIBAVA assesses the role, responsibilities and independence of the Shariah Advisory Board under
Malaysias Shariah governance framework.
Ensuring Shariah governance is critical
for the forward progress of Islamic
banking. It is critical not only to ensure
confidence of investors and the public
in the authenticity of the conduct and
practise of Islamic banking, but also to
minimize fiduciary and reputational risks
to Islamic financial institutions (IFIs).
The central bank of Malaysia, Bank
Negara Malaysia (BNM), developed the
Shariah governance framework (SGF)
eective the 1st January 2011 for IFIs with
the primary objective of enhancing the
role of the board of directors, the Shariah
advisory board and the management in
relation to Shariah matters: Including
enhancing relevant key organs having
the responsibility to execute the Shariah
compliance and research functions aimed
at the attainment of a Shariah based
operating environment.
A Shariah advisory board is defined by
the AAOIFI as an independent body
of specialized jurists in Fiqh Mualamat
(Islamic jurisprudence). However, the
Shariah supervisory board may include
a member other than those specialized
in Fiqh Muamalat, but who should be an
expert in the field of Islamic financial insti-
tutions and with the knowledge of Fiqh
Mualamat. The Shariah supervisory board
is entrusted with the duty of directing,
reviewing and supervising the activities
of the Islamic financial institution in order
to ensure that they are in compliance with
Islamic Shariah rules and principles. The
Fatwas and rulings of the Shariah supervi-
sory board shall be binding on the Islamic
financial institution.
Key words can be noted from the
above definition: the Shariah advisory
board should be independent, they
are specialists in Fiqh Muamalat and/
or IFIs and Fiqh Muamalat, and their
duties include directing, reviewing, and
supervising IFIs on whom their Fatwas
are binding. How the SGF ensures
these functions and roles of the Shariah
advisory members will be assessed below.
How a Shariah advisory body remains
independent is found in the OIC Fiqh
FEATURE
Academys 19th session and decision
No. 177 regarding the role of Shariah
supervision in regulating the operations
of Islamic banks its importance,
stipulations and the way it operates.
According to the OIC Fiqh Academy the
Shariah board must be independent, and
in order to achieve that, the following
issues must be considered:
The appointment and removal of
Shariah board members and the
determination of their compensation
should be done by a public body.
The authentication of the
aforementioned items will then be
done by a central Shariah authority or
its representative.
The members shall not be an
executive director in the Islamic
financial institution or an employee
of the Islamic financial institution
or engaged in jobs that are contrary
to the role of the Islamic financial
institution.
Based on the above, the provisions in the
SGF that relate to the Shariah advisory
board are discussed under the following
headings:
Appointment
According to Appendix 2 of the SGF
the board of directors shall, upon
recommendation of its nomination
committee, nominate the appointment
of the members of the Shariah advisory
board. The appointment and the
reappointment of a Shariah advisory
board member is subject to the prior
written approval of the central bank and
the Shariah Advisory Council. The SGF
further provides that in this application
the central bank may impose necessary
conditions it deems fit in addition to the
requirements in the SGF.
Comparing this to the requirement of
the OIC Fiqh Academys 177th decision
it would seem that since appointment of
Shariah advisory board members must
be approved by the central bank and the
Shariah Advisory Council, this provision
on ensuring independence of the Shariah
advisory board seems to be satisfied.
16
Further, according to Appendix 2 of the
SGF the Shariah advisory member cannot
be an employee of the IFI or any of its
related companies for the current or the
last financial year. This again would be in
line with the OIC Fiqh Academys 177th
decision that a Shariah advisory member
cannot be the employee of the IFI.
However under Principle 2.4 of the SGF,
the board of directors are encouraged
to appoint at least one member of the
Shariah advisory board as a member
of the board of directors. According
to Principle 2.4: The presence of a
director with sound Shariah knowledge
would foster greater understanding and
appreciation amongst the board members
on the decisions made by the Shariah
Committee. This provision is in direct
contradiction to the OIC Fiqh Academys
177th decision.
It is opined that the Shariah advisorys
independence might be compromised if
a Shariah advisory board member sits
on the board of directors. Further, what
would be the duty of the Shariah advisor:
would he/she owe a fiduciary duty to the
company as directors do?
It is opined that there would be a
blurring of lines of responsibility, roles
and duties if a Shariah advisor sits on the
board of directors.
A better option would be for a Shariah
advisor to be invited in certain special
occasions to the board meetings in the
event there are Shariah matters that are
discussed. The Shariah advisor should
not be a permanent member of the board
of directors: this is to ensure a clear
separation of responsibility, role and
duty between the board of directors and
the Shariah advisory board.
Also each Shariah advisor is only allowed
to sit on one Shariah Board in the same
industry (SGF Appendix 2). This means
that each Shariah board member can only
sit on the Shariah board of one Islamic
bank and at the same time can sit on
the Shariah advisory board of a Takaful
continued...
7th November 2012

Continued
company and the Shariah advisory board
of a non-banking institution. It is opined
that such a provision prevents incidences
of conflict of interest, preserves secrecy
and confidentiality and allows for more
new talent to enter the market.
However at the same time there may be
some very experienced Shariah advisors
who will be restricted from serving more
than one Islamic bank and thus may
deprive the market of excellent expertise.
There may also be minimum interaction
between experienced and inexperienced
Shariah advisors, since Shariah members
are to sit on only one Islamic banks
Shariah advisory board. Thus while one
may see this as a provision to ensure
proper governance it does have its
fallbacks as well.
Duration of the appointment of members
for the Shariah advisory boards is usually
for a term of two years and this can be
renewed by recommendation of the
Islamic bank and upon approval of the
central bank and the Shariah Advisory
Council.
It used to be a necessity that the
Shariah advisory board consists of a
minimum of three members, now with
the SGF (principle 2.3) a minimum of
five members is necessary of which
the majority must have a Shariah
background. The minimum number of
committee members has been increased
due to the greater number of individuals
in the industry who have the necessary
expertise. The larger number of
Shariah advisory members also allows
a greater number of those who have
diverse backgrounds such as in finance,
economics and law to be a Shariah
Advisory member.
Remuneration
According to principle 2.6 of the SGF,
remuneration of the Shariah advisory
members is determined by the board of
directors as advised by its remuneration
committee. The SGF further states that
such remuneration shall reflect, and be
commensurate with, the accountability,
duties and responsibilities of the Shariah
advisory board.
This provision is contrary to the
requirement of the OIC Fiqh Academys
177th decision, which states that
compensation must be determined by a
FEATURE
Sample Shariah advisory board report:
In our opinion:
1. The contracts, transactions and dealings entered into by the ABC Islamic Financial
Institution during the year ended XX/XX/XXXX that we have reviewed are in
compliance with the Shariah principles;
2. The allocation of profit and charging of losses relating to investment accounts conform
to the basis that had been approved by us in accordance with Shariah principles;
(where appropriate, the opinion paragraph shall also include the following matters:)
3. All earnings that have been realised from sources or by means prohibited by the
Shariah principles have been considered for disposal to charitable causes; and
4. The calculation of zakat is in compliance with Shariah principles.
We, the members of the Shariah Committee of ABC Islamic Financial Institution, do hereby
confirm that the operations of the ABC Islamic Financial Institution for the year ended XX/XX/
XXXX have been conducted in conformity with the Shariah principles.
public body. If remuneration is decided The Shariah advisors are under the
by the board of directors on advice of the SGF are further required to provide
Remuneration Committee, would this written Shariah opinions or decisions.
thwart the independence of the Shariah In discharging its duties, the Shariah
advisory member? It would seem so. Committee is expected to disclose
sucient information in the IFIs annual
There could also be instances where financial report on the state of Shariah
remuneration of the Shariah advisory compliance in the IFI (Principle 2.9). An
member is not standardized, some paid example of the report that must be signed
higher than others. There should be by each Shariah advisory board member
greater transparency of the amount of is found in Appendix 3 of the SGF. Part of
remuneration and other perks if any, the sample of the Shariah advisory board
Shariah advisors are entitled too. This is report is shown in the box above.
to ensure that shareholders of the IFIs are
aware of the costs to the IFI. The words highlighted above are to add
emphasis on the burden or responsibility
Qualification of Shariah advisors. Shariah advisors are
The majority of the Shariah members no longer mere advice-giving religious
should at least be qualified in the field scholars, they must now ensure that the
of Islamic Jurisprudence or Islamic transactions and dealings entered into
transactions/commercial law (Fiqh by the IFI are in compliance with Shariah
Muamalat), however the minority of principles, they are required to attest that
Shariah members may comprise of the operations of the IFI is in accordance
experts from other relevant backgrounds to Shariah principles and that all the
such as finance and law (SGF, Appendix earnings of an IFI are Halal.
2). This enables advisors to be from
diverse backgrounds. It is opined Prima facie this appears to be a heavy
that those with financial and legal burden on these religious scholars. They
background are necessary to help the owe a high level of duty to ensure Shariah
Shariah advisory board to make the best compliance. What occurs if they are
possible informed decision. This would negligent? What if a deal is found to be
be in line with the definition of the non-Shariah compliant, can the IFI now
Shariah advisory board of the AAOIFI. sue the Shariah advisory member based
on the report? Can shareholders sue the
Duties, Responsibilities & Reporting Shariah advisory members? It would seem
The responsibilities of the Shariah that from the SGF according to Principle
advisory board according to the SGF 2 of the SGF, the Shariah advisory board
include advising the board of directors is responsible and accountable for all its
on Shariah matters on the banks business decisions, views and opinions related to
operations to ensure that they comply Shariah matters. While this accountability
with Shariah principles at all times, to seems burdensome it is opined that
endorse the Shariah compliance manuals, Shariah advisors will now take more care
to endorse and validate relevant in arriving at their decisions, Fatwa (legal
documents, and to ensure proper records opinions/rulings) and carrying out their
for easy reference. This would be in other duties.
line with the definition of the Shariah
advisory board of the AAOIFI. continued...
17 7th November 2012
 FEATURE

Continued

The inaugural
The only issue is whether the Shariah
advisors themselves are aware of this
Islamic Finance news Forum
higher status of responsibility? On to be held in Saudi Arabia
this point reference should be made to
Principle 2.3 of the SGF which provides
that the board of directors must ensure 12th - 13th November 2012
that the Shariah advisory members are Four Seasons Hotel Riyadh at Kingdom Centre
aware of their fiduciary responsibilities
in discharging their duties. Confirmed Speakers

Referral of a question to the National

Abdulmohsen A. Al-Fares
Shariah Advisory Council
Achraf Cherkaoui
The Islamic Banking Act 1983 provides Dr Ali Al Amari
that an Islamic bank may seek the advice 
of the Shariah Advisory Council on Abdulkader Thomas

Shariah matters relating to its banking Ayham Al Yousef
business, and the Islamic bank shall Benjamin Newland 
comply with the advice of the Shariah Bernardo Vizcaino

Advisory Council (s.13A Islamic Bank
Bilal Kahlon
Act 1983). 
Emad Al Monayea
Like the Islamic Banking Act 1983 the 

Banking and Financial Institutions Act Faisal Qadri

1989 provides that Islamic banking Habib Motani
scheme banks may also refer a question Harj Rai
Dr. Henri Chaoul
to the Shariah Advisory Council Humphrey Percy
and shall comply with directions on Imran Iqbal


Islamic banking business and Islamic Jawad Ali

financial business issued by BNM in  
consultation with the Shariah Advisory John Sandwick
Council (s.124(3) Banking and Financial 
Kamal Mian


Institutions Act 1989).
Lawrence Oliver
Lilian Le Falher

It should be noted that by s.58 of the  

Central Bank Act of Malaysia 2009, Mansoor Durrani

where there is conflict in the ruling given Dr Mashhour Mourad
by a Shariah body or committee and the Mian Muhammad Nazir

Shariah Advisory Council, the ruling Mohammad Kamran Wajid
Mohamed Donia
given by the Shariah Advisory Council
Mohammed Jalaluddin
will prevail. This is to ensure that there Monem Salam
is certainty of decisions by all IFIs in Muhammad Farhan


relation to Shariah matters in Malaysia. Nabil Issa 

Conclusion 
Neil Miller
 
Much thought and eort has been made Raed G. Al-Barakati
in providing provisions on Shariah 
governance through the SGF on the Rizwan Kanji 
Shariah advisory board. Many of the Salman Akbar 
provisions have clarified the role and Salman Al-Sudairi
functions of a Shariah advisory board Dr Salman Syed Ali

member and the dynamics of reporting Sundra Rajoo  
to the board of directors. However it is Talal K. Althefery
opined that a Shariah advisory member 
should not be a permanent member of Tariq Al-Rifai
the board and remuneration of Shariah Tobias Frenz
advisors should be disclosed and thus Walid Sarieddine 


become more transparent.
Yasser Dahlawi

Dr Sherin Kunhibava is a consultant at

Wisdom Management Consultancy. She can www.REDmoneyevents.com
be contacted at drsherin@wisdommc.com.

18 7th November 2012


Islamic finance: A growth strategy model
Islamic finance is much more vulnerable than its conventional counterpart as its processes are less ecient and
the legal underpinning of Islamic transactions is not yet robust. UMER MAJID questions what can be done to
improve this.
The future survival of Islamic finance
will depend on a forward-thinking
organizations capacity to generate
new ideas and eectively deliver
competitive, credible alternatives to
targeted customers. A company which
seeks to outperform its rivals will
only be able to achieve this by firmly
establishing a relationship that they can
preserve by delivering genuine value to
each customer the ultimate barometer
to measure success with.
Before these
pressing
issues can hope to
be solved, Islamic
finance needs to
decide if it really
wants to become
Islamic
Some observers in my view correctly
argue that current capitalistic practices
are prevalent in the would-be Islamic
political and economic framework
which are predicated and adopted
from a morally impoverished societal
framework which values profit
maximization above everything else. Ann
Pettifor, a director of policy research in
macroeconomics (PRIME) and a fellow
of the New Economics Foundation in
London, comments: Let us make no
bones about it. This financial crisis is a
major spiritual crisis.
Critically this is where true Islamic
finance can help deliver financial
solutions by following a sound and
robust theoretical model that does not
undermine the spirit of the Shariah,
which is the only basis upon which a
sound and robust Islamic financial model
is deliverable. Most Islamic financial
institutions are modelled upon and run
in very much the same way as their
FEATURE
conventional counterparts, underpinned
by profit maximization.
Vulnerability of Islamic
finance?
In reality prevalent Islamic finance
is much more vulnerable than its
conventional counterpart as its processes
are much more inecient and the legal
underpinnings of Islamic transactions
are not yet robust and do not navigate
towards any Shariah standards.
Especially in the case of disputes, there
still remains uncertainty as to whether
the court ruling is based on Shariah or
civil law.
The rulings that have taken place in
English courts for example have not
sought to rule according to Shariah
as they do not profess to or have the
expertise to deliver a Shariah solution.
Furthermore there is also uncertainty on
how insolvency and default should be
handled; the dierent interpretations of
Shariah rulings across the jurisdictions;
a lack of standard documentation which
in turn contributes to the high cost of
transactions and financing; and the
pressing issue of liquidity management
in Islamic finance, which make it
just as vulnerable as its conventional
counterpart.
Before these pressing issues can hope
to be solved, Islamic finance needs
to decide if it really wants to become
Islamic. The growth of Islamic finance
over the last decade was largely fuelled
by conventional banking organizations
funnelling cheap credit (this is also
explains why Islamic financial products
are inextricably linked to Libor) into
these so-called Islamic banks.
Current Islamic financial practice to
say the least has only delivered a great
disservice to the hopes and aspirations
of millions of Muslims and non-Muslims
alike who really would like to see a real
alternative financial solution to meet
their everyday needs.
For example, let us look at a typical
would-be diminishing Musharakah
19
home finance product which could be
very simply designed to avoid negative
equity but instead which Islamic
finance organisations have simply used
to replicate the conventional mortgage
structured products.
It should be noted that Islamic finance
at this stage is still prohibition-driven
finance. The two fundamental elements
are its drivers Riba and Gharar, and
notably almost all Islamic finance
products almost always compromise
with either along the way. The two
prohibitions that can explain distinctions
between contracts deeming them valid or
invalid are simply stated by the famous
scholar Ibn Taymiyya.
This is why Shariah is the only safeguard
able to provide a realistic safety net to
regulate the activities of the providers
of Islamic finance. Realistically without
the political will to build the institutional
framework vital to deliver Islamic finance
it is hard to see the long-term survival of
the Islamic financial experiment.
The challenge facing leadership within
Islamic-based organizations and more
importantly at governmental level is to
combine economic success with moral
success without compromising the
Islamic value system which is to abide by
the Shariah.
Vision
Collectively the Islamic finance network
should therefore seek to implement this
strategy or seek to create this desired
situation. Let us now look at the ways
organizations should move forward to
implement such a vision. Any vision is
obsolete without implementation.
It must be noted that the argument
that Islamic finance needs to adhere to
or intertwine in to the existing global
financial framework makes little sense, as
the existing system is totally at odds with
the values of the Shariah.
Organizations have very limited powers
in terms of delivering the fundamental
institutional framework which would
continued...
7th November 2012

Continued
allow us to deliver a robust Islamic
finance strategy model. Governments
need to step in to establish a structure
to work with institutions who want to
deliver Islamic finance by delivering the
following:
1. A legal framework treaty, which
must collectively allow all member
countries to ensure that any
organization under its juristic control
must be governed by and abide under
strict Shariah safeguards. Perhaps
the establishment of some kind of
Shariah court which should set the
precedent for all bodies to adhere to.
2. Educating people with sound
knowledge of the Shariah and
proactively encouraging the
development of new ideas to find
solutions to meet customer needs.
3. Development of financial institutions
which adopt a benevolent approach
to humanity aligned to the needs of
their potential customers contrary to
the conventional banker mindset.
To receive the latest
developments on the global
Islamic capital markets
Read exclusive research
reports from industry
practitioners every week
Contact Musfaizal for a FREE Trial subscription
FEATURE
humanity. Today we live in a world
Organizations where most of the vast resources and
have very
wealth are controlled by 3% of its
population, in a demand-led world
limited powers in
fuelled by technological advances like the
internet, Facebook and mobile phones.
terms of delivering We have seen how peoples desire for
the fundamental justice and fairness has mobilized masses
like the gallant youth, the drivers of
institutional the Arab spring, who have been able to
remove greedy and tyrannical dictators.
framework which Increasingly large financial institutions
would allow us to and autocratic regimes that are seen
to preserve the interest of the few are
deliver a robust becoming enemies of the public. If
tyrannical rule can be replaced then
Islamic finance these institutional activities will no
doubt equally one day pay the price for
strategy compromising the Islamic value system.
model Umer Majid is the head of Islamic finance at
Halal Investments, a Shariah advisory firm in
the UK. He can be contacted at umermajid@
The paradigm shift I often hear people hotmail.com.
talk about has to be a moral shift to
protect each and every member of
Get to know the leaders in your Read
ead exclusive
exc usi e articles
a ticle
es and
a d
industry case studies in our annual
guides and supplements sent
Keep abreast of latest deal flows to you in hard copy
and funds performances
Exclusive online access to
www.islamicfinancenews.com
Tel: +603 2162 7800 ext 24
Email: subs@IslamicFinanceNews.com
20 7th November 2012
Islamic Investor eastspringinvestments.com.my

Vol 9 Issue 44

The REIT investment

Cover Story Chart 1: Performance of Emirates REIT
Real estate investment trusts (REITs), US$110 AED 600m
like their cousin the exchange-traded US$108.50 US$108.20
US$107.89 US$107.81
Net Asset Value per share
fund, have been regarded as one of the AED 500m
US$108 US$107.27 US$107.00
lesser known alternative investment US$106.55 US$107.33
AED 400m

Portfolio Size
products in the Islamic finance industry. US$106 Dividend: US$2.55
US$105.27 US$105.91
AED 300m
Globally, Malaysia pioneered the market US$104
after becoming the first country to AED 200m
US$102.64
US$102.80
introduce formal guidelines specifically US$102
US$102.02 AED 100m
for Islamic REITs in November 2005 that US$101.16

were designed to complement guidelines 00.00 US$100.82

for the conventional REIT.
This saw the birth of the worlds first
Islamic REIT Al Aqar KPJ REIT
managed and administered by Damansara
REIT managers, as well as the Al-
Hadharah Boustead REIT the worlds
first plantation Islamic REIT, launched in
January 2007. In December 2008 the Axis
REIT, once a conventional REIT, was re-
classified to become the first Islamic oce/
industrial REIT in the world.
Malaysias dominance in the Islamic REIT
market is part of the countrys bid to
position itself as an international Islamic
hub by oering a full spectrum of products
catering to every need of the investor.
Despite being a pioneer in this asset class,
Malaysias oerings have been overtaken
by Singapore-listed Sabana REIT, which
became the worlds largest listed Shariah
compliant REIT in 2010. Gross revenue
stood at SG$20.3 million (US$16.58
million) representing a 16.7% year-on-
year increase while its distributable
income rose to SG$15 million (US$12.25
million) in the third quarter of 2012,
making it the seventh consecutive
quarter the REIT has exceed its forecasts.
Sabana REIT currently holds a portfolio
comprising 21 industrial properties in
Singapore valued at more than SG$1
US$100
Ju
l 2 ug ep 2 ct 2 ov ec an 2 eb 2 ar pr ay un 2 ul 2 ug ep 2 ct 2
01 20 01 01 20 01 01 01 20 201 20 01 01 20 01 01
billion (US$812.48 million), with its latest
acquisition valued at SG$61 million
(US$49.03 million).
According to data provider Eurekahedge,
apart from the Emirates REIT, the four
other Islamic REITs have provided
double digit returns to investors. As at
the 31st October, Al-Aqar KPJ REIT and
Al-Hadharah Boustead REIT provided
a yield-to-date return of 26.09% and
27.92% respectively while the two oce/
industrial REITs Sabana REIT and Axis
REIT boasted above 30% for their
respective one-year returns. Although
not comparable to the returns of its
peers, Emirates REIT is already showing
positive signs that it may soon join their
ranks. As can be seen from Chart 1,
the net asset value of the REIT stood at
US$108.20 per share as at 30th September
while its portfolio size surged to AED592
million (US$161.17 million)
Emirates REIT is the product of
Dubai Islamic Bank (DIB) and Eiel
Management, making it the UAEs first
Shariah compliant REIT. It was initially
seeded with a AED200 million (US$54.45
million) portfolio of seven Dubai Islamic
AED 0
A S O N D J F M A M J J A S O
2
1 11 1 1 11 1 2 2 12 2 12 2 2 12 2 2
Bank oces, in which DIB took 15-year
upward-only leases on rents that have a
projected 10% yield. Targeting primarily
professional investors, Emirates REIT
Management stated that it would
subsequently diversify its portfolio to
include residential and oce buildings,
warehouses and car parks.
This came to pass on the 3rd July when
Dubai Properties, a subsidiary of Dubai
Properties Group, became a shareholder
of the REIT after it contributed to the
trusts 374,000 square feet of prime
commercial and retail property located in
Dubai Internet City.
Going forward, Islamic REITs have a
bright future as a less volatile alternative
to equities, making it the right time for
both retail and institutional investors to
venture into this asset class. RW
In this issue...
Market commentary ..........................................22
Fund Focus: Amana Developing Fund ...............23
Fund Tables .........................................................24

WE SEE AN EVEN
BRIGHTER FUTURE IN ASIA
eastspringinvestments.com.my

21 7th November 2012

 ISLAMIC INVESTOR
NEWS

Market commentary
FTSE Physical Commodity Industrial Metals Index (FTSE PIMI)*
risen to 940,000 mt, the highest level since
September 2010. According to Aurubis,
1,000 Inception 1997, Base 100 the largest copper producer in Europe,
800 the intended launch of copper ETFs by
JP Morgan and Blackrock (still to be
600
approved by US regulators) may cause
400 the two institutions to buy 180,000 t of
200 copper for physical deposit.
0
Apart from that we have seen a weak
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
energy sector with WTI- and Brent-
FTSE PIMI prices falling by 7% and 3% to US$85.5
and US$108.5 per barrel respectively -
*The Physical Commodity Industry Metals Index includes zinc, nickel, cooper and aluminium. The
thereby pushing the spread between the
Index series is Shariah compliant.
two contracts again to record highs of
US$24/barrel. The prevailing price levels
Agriculture / Corn 6 months indicate lower geopolitical risk premiums
and sucient stock levels in the short
1,000
and medium-term.
800 After the sharp price increases during
the summer months in the course
600 of the worst US drought in 50 years,
grains are going through a period of
400 price consolidation with slight negative
May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 tendencies as the late harvest turned out
to be better than initially expected. Eighty
In this issue we focus on the recent though the latest quantitative easing percent of the US corn and soya harvests
activity in the agriculture sector. programs are suering a diminishing are already brought in and due to the
marginal utility. lack of storage facilities farmers sell their
Diminishing economic growth rates crop directly from the fields - thereby
mixed with a disappointing earnings Base and precious metals were putting pressure on futures markets.
season and revised profit outlooks put particularly hard hit with nickel, zinc and However, with price increases of 30%
pressure on financial markets in October. lead losing more than 10%. The sector on average this year, the agricultural
On the credit side we have seen some is confronted with declining growth complex remains top ranked for 2012.
strength in the US housing sector, as rates in emerging markets, diminishing
well as better than expected consumer global demand and to a certain degree Merit Commodity Partners. For more
sentiment data. All in all, it seems as with overcapacity and high stock levels. information or a daily update, contact info@
Aluminium stocks in Shanghai have mcpag.com or info@ftse.com

:($5(12:21
L3DGL3KRQH
DQG7DEOHWV

22 7th November 2012

 ISLAMIC INVESTOR
FUND FOCUS

Amana Developing Fund

The primary objective of the Developing World Fund is long-term capital growth.

What led to this fund being launched? we know have proven desirable in the Fact sheet
In 2009, we believed there were developed world and are likely to be Fund Manager Nicholas Kaiser, portfolio
significant growth opportunities just as desirable as incomes rise in the manager;
overseas. We also felt this type of fund developing world. Scott Klimo, deputy
further helped diversify the Amana Fund portfolio manager
family. Who are your investors (profile)? Trustee The Amana Mutual Funds
Retail (Muslim and non-Muslim) and Trust is overseen by a
What are the key factors that drive the institutional from the US. Board of Trustees:
funds performance?
Benchmark MSCI Emerging Markets
The first factor is our Shariah-based What specific risks does the fund take (Index) Index
screening process. Companies with into consideration? And why?
Apart from the traditional portfolio, Domicile US
excessive debt or that engage in
prohibited activities are not eligible factor and stock specific risks, a Inception Date 28th September 2009
for purchase by the fund. Secondly we developing world fund presents unique Fund Fund Type
are highly disciplined in the price we risk challenges relative to our US-centric Characteristics Open
will pay for a stock. Third, we have growth and income funds. Currency (as of the 30th
Fund Size
very low turnover; less than 10% of the movements or commodity price swings September 2012)
US$19.97 million
funds holdings annually. This keeps can have a larger impact on developing
trading costs to a minimum but more nations. With a developing world fund NAV per share
importantly allows us to avoid the one must be cognizant of political risks, US$10.44
pitfalls of behavioralism that often cause while most OECD countries dont have Minimum / Subsequent
investors to buy when enthusiasm and coups or revolutions. Of course, such Investment
prices are at their highest yet value at its events often present excellent buying US$250 / US$25
lowest and vice versa. opportunities.
*Fund portfolio
This is especially important in market How often do you review this fund?
downturns as simple math tells us that a We review the fund daily as the nature of
portfolio declining in value by 50% needs the investments means theres that much
to rise 100% to reclaim its original value. more to know, understand and interpret.
Our portfolios consistently outperform Its not enough to know what the Federal
in down markets, while capturing the Reserve is doing. We need to know
majority of the gain in rising markets. whats happening at the Bank of China
We are able to hold stocks for long or possible outcomes of the elections in
periods because of the extensive research Malaysia.
we conduct on portfolio candidates,
seeking companies with identifiable What is the market outlook for this
and sustainable positions of superiority fund? Foreign Equities 64.79%
in their industries, high quality While we prefer positive market Cash 35.21%
management teams and an opportunity environments, tactical market calls are
to substantially grow their earnings. not a significant contributor to fund
performance. Our goal is to select the *Industry allocation
As a developing world fund we best possible companies in all market
often have opportunities to invest in environments and with our multi-year
companies replicating business models average holding period for investments,
that have succeeded in the developed tactical portfolio adjustments are not a
world or providing goods and services part of our toolkit.

*Comparison Graph

$15,000

$10,991 Consumer Non-durable 14.2%

10,000 $10.498 Cyclical 12.2%
Health 11.5%
Amana Developing World Fund Utilities 9.9%
MSCI Emerging Market Index Energy 7.1%
Transportation 5.7%
5,000 Technology 4.2%
Sep 09 Sep 10 Sep 11 Sep 12
Cash & Equivalents 35.2%

23 7th November 2012

 FUNDS TABLES

Eurekahedge North America Islamic Fund Index

120

110

100

90
Index Values

80

70

60

50
Dec-99

Dec-02

Dec-05

Dec-08

Dec-11
Jun-01

Jun-04

Jun-07

Jun-10
Sep-00

Sep-03

Sep-06

Sep-09

Sep-12
Mar-02

Mar-05

Mar-08

Mar-11
Top 10 Annualized Returns for ALL Funds since Inception
Fund Fund Manager Performance Measure Fund Domicile
1 Atlas Pension Islamic - Equity Sub Atlas Asset Management 19.96 Pakistan
2 Public Islamic Select Enterprises Public Mutual 16.43 Malaysia
3 Reliance Global Shariah Growth - USD I Reliance Asset Management 14.27 Guernsey
(Malaysia)
4 Public Islamic Opportunites Public Mutual 12.92 Malaysia
5 Public Islamic Dividend Public Mutual 12.11 Malaysia
6 Meezan Tahauz Pension - Equity Sub Al Meezan Investment Management 12.02 Pakistan
7 Public Islamic Equity Public Mutual 11.54 Malaysia
8 Am-Namaa' Asia-Pacific Equity Growth AmInvestment Management 11.35 Malaysia
9 Atlas Islamic Stock Atlas Asset Management 10.63 Pakistan
10 Amana Growth Saturna Capital 9.77 United States
Eurekahedge Islamic Fund Index 3.78

Based on 28.57% of funds which have reported October 2012 returns as at 6th November 2012

Top 10 Annualized Standard Deviation for ALL Funds since Inception

Fund Fund Manager Performance Measure Fund Domicile
1 Public Islamic Money Market Public Mutual 0.14 Malaysia
2 PB Islamic Cash Management Public Mutual 0.15 Malaysia
3 CIMB Islamic Money Market CIMB-Principal Asset Management 0.19 Malaysia
4 CIMB Islamic Deposit CIMB-Principal Asset Management 0.22 Malaysia
5 PB Islamic Cash Plus Public Mutual 0.24 Malaysia
6 Emirates Islamic Money Market Limited Institutional Emirates NBD Asset Management 0.26 Jersey
Share Class I USD
7 Watani USD Money Market National Bank of Kuwait 0.35 Cayman Islands
8 Watani KD Money Market National Bank of Kuwait 0.55 Cayman Islands
9 Meezan Tahauz Pension - Money Market Sub Al Meezan Investment Management 0.72 Pakistan
10 Public Islamic Income Public Mutual 1.20 Malaysia
Eurekahedge Islamic Fund Index 12.14

Taking into account funds that have at least 12 months of returns as at 30th October 2012

Comprehensive data from Eurekahedge will now feature the overall top 10 global and regional funds based on a specific duration (yield to date, annualized returns,
monthly returns), Sharpe ratio as well as delve into specific asset classes in the global arena equity, fixed income, money market, commodity, global investing (which
would focus on funds investing with global mandate instead of a specific country or geographical region), fund of funds, real estate as well as the Sortino ratio. Each table
covering the duration, region, asset class and ratio will be featured on a five week rotational basis.

24 7th November 2012

 FUNDS TABLES

Eurekahedge Islamic Fund Equity Index over the last 5 years Eurekahedge Islamic Fund Equity Index over the last 1 year
105.000 113.000

100.000

95.000 108.000

90.000
103.000
Percentage

Percentage
85.000

80.000
98.000
75.000

70.000 93.000
65.000

60.000 88.000

Oct-11

Oct-12
Aug-12
Apr-12
Jan-12

Jul-12

Sep-12
May-12
Mar-12
Dec-11

Jun-12
Nov-11

Feb-12
Jun-08

Jun-09

Jun-10

Jun-11

Jun-12
Oct-07

Oct-08

Oct-09

Oct-10

Oct-11

Oct-12
Feb-08

Feb-09

Feb-10

Feb-11

Feb-12

Top 10 Islamic Equity Funds by 3 Months Returns

Fund Fund Manager Performance Measure Fund Domicile
1 Meezan Tahauz Pension - Equity Sub Al Meezan Investment Management 9.73 Pakistan
2 NBAD UAE Islamic (Al Nae'em) National Bank of Abu Dhabi 9.42 UAE
3 Atlas Pension Islamic - Equity Sub Atlas Asset Management 9.31 Pakistan
4 Atlas Islamic Stock Atlas Asset Management 9.29 Pakistan
5 Meezan Islamic Al Meezan Investment Management 8.82 Pakistan
6 Al Meezan Mutual Al Meezan Investment Management 8.78 Pakistan
7 Am-Namaa' Asia-Pacific Equity Growth AmInvestment Management 6.13 Malaysia
8 Public China Ittikal Public Mutual 5.02 Malaysia
9 Emirates MENA Opportunities EIS Asset Management 3.40 Jersey
10 JPM Islamic Global Dynamic Equity (USD) A (acc) J.P. Morgan International Bank 3.13 Luxembourg
Eurekahedge Islamic Fund Index 2.49

Based on 26.54% of funds which have reported October 2012 returns as at 6th November 2012

Top 10 Islamic Globally Investing Funds by 3 Months Returns

Fund Fund Manager Performance Measure Fund Domicile
1 DWS Noor Precious Metals Securities - Class A DWS Noor Islamic Funds 15.87 Ireland
2 AmPrecious Metals AmInvestment Management 10.40 Malaysia
3 CIMB Islamic Greater China Equity CIMB-Principal Asset Management 5.01 Malaysia
4 JPM Islamic Global Dynamic Equity (USD) A (acc) J.P. Morgan International Bank 3.13 Luxembourg
5 Reliance Global Shariah Growth - USD I Reliance Asset Management 1.96 Guernsey
(Malaysia)
6 Emirates Islamic Global Balanced EIS Asset Management 1.93 Channel Islands
7 Global Sukuk Plus QIB (UK) 1.54 Luxembourg
8 BLME Umbrella Fund Sicav - SIF - USD Income - Class B Bank of London and The Middle East 0.77 Luxembourg
9 CIMB Islamic Commodities Structured 2 CIMB-Principal Asset Management 0.59 Malaysia
10 Watani KD Money Market National Bank of Kuwait 0.16 Cayman Islands
Eurekahedge Islamic Fund Index 2.99
th
Based on 21.67% of funds which have reported October 2012 returns as at 6 November 2012

Contact Eurekahedge
To list your fund or update your fund information: islamicfunds@eurekahedge.com
For further details on Eurekahedge: information@eurekahedge.com Tel: +65 6212 0900

Disclaimer
Copyright Eurekahedge 2007, All Rights Reserved. You, the user, may freely use the data for internal purposes and may reproduce the index data provided that
reference to Eurekahedge is provided in your dissemination and/or reproduction. The information is provided on an as is basis and you assume and will bear all
risk or associated costs in its use, and neither Islamic Finance news, Eurekahedge nor its aliates provide any express or implied warranty or representations as to
originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for any purpose.

25 7th November 2012

Takaful
Government includes Takaful in 2013 budget
Cover story
The Malaysian government will be
introducing a Shariah compliant
protection scheme for paddy farmers
next year, as mentioned in the 2013
budget. The government has allocated
RM50 million (US$16.32 million) to the
program, which is expected to benefit
172,000 farmers.
Should the scheme successfully kick o,
the government will consider expanding
the Takaful cover to other farming
activities, including vegetable and cash
crop farming and livestock breeding.
The Takaful Padi Protection Scheme will
include coverage for paddy farms of 10
hectares or less.
The average size of a paddy farm in
Malaysia, which is usually run by
smallholders, is 1.06 hectares. Wetland rice
constitutes 85% of the total rice area in the
country with the remaining 15% made up
of upland rice, based on recent statistics.
According to the Malaysia Agricultural
Research Development Institute
(MARDI), the demand for rice in both
the international and domestic Malaysian
market has increased from 1.8 million
tonnes in 1995 to 2.3 million tonnes
in 2010, due to the countrys growing
population.
The government is also confident of the
prospects of increased domestic rice
production to cater to domestic demand,
due to an undersupply in international
markets.
MARDI also believes that there is a
growing need for more involvement from
Brought to you by
7th November 2012
to maximize land utilization due to
The challenges the conversion of land for other uses:
particularly in the industrial, residential
facing
and urban sectors.
Malaysias
Prior to the budget announcement,
Malaysian Takaful operators had called
agricultural sector for the government to include tax rebates
for Takaful premiums, similar to the ones
currently include aorded for the Employees Provident
Fund and conventional life insurance.
a lack of crop However, there was no progress reported
on the issue.
diversification, The 2013 budget also included a
shortage of skilled statistical summary of the Malaysian
Takaful industry, with Takaful assets
farm labor, the accounting for 9% of total insurance
assets at RM18.3 billion (US$5.97 billion)
need for more as at December 2011; net contributions
sophisticated
amounting to RM2.6 billion (US$848.67
million) as at July 2012; and new Family
machinery and a
Takaful contributions recorded at RM2
billion (US$652.81 million) in July 2012.
need to maximize Market penetration for Family Takaful
land stood at 13% in July 2012; while gross
direct contributions for General Takaful
utilization grew to RM1 billion (US$326.4 million) in
July 2012, charting a 14.2% growth over
the private sector in Malaysias food and the same period last year. NH
agriculture production industry, with
total private investments and agriculture
in the 1990s only reaching RM9.5 billion
(US$3.1 billion), compared to RM84
billion (US$27.4 billion) invested in
manufacturing.
The challenges facing Malaysias
agricultural sector currently include a
lack of crop diversification, shortage of
skilled farm labor, the need for more
sophisticated machinery and a need
For more information, please call 03-2723 9999
www.takaful-ikhlas.com.my
26 7th November 2012

Sukuk are evolving from asset-backed
Q
to asset-based structures. How will this
impact the way defaults are managed?
A Much will depend on the wording
of the investment contracts. With
asset-based Sukuk defaults are less likely
as the originator and the investor share in
the market risk. In contrast with asset-
backed Sukuk, the originator takes on
the entire market risk, the risk to the
investors being that the originator
defaults.
The practice may however deviate
from the theory, as is all too often
the case in Islamic finance. The legal
wording of the contracts may seek to
protect the investors from market risk,
even when the Sukuk are asset-based.
This however is undesirable from a
Shariah perspective, and from a finance
perspective only serves to increase the
possibility of defaults. Defaults are
seldom well managed, and moving to
asset-based Sukuk will not make much
dierence.
RODNEY WILSON
Emeritus professor, Durham University UK
A The Islamic banking industry has
shown a high level of flexibility
over the last few decades and is
responding to the needs of its user by
continuous innovation and is coming up
with novel ideas in terms of new product
structures.
Similarly, the recent focus of moving
toward asset-based Sukuk structure is
a very positive and healthy transition
for the industry as it will enhance the
credibility of Islamic banking and would
provide a mechanism where the Islamic
banks and businesses (as partners) would
be focusing on the profits generated
through the productive process involving
actual trade and business transactions.
This shift of focus on the underlying
business and viewing assets as
investment to generate return and not
only as a collateral will definitely result
in better credit decision making and
Islamic banks active involvement and
monitoring of the business enterprise and
would increase the transaction based on
FORUM
Musharakah. If the process of issuance of
Sukuk on the above lines is followed in
its true spirit and Islamic banks moves to
the next level by having industry experts/
specialists on board as part of their
investment banking and corporate teams,
it would reduce the chances of default for
the industry and in the long run provide
a better handle to Islamic banks for
handling default scenarios.
We have recently seen significant activity
in the Pakistani Sukuk market where
Islamic banks like Meezan Bank are now
focusing on business enterprise-based
Sukuk structures based on Musharakah
where the bank and customers are
sharing on the gross profits/loss of the
underlying business and this trend is
expected to grow as more and more
customers are now finding it easy to do
Musharakah transactions with Islamic
banks.
AHMED ALI SIDDIQUI
Executive vice-president & head, product
development & Shariah compliance, Meezan
Bank
A Sukuk have never really been asset
backed structures 95% have
always been asset-based with the same
credit risk as unsecured debt.
KHALID HOWLADAR
Senior credit ocer, asset-backed and Sukuk
finance, Moodys Middle East
A The asset-backed security makes
sure that the revenue earned from
the asset subject to finance, are
distributed among security holders, as
against asset-based security, which does
not make sure such revenue distribution,
rather the issuer can pay profits to the
security holders from the revenues of any
other asset.
Accordingly, asset-based security
holders receive profits from the issuer,
irrespective of whether the profits
are paid out of the revenue streams
generated by the asset subject to finance
27
or not. Consequently, the issuer feels
comfort while issuing asset-based
security, because he is not worried about
the generation of revenues from the
asset, subject finance, rather he can pay
profits to the security holders from any
other source of revenues. This became
the main factor behind the popularity for
the issuance of asset-based securities and
this is why sale and lease back Ijarah
and sale and purchase back diminishing
Musharakah structures were practiced,
especially for the government
guaranteed/ sovereign Sukuk, to either
provide liquidity to the government or to
finance budget deficit.
On the other hand, the corporate
Sukuk issuers felt comfort, providing
assets to make sale and lease back
Ijarah and sale and purchase back
diminishing Musharakah structures
Shariah compliant when either they
needed liquidity for their businesses or
to convert their conventional loans into
Shariah compliant financing.
Issuance of asset-based securities
provided room for the growth of Islamic
finance in the infancy stage, where
the motive was to introduce Islamic
finance as parallel to conventional loans.
However, since this infancy stage has
passed, asset-backed securities should
replace the issuance of asset-based
securities.
The issuance of asset-backed securities
can provide the following distinguished
advantages:
a) The central governments will have
to make strategic planning before
receiving finance to make sure that
assets subject to finance must produce
revenues, by themselves;
b) The Shariah principle of economic
purpose/materiality will be served
which is unfortunately lacking in
most of the issues of asset based
securities;
c) There will be control over deficit
financing and obviously will help
control inflation;
continued...
7th November 2012

Continued
d) Funds will be utilized to finance new
capital development expenditure of
the Central government which will
yield the prosperity of the general
public.
Based on the above advantages, it is hoped
that Islamic finance can rapidly achieve its
true objective, in near future, as soon as the
asset-backed securities are issued instead
of issuance of asset based securities.
MUJEEB BEIG
Senior vice president & head of product
development & research, MCB Islamic
Banking Group
A While supporters of Islamic finance
have reasons to be joyous over the
impressive growth of Sukuk, especially
in Malaysia, caution must be exercised
when advising investors and issuers on
matters related to Sukuk. The current
trend in Sukuk structuring is towards
debt-based structures, which render most
of the Sukuk issued similar to
conventional bonds in their risk-return
profile. This is a significant concern given
the increasing share of Sukuk in the total
assets under management of institutions
oering Islamic financial services (at
present assets under Sukuk are estimated
to be about one fifth of the total global
Islamic financial assets of US$1.35
trillion, according to the Global Islamic
Finance Report 2012).
An over-emphasis on asset-based
Sukuk structures means corporates and
sovereigns borrowing from the Islamic
capital markets will increase their
indebtedness, thus magnifying the use
of leverage in their capital structures.
This will not only endanger operational
sustainability of the borrowing
corporates but will also contribute to
the instability of the Islamic financial
system as a whole. Governments
borrowing through debt-based Sukuk
structures like commodity Murabahah
are draining the Islamic capital markets
of the liquidity required for real private
sector investments. This will result in
governments using Islamic structures to
finance their budget deficits.
As Malaysia is at the forefront of Sukuk
issuance, it is absolutely imperative for
the government (Securities Commission
Malaysia) to actively discourage
commodity Murabahah in Sukuk
FORUM
structures, and ensure that there is no
secondary market for such Sukuk that
have already been issued. Failure to
do so may result in a debt crisis that
has the potential to bring down every
stakeholder in the industry. There is a lot
at stake for Malaysia. Currently, Kuala
Lumpur is attracting a lot of interest in its
Islamic finance industry. In the event of
a crisis, popularity will diminish. If one
takes for example Bahrain: once a central
player in Islamic finance; today it is a
struggling financial center.
Asset-based Sukuk are all but
conventional bonds in their economic
eects. In the event of default, investors
may end up losing significantly and will
not have any recourse to an underlying
asset. Sukuk defaults have just started.
For instance, there are problems on the
horizon for those who invested in Dana
Sukuk, which was a nearly US$1 billion
Sukuk maturing on the 31st October
2012, but with the obligor out of cash
hindering paybacks to the investors. It
will take one large default to happen in
Kuala Lumpur before investors will start
going elsewhere. We definitely will not
like to see all the eort, time and money
invested in Islamic banking and finance
in Malaysia to be at stake. Hence, this is a
precautionary note on the use of asset-
based Sukuk at the expense of asset-
backed Sukuk.
PROFESSOR HUMAYON DAR
Chairman, president & CEO, Edbiz
Consulting
A Clarity about the terminology is
essential.
I understand asset-backed to mean that
the underlying asset has fully transferred
to the ownership of the Sukuk structure.
Consequently insolvency of the original
owner which has sponsored the Sukuks
creation does not imperil the asset.
Furthermore failure by the sponsor to
perform its contractual obligations will
mean that the special purpose vehicle
(SPV) used to issue the Sukuk can sell
the asset and distribute the funds to the
Sukuk investors.
I understand asset-based to mean
that the underlying asset is not fully
transferred to the Sukuk issuing SPV.
Instead the SPV merely has some legal
rights sucient to enable the Shariah
28
Supervisory Board to sign o the Sukuk
as Shariah compliant. If the original
owner becomes insolvent, its creditors
can seize the asset. Conversely the SPV
does not have sucient ownership of
the asset to sell it in the case of failure
by the original owner to honor its
contractual commitments under the
Sukuk arrangements, such as paying rent
for use of the asset.
For many years the ratings agencies
warned that most Sukuk being issued by
GCC companies should be regarded as
only being asset-based (using the above
definitions) for several reasons, including
insuciently developed insolvency laws
and local restrictions on ownership of
land by foreign persons. Investors largely
ignored these warnings until the recent
Gulf financial crisis.
Investors in asset-based Sukuk (using
the above definitions) have much less
security than investors in asset-backed
Sukuk. They need to satisfy themselves
that they are being paid a return
commensurate with the additional risks
that they are taking on.
MOHAMMED AMIN
Islamic finance consultant and former UK
head of Islamic finance at PwC
A The pure structuring of the Sukuk
(asset-based/asset-backed) should
have no impact at all on how the Islamic
creditors behave (lenient and
magnanimous through restructuring and
grace - firstly amicable by all means),
since Shariah makes no distinction in this
case.
Should the conventional creditors decide
not to abide by the Islamic prescriptions
as can be expected since they will
look greedy to the available assets and
only have eyes for the pure monetary
aspect of the situation then probably
conventional debtor protection schemes
will come in play and failure thereof real
default will be declared. Fast unwinding/
enforcement will be the case. It is
obvious that this will be at the cost of all
parties directly involved and indirectly of
the community at large.
It becomes more and more clear that
same as structuring issues, dispute
settlement for Islamic financial
continued...
7th November 2012
 FORUM

Continued

instruments should be dealt with in an
Islamic environment. Or at least that
legal engineering by convinced and
dedicated practitioners for these cases
should be stepped up one notch.
PAUL WOUTERS
Senior foreign counsel, Azmi & Associates
law oce (Kuala Lumpur-Malaysia
and Singapore); Lawyer, Antwerp Bar
Association (Belgium); CEO, Senturiyon
Global
regards the criteria that should be strictly
complied with in order to ensure that a
Sukuk issuance is a genuine Shariah
compliant issuance. In a nutshell, the
AAOIFI made it clear that Sukukholders
must be the true legal owners of the
underlying assets. This will ensure that,
in case of default of the Sukuk issuer, the
Sukukholders can directly manage the
underlying assets themselves.
However, it is debatable whether the new
Sukuk issuances strictly comply with the
above rule. In practice, this rule has led to
of the underlying assets. However, this
new type of structuring does not, in itself,
ensure Shariah compliance for those new
issuances. Indeed, one should still check
whether the Sukukholders are actually
granted ownership rights in the under-
lying assets and therefore will recover
eective management rights over the
underlying assets in case of default of the
SPV. If this latter criterion is not complied
with, the new issuances will have the
same drawbacks as the former Sukuk is-
suances in case of default by the SPV. This
means that the classification of Sukuk as

A The distinction between asset-

backed and asset-based Sukuk has
emerged following the first defaults
under Sukuk that arose in 2009 and the
earlier position taken by the AAOIFI as
the ownership in the underlying assets be-
ing passed by way of a true sale from the
asset-backed or asset-based is, in itself,
irrelevant.
originator of the Sukuk to an ad hoc SPV
that will issue the Sukuk and act as trustee SUFIAN BATAINEH
for the Sukuk holders for the management Managing director, Dananeer

Next Forum Question:

With the delay in the issuance of its planned Sukuk, is the IILM in jeopardy of losing
its relevance to the industry and what other avenues can be explored to help boost the
industrys liquidity?
If you would like to air your views on the next Forum Question, please email your response of between 50 and 300 words to Christina Morgan,
forum editor, at: Christina.Morgan@REDmoneygroup.com before the 16th November 2012.

29 7th November 2012


Sufyan Maysara
Yassin,
head of Shariah
audit and
compliance,
BankMuscat -
Meethaq Islamic
Banking
Sufyan Maysara Yassin is a certified
Shariah advisor and auditor in
Islamic banking and finance and
has a postgraduate diploma in
Islamic Banking & Insurance from
the Institute of Islamic Banking and
Insurance, London.
Could you provide a brief
journey of how you arrived
where you are today?
I joined Sharjah Islamic Bank (formerly
National Bank of Sharjah) for a short
period before the banks conversion into
Islamic banking. I was assigned to assist
the Shariah supervisory board during the
banks holistic transformation process.
My mission then entailed me to work
closely with the Shariah supervisory
board members of the bank, thus
exposing myself to the industry overall
and the challenges therein.
What does your role involve?
Ensuring Shariah compliance and
consistency of the banks transactions,
operations, investments, contracts, legal
documentation and all activities with
the Shariah provisions and principles; as
well as ensuring implementation of the
Shariah supervisory boards resolutions
and pronouncements. Also, facilitating
and streamlining the banks operations
and procedures through adopting
simple and distinctive Shariah compliant
practices.
What is your greatest
achievement to date?
The greatest achievement is yet to come.
Yet achievement cant be achieved
without a dedicated team. Playing a
leading role in setting up the Shariah
Audit and Compliance Division in
MEET THE HEAD
Sharjah Islamic Bank from the scratch
can be mentioned here. Contributing
to spreading an appropriate Shariah
governance attitude within the bank
atmospheres as well.
I have now joined [Meethaq, the Islamic
window of] BankMuscat. Islamic
banking has recently been introduced
in Oman and I am looking forward to
accomplishing better achievements with
my associates and to humbly contribute
in inaugurating Shariah compliant
banking in Oman.
Which of your products/
services deliver the best
results?
As Shariah audit and compliance is
a control function area, its one of the
success factors needed by Islamic
financial institutions to achieve their
best results, both in business targets as
well as the authentication of the business
from a Shariah perspective. The ultimate
results of the Islamic institution to a
significant extent depend on the eective
and innovative Shariah solutions that are
extended by the Islamic division.
In terms of business, product
development relies on the quality of our
services. Regarding the operation, on
the other hand, of the back oce and
other supporting functions, their job
betterment and smoothness to a large
extent relies on our eective solution and
process flows that comply with Shariah
standards.
30
What are the strengths of your
business?
Delivering genuine and uncontaminated
Shariah compliant products and services
that meet the demands of the market by
our financial institution; achieving the
vision of the shareholders to be a Shariah
compliant business provider; as well as
the desire of the depositors in gaining
legitimate and lawful returns.
What are the factors
contributing to the success of
your company?
Major factors contributing to success
are well-versed business professionals,
strong presence of the Shariah
supervisory board and eective and
ecient Shariah audit and compliance
regulations.
What are the obstacles faced
in running your business
today?
A lack of in-depth understanding of
Shariah compliant products, transaction
sequences, documentation and process
flows by the sta due to the deficiency
of the Islamic banking training and
learning. Also a general dearth of
experienced manpower in the Islamic
banking industry.
Where do you see the Islamic
finance industry in the next
five years?
Islamic finance has firmly positioned
itself in Muslim countries and even
moved further to tap the markets in
western countries. The constant double
digit growth shall carry on, in spite of the
recent global economic challenges.
Name one thing you would
like to see change in the
world of Islamic finance.
I would like to see eective orientation
and broader application to microfinance
products by Islamic banks and tangible
participation by the Islamic financial
institutions in developing this sector.
Noticeably, the main income for many
Islamic financial institutions comes from
applying secured products. I would also
like to see participatory-based banking
and financing for micro-entrepreneurs
develop into a real practice by the Islamic
financial institutions.
7th November 2012
 DEAL TRACKER

DATE
ISSUER SIZE
ANNOUNCED IFN Correspondents
AFGHANISTAN: Zulfiqar Ali Khan
Dialog Axiata Sri Lanka LKR51 billion 2nd November 2012 head of Islamic banking division, financial supervision
department, Da Afghanistan Bank
Malaysia sovereign US$1.73 billion 6th November 2012 AUSTRALIA: Gerhard Bakker
director, Madina Village
Almarai Company US$513.57 million 6th November 2012 BAHRAIN: Dr Hatim El-Tahir
director, Islamic Finance Knowledge Centre, Deloitte &
Touche
Sumberdaya Sewatama IDR1 trillion 24th October 2012
BANGLADESH: Md Shamsuzzaman
executive vice president, Islami Bank Bangladesh
MNRB Holding RM150 million 16th October 2012
BERMUDA: Belaid A Jheengoor
director of asset management, PwC
Banque Saudi Fransi SAR2.5 billion 15th October 2012
BRUNEI: James Chiew Siew Hua
senior partner, Abrahams Davidson & Co
Edaran SWM RM1 billion 5th October 2012
CANADA: Jerey S Graham
partner, Borden Ladner Gervais
International Islamic Liquidity US$200 to 500 million 4th October 2012
Management Corporation CZECH REPUBLIC: JUDr Ivana Hrdlickova,
judge, Judiciary, Appelate Court Pardubice
Turkish Airlines TBA th
4 October 2012 EGYPT: Dr Walid Hegazy
managing partner, Hegazy & Associates
Danainfra Nasional RM1.5 billion 4th October 2012 FRANCE: Kader Merbouh
co head of the Executive Master of the Islamic Finance,
Paris-Dauphine University
Weststar Capital RM900 million 4th October 2012 HONG KONG & CHINA: Anthony Chan
partner, Brandt Chan & Partners in association with SNR
Dubai Electricity and Water Authority AED4.5 billion 3rd October 2012 Denton
INDIA: Keyur Shah
Tunisia sovereign TBA 30th September 2012 partner, KPMG
INDONESIA: Farouk A Alwyni
Bank Asya TRY150 million 25th September 2012 chairman, Center for Islamic Studies in Finance,
Economics, and Development
Qatar Islamic Bank US$1.5 billion 16th September 2012 IRAN: Majid Pireh
Islamic finance expert, SEO
Bolton RM380 million 6th September 2012 IRAQ: Khaled Saqqaf
partner and head of Jordan & Iraq oces, Al Tamimi & Co
HSBC Amanah RM3 billion 4th September 2012 IRELAND: Ken Owens
Shariah funds assurance partner, PwC Ireland
Sime Darby US$1.5 billion 3rd September 2012 JAPAN: Serdar A. Basara
president, Japan Islamic Finance
Malako Corporation RM1.8 billion 17th August 2012 JORDAN: Khaled Saqqaf
partner and head of Jordan & Iraq oces, Al Tamimi & Co
Putrajaya Holdings RM3 billion 13th August 2012 KOREA: Yong-Jae Chang
partner, Lee & Ko
Indonesia sovereign US$1 billion 10th August 2012 KUWAIT: Alex Saleh
partner, Al Tamimi & Company
Indonesia sovereign US$750 million 10th August 2012 LUXEMBOURG: Marc Theisen
partner, Theisen Law
Tanjung Bin Power RM4.5 billion 7th August 2012 MALAYSIA: Nik Norishky Thani
head special projects (Islamic), PNB
Kuala Lumpur Kepong RM1 billion 1st August 2012 MALDIVES: Aishath Muneeza
head of Islamic finance, Capital Market Development
Authority
Kimanis Power RM1.16 billion 16th July 2012
MALTA: Reuben Buttigieg
president, Malta Institute of Management
Syarikat Prasarana Negara RM4 billion 12th July 2012
MAURITIUS: Sameer K Tegally
associate, Conyers Dill & Pearman
Trkiye Finans Katilim Bankasi US$300 million 9th July 2012
NEW ZEALAND: Dr Mustafa Farouk
counsel member for Islamic financial institutions, FIANZ
Sudan sovereign US$758 million 5th July 2012
NIGERIA: Hajara Adeola
managing director, Lotus Capital Limited
South Africa sovereign TBA 4th July 2012
OMAN: Anthony Watson
senior associate, Al Busaidy Mansoor Jamal & Co
Indonesia sovereign IDR500 billion 3rd July 2012
PAKISTAN: Bilal Rasul
director (enforcement), SEC of Pakistan
National Treasury South Africa US$500 - 700 million 3rd July 2012
PHILIPPINES: Rafael A Morales
managing partner, SyCip Salazar Hernandez & Gatmaitan
Qatar sovereign US$4 billion 2nd July 2012
QATAR: Amjad Hussain
partner, K&L Gates
Indosat IDR300 billion 20th June 2012
SAUDI ARABIA: Nabil Issa
partner, King & Spalding
Sadara SAR1.4 billion 13th June 2012
SENEGAL: Abdoulaye Mbow
Islamic finance advisor, Africa Islamic Finance
UEM Group RM2.2 billion 13th June 2012 Corporation
SOUTH AFRICA: Amman Muhammad
General Authority of Civil Aviation TBA 24th May 2012 managing director, Absa Islamic Bank
SINGAPORE: Yeo Wico,
Morocco sovereign TBA 23rd May 2012 partner, Allen & Gledhill
SRI LANKA: Roshan Madewala
Amer Group Holding EGP2.7 billion 14th May 2012 director/CEO, Research Intelligence Unit
SWITZERLAND: Khadra Abdullahi
Emirates NBD US$500 million 7th May 2012 associate of investment banking, Faisal Private Bank
TANZANIA: Khalfan Abdallah
Epmex RM1.35 billion 25th April 2012 head of product development and Sharia compliance,
Amana Bank
Noor Islamic Bank US$1 billion 19th April 2012 TURKEY: Ali Ceylan
partner, Baspinar & Partners
Encorp RM1.58 billion 18th April 2012 UAE: Moinuddin Malim
CEO, Mashreq Al Islami
Johor Corp Group RM3 billion 13th April 2012 UK: Siraj Ibrahim
associate, Credit Agricole CIB
Citra Marga IDR1.2 trillion 12th April 2012 US: Saeid Hamedanchi
CEO, ShariahShares
Nakheel AED240 million 11th April 2012 YEMEN: Moneer Saif
head of Islamic banking, CAC Bank
Development Bank of Kazakhstan US$500 million 30th March 2012 IFN Correspondents are experts in their respective
fields and are selected by Islamic Finance news to
Ethical Asset Management TBA 30th March 2012 contribute designated short country reports. For more
information about becoming an IFN Correspondent
please contact sasikala@redmoneygroup.com
National Australia Bank US$500 million 29th March 2012

31 7th November 2012

 SHARIAH INDEXES

REDmoney Asia ex. Japan 6 Months REDmoney Europe 6 Months

All Cap Large Cap Medium Cap Small Cap All Cap Large Cap Medium Cap Small Cap
1110 1000

1018 920

926 840

834 760

742 680

650 600
Jan Feb Mar Apr May June July Aug Sept Oct Nov Jan Feb Mar Apr May June July Aug Sept Oct Nov

REDmoney GCC 6 Months REDmoney Global 6 Months

All Cap Large Cap Medium Cap Small Cap All Cap Large Cap Medium Cap Small Cap
850 1300

780 1176

710 1052

640 928

570 804

500 680
Jan Feb Mar Apr May June July Aug Sept Oct Nov Jan Feb Mar Apr May June July Aug Sept Oct Nov

REDmoney MENA 6 Months REDmoney US 6 Months

All Cap Large Cap Medium Cap Small Cap All Cap Large Cap Medium Cap Small Cap
850 1700

780 1520

710 1340

640 1160

570 980

500 800
Jan Feb Mar Apr May June July Aug Sept Oct Nov Jan Feb Mar Apr May June July Aug Sept Oct Nov

SAMI Halal Food Participation (All Cap) 6 months

2000

1825

1650

1475

1300
Jan-2012 Feb-2012 Mar-2012 Apr-2012 May-2012 June-2012 July-2012 Aug-2012 Sept-2012 Oct-2012 Nov-2012

32 7th November 2012

 SHARIAH INDEXES

REDmoney Global Shariah Index Series (All Cap) 6 Months REDmoney Global Shariah Index Series (Large Cap) 6 Months
REDmoney Asia ex. Japan REDmoney Global REDmoney Asia ex. Japan REDmoney Global
REDmoney Europe REDmoney MENA REDmoney Europe REDmoney MENA
REDmoney GCC REDmoney US REDmoney GCC REDmoney US
1100 1000

980 890

860 780

740 670

620 560

500 450
Jan Feb Mar Apr May June July Aug Sept Oct Nov Jan Feb Mar Apr May June July Aug Sept Oct Nov

REDmoney Global Shariah Index Series (Medium Cap) 6 Months REDmoney Global Shariah Index Series (Small Cap) 6 Months
REDmoney Asia ex. Japan REDmoney Global REDmoney Asia ex. Japan REDmoney Global
REDmoney Europe REDmoney MENA REDmoney Europe REDmoney MENA
REDmoney GCC REDmoney US REDmoney GCC REDmoney US
1700 1450

1460 1260

1220 1070

980 880

740 690

500 500
Jan Feb Mar Apr May June July Aug Sept Oct Nov Jan Feb Mar Apr May June July Aug Sept Oct Nov

REDmoney Global Shariah

Equities are considered eligible for inclusion Utilities Basis Materials
Telecomunication Services 2% 15%
into the REDmoney Global Shariah Index 2%
Series only if they pass a series of market Consumer Goods Services
15%
related guidelines related to minimum market Technology
capitalization and liquidity as well as country 14%
restrictions.
Energy
8%
Once the index eligible universe is determined Non-Cyclical
Consumer Goods Services
the underlying constituents are screened 7% Financials
using a set of business and financial Shariah 4%
guidelines. Industrials Healthcare
22% 11%

The REDmoney Global Shariah Index Series powered by IdealRatings consists of a rich subset of global listed equities that adhere to clearly
defined and transparent Shariah guidelines defined by Shariyah Review Bureau in Jeddah, Saudi Arabia.

The REDmoney Shariah Indexes provides Islamic investors with an accurate and Shariah-specific equity performance benchmark with optimized
compliance credibility due to the intensive research conducted to ensure that index constituents do not conflict with the defined Shariah
requirements.

IdealRatings is the leading provider of Shariah investment decision support tools to investors globally, including asset managers, brokers, index
providers, and banks to empower them to develop, manage and monitor Shariah investment products and Shariah compliant funds. IdealRatings
is headquartered in San Francisco, California. For more information about IdealRatings visit: www.idealratings.com

For further information regarding REDmoney Indexes contact:

REDmoney Global Shariah Index Series
Andrew Morgan
Managing Director, REDmoney Group
RED Email: Andrew.Morgan@REDmoneygroup.com
Tel +603 2162 7800

33 7th November 2012

 LEAGUE TABLES

Most Recent Global Sukuk

Priced Issuer Nationality Instrument Market US$ (mln) Managers

22nd Oct 2012 Putrajaya Holdings Malaysia Sukuk Domestic market 262 CIMB Group, AmInvestment Bank,
private placement Maybank Investment Bank
11th Oct 2012 Qatar International Qatar Sukuk Euro market 700 Standard Chartered Bank, HSBC, Qatar
Islamic Bank public issue National Bank
4th Oct 2012 Edaran SWM Malaysia Sukuk Domestic market 245 Hong Leong Bank, CIMB Group
public issue
3rd Oct 2012 Qatar Islamic Bank Qatar Sukuk Euro market 750 Standard Chartered Bank, Deutsche Bank,
public issue HSBC, QInvest
1st Oct 2012 Khazanah Nasional Malaysia Sukuk Domestic market 651 CIMB Group, AmInvestment Bank
Musharakah private placement
20th Sep 2012 Republic of Turkey Turkey Sukuk Euro market 1,500 HSBC, Kuwait Finance House, Citigroup
public issue
20th Sep 2012 MISC Malaysia Sukuk Domestic market 163 HSBC, CIMB Group, AmInvestment Bank
public issue
20th Sep 2012 HSBC Amanah United Sukuk Domestic market 163 HSBC, AmInvestment Bank, Hong Leong
Malaysia Kingdom public issue Islamic Bank, Maybank Investment Bank
18th Sep 2012 Malaysian Airline Malaysia Sukuk Domestic market 165 Maybank Investment Bank
System private placement
7th Sep 2012 National Higher Malaysia Sukuk Domestic market 321 CIMB Group, Maybank Investment Bank
Education Fund public issue
3rd Sep 2012 Cagamas Malaysia Sukuk Domestic market 160 RHB Capital
public issue
29th Aug 2012 Malako Malaysia Sukuk Domestic market 577 Maybank Investment Bank
Corporation private placement
28th Aug 2012 Syarikat Prasarana Malaysia Sukuk Domestic market 644 RHB Capital, Kenanga Investment Bank,
Negara Murabahah public issue CIMB Group
15th Aug 2012 Tanjung Bin Power Malaysia Sukuk Domestic market 1,346 CIMB Group, Maybank Investment Bank
private placement
14th Aug 2012 Celcom Transmission Malaysia Sukuk Domestic market 1,605 HSBC, CIMB Group, Maybank Investment
(M) Murabahah public issue Bank
10th Aug 2012 Khazanah Nasional Malaysia Sukuk Domestic market 806 Kenanga Investment Bank, DRB-HICOM,
Musharakah private placement CIMB Group, AmInvestment Bank
9th Aug 2012 Kuala Lumpur Malaysia Sukuk Ijarah Domestic market 322 CIMB Group, Maybank Investment Bank
Kepong public issue
1st Aug 2012 SME Bank Malaysia Sukuk Domestic market 159 Kuwait Finance House, AmInvestment Bank,
public issue Maybank Investment Bank
19th Jul 2012 Kimanis Power Malaysia Sukuk Domestic market 272 HSBC, CIMB Group
public issue
17th Jul 2012 Aman Sukuk Malaysia Sukuk Domestic market 260 Lembaga Tabung Haji, RHB Capital, CIMB
public issue Group, AmInvestment Bank, Maybank
Investment Bank

Global Sukuk Volume by Month Global Sukuk Volume by Quarter

US$bn US$m US$bn US$m

12 1200 18 600
Value (US$bn) Avg Size (US$m) 16 Value (US$bn) Avg Size (US$m)
10 1000 500
14
8 800 12 400
10
6 600 300
8
4 400 6 200
4
2 200 100
2
0 0 0 0
1 2 3 4 5 6 7 8 9 10 1112 1 2 3 4 5 6 7 8 9 10 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
2011 2012 2007 2008 2009 2010 2011 2012

34 7th November 2012

 LEAGUE TABLES

Top 30 Issuers of Global Sukuk 12 Months

Issuer Nationality Instrument Market US$ (mln) Iss Managers

1 Projek Lebuhraya Malaysia Sukuk Domestic market 9,610 18.3 RHB Capital, CIMB Group, AmInvestment Bank, Maybank
Usahasama private placement Investment Bank
2 State of Qatar Qatar Sukuk Euro market 4,000 7.6 Standard Chartered Bank, Deutsche Bank, HSBC, QInvest,
public issue Barwa Bank
3 General Authority Saudi Sukuk Domestic market 4,000 7.6 HSBC
for Civil Aviation Arabia private placement
4 Saudi Electricity Saudi Sukuk Euro market 1,750 3.3 Deutsche Bank, HSBC
Company Arabia public issue
5 Celcom Malaysia Sukuk Domestic market 1,590 3.0 HSBC, CIMB Group, Maybank Investment Bank
Transmission (M) Murabahah public issue
6 Republic of Turkey Turkey Sukuk Euro market 1,500 2.9 HSBC, Kuwait Finance House, Citigroup
public issue
7 Tanjung Bin Power Malaysia Sukuk Domestic market 1,298 2.5 CIMB Group, Maybank Investment Bank
private placement
8 Dubai DOF Sukuk UAE Sukuk Euro market 1,250 2.4 HSBC, National Bank of Abu Dhabi, Dubai Islamic Bank,
public issue Citigroup
9 National Higher Malaysia Sukuk Domestic market 1,110 2.1 CIMB Group, Maybank Investment Bank
Education Fund public issue
10 Tanjung Bin Energy Malaysia Sukuk Domestic market 1,089 2.1 HSBC, OCBC, RHB Capital, DRB-HICOM, CIMB Group,
Issuer Tawaruq private placement An Investment Bank, Maybank Investment Bank
11 Perusahaan Penerbit Indonesia Sukuk Ijarah Euro market 1,000 1.9 Standard Chartered Bank, HSBC, Citigroup
SBSN Indonesia II public issue
11 EIB Sukuk UAE Sukuk Euro market 1,000 1.9 Standard Chartered Bank, HSBC, RBS, National Bank of
public issue Abu Dhabi, Citigroup, Emirates NBD, Dubai Islamic Bank,
Credit Agricole
13 Johor Corporation Malaysia Sukuk Domestic market 939 1.8 CIMB Group, An Investment Bank, AmInvestment Bank,
public issue Maybank Investment Bank
14 Malaysia Malaysia Sukuk Domestic market 817 1.6 Maybank Investment Bank
Murabahah public issue
15 Maxis Malaysia Sukuk Domestic market 805 1.5 CIMB Group, Maybank Investment Bank
Musharakah public issue
16 IDB Trust Services Saudi Sukuk Euro market 800 1.5 Saudi National Commercial Bank, Standard Chartered
Arabia public issue Bank, BNP Paribas, HSBC, CIMB Group
17 Sarawak Energy Malaysia Sukuk Domestic market 796 1.5 RHB Capital, Kenanga Investment Bank, AmInvestment
public issue Bank
18 ANIH Malaysia Sukuk Domestic market 786 1.5 CIMB Group, Maybank Investment Bank
private placement
19 DanaInfra Nasional Malaysia Sukuk Domestic market 752 1.4 Lembaga Tabung Haji, RHB Capital, CIMB Group,
public issue AmInvestment Bank, Maybank Investment Bank
20 Qatar Islamic Bank Qatar Sukuk Euro market 750 1.4 Standard Chartered Bank, Deutsche Bank, HSBC, QInvest
public issue
20 Kingdom of Bahrain Bahrain Sukuk Euro market 750 1.4 Standard Chartered Bank, BNP Paribas, Citigroup
public issue
20 BSF Sukuk Saudi Sukuk Euro market 750 1.4 Deutsche Bank, Citigroup, Credit Agricole
Arabia public issue
23 Qatar International Qatar Sukuk Euro market 700 1.3 Standard Chartered Bank, HSBC, Qatar National Bank
Islamic Bank public issue
24 Aman Sukuk Malaysia Sukuk Domestic market 700 1.3 Lembaga Tabung Haji, RHB Capital, CIMB Group,
public issue AmInvestment Bank, Maybank Investment Bank
25 Khazanah Nasional Malaysia Sukuk Domestic market 652 1.2 Kenanga Investment Bank, DRB-HICOM, CIMB Group,
private placement AmInvestment Bank
26 Jafz Sukuk UAE Sukuk Euro market 650 1.2 Standard Chartered Bank, Abu Dhabi Commercial Bank,
public issue National Bank of Abu Dhabi, Dubai Islamic Bank, Abu
Dhabi Islamic Bank, Citigroup, Emirates NBD
27 Syarikat Prasarana Malaysia Sukuk Domestic market 644 1.2 RHB Capital, Kenanga Investment Bank, CIMB Group
Negara Murabahah public issue
28 Malako Malaysia Sukuk Domestic market 577 1.1 Maybank Investment Bank
Corporation private placement
29 DRB-HICOM Malaysia Sukuk Domestic market 561 1.1 Maybank Investment Bank
private placement
30 TASNEE Saudi Sukuk Domestic market 533 1.0 HSBC
Arabia private placement

Total 52,542 100

35 7th November 2012

 LEAGUE TABLES

Top Managers of Sukuk 12 Months Sukuk Volume by Currency US$ (billion) 12 Months

Manager US$ (mln) Iss %

Malaysian ringgit 28.6
1 HSBC 10,296 28 19.6
US dollar 18.4
2 Maybank Investment Bank 9,056 41 17.2
3 CIMB Group 8,213 36 15.6 Saudi riyal 5.5

4 AmInvestment Bank 4,539 25 8.6 Singapore dollar 0.0

5 RHB Capital 3,193 34 6.1
6 Standard Chartered Bank 3,047 19 5.8
Sukuk Volume by Issuer Nation US$ (billion) 12 Months
7 Deutsche Bank 2,213 5 4.2
Malaysia 27.5
8 Citigroup 2,130 10 4.1
Saudi Arabia 8.8
9 QInvest 988 2 1.9
UAE 6.3
10 Dubai Islamic Bank 868 7 1.7 Qatar 5.5
11 Barwa Bank 863 2 1.6 Turkey 1.5
12 National Bank of Abu Dhabi 797 6 1.5 Indonesia 1.2

13 Kenanga Investment Bank 666 4 1.3 Bahrain 1.1

14 Kuwait Finance House 608 4 1.2

15 An Investment Bank 468 4 0.9 Global Sukuk Volume by Sector 12 Months

16 Emirates NBD 439 5 0.8

17 JPMorgan 425 2 0.8 12%
5% 28% Government
18 BNP Paribas 410 2 0.8 Construction / Building
19 Hong Leong Bank 374 3 0.7 13% Finance
Utility & Energy
20 DRB-HICOM 353 9 0.7
Transportation
21 Credit Agricole 350 2 0.7 Other
20% 22%
22 Abu Dhabi Islamic Bank 339 4 0.6
23 Lembaga Tabung Haji 290 3 0.6
24 Qatar National Bank 233 1 0.4
Global Sukuk Volume - US$ Analysis
25 OCBC 219 4 0.4
26 Abu Dhabi Commercial Bank 218 2 0.4 US$bn US$m
18 600
27 Saudi National Commercial Bank 160 1 0.3 16 Non-US$ US$
500
14
28 Riyad Bank 153 2 0.3 12 400
10
29 Bank of America Merrill Lynch 125 1 0.2 300
8
6 200
30 RBS 99 2 0.2 4
100
2
Total 52,542 132 100.0 0 0
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
Top Islamic Finance Related Project Finance Mandated Lead 2007 2008 2009 2010 2011 2012
Arrangers 12 Months

Mandated Lead Arranger US$ (million) No % Top Islamic Finance Related Project Financing Legal Advisors
Ranking 12 Months
1 Public Investment Fund 873 3 8.5
Legal Advisor US$ (million) No %
2 SABB 873 3 8.5
1 Allen & Overy 4,198 2 25.9
3 Arab National Bank 722 2 7.0
2 White & Case 3,579 2 22.1
4 Samba Financial Group 614 3 6.0 3 Skadden Arps Slate Meagher & Flom 3,281 1 20.2
5 Banque Saudi Fransi 475 2 4.6 4 Baker Botts 917 1 5.7

6 Sumitomo Mitsui Financial Group 404 2 3.9 4 Chadbourne & Parke 917 1 5.7
6 Linklaters 684 2 4.2
7 HSBC Holdings 385 2 3.7
7 Baker & McKenzie 417 2 2.6
8 KfW Bankengruppe 369 2 3.6
8 Al-Jadaan & Partners Law Firm 386 1 2.4
9 Mitsubishi UFJ Financial Group 360 1 3.5 8 Cliord Chance 386 1 2.4
10 Standard Chartered 317 3 3.1 8 Saudilegal 386 1 2.4

36 7th November 2012

 LEAGUE TABLES

Top Islamic Finance Related Loans Mandated Lead Arrangers

Top Islamic Finance Related Loans Deal List 12 Months
Ranking 12 Months
Mandated Lead Arranger US$ (mln) No % Credit Date Borrower Nationality US$ (mln)
1 SABB 1,684 6 8.3 th
13 Dec 2011 Barzan Gas Qatar 5,442
2 Banque Saudi Fransi 1,232 5 6.1 th
12 Feb 2012 Mobily Saudi Arabia 2,667
3 Samba Capital 1,093 5 5.4
25th Jul 2012 Zain Saudi Saudi Arabia 2,600
4 Al-Rajhi Banking & Investment 1,007 4 5.0 th
11 Jun 2012 DanaInfra Nasional Malaysia 2,525
5 Saudi National Commercial Bank 991 5 4.9
2nd Dec 2011 Hajr for Electricity Saudi Arabia 1,981
6 Maybank Investment Bank 983 6 4.8 Production
7 Arab National Bank 906 3 4.5 4th Jul 2012 Dubai Duty Free UAE 1,749
8 AmInvestment Bank 868 4 4.3 th
14 Feb 2012 Power & Water Utility for Saudi Arabia 1,200
9 CIMB Group 842 3 4.2 Jubail & Yanbu
10 RHB Capital 794 2 3.9 13th Jun 2012 Jebel Ali Free Zone UAE 1,198
Authority
11 Standard Chartered Bank 636 9 3.1
30th Jun 2012 TIBAH Saudi Arabia 1,193
12 Emirates NBD 621 6 3.1
th
25 Jun 2012 Bawabat Al Shamal Real Qatar 1,154
13 HSBC 584 6 2.9 Estate Company
14 Noor Islamic Bank 566 7 2.8
15 Saudi Hollandi Bank 538 2 2.7 Top Islamic Finance Related Loans by Country 12 Months

15 Riyad Bank 538 2 2.7 Nationality US$ (mln) No %

17 Abu Dhabi Islamic Bank 495 8 2.4 1 Saudi Arabia 9,291 7 45.7
2 Malaysia 3,851 6 19.0
18 Dubai Islamic Bank 487 3 2.4
3 UAE 3,461 8 17.0
19 Citigroup 460 5 2.3
4 Qatar 1,317 2 6.5
20 Barwa Bank 378 3 1.9 5 Turkey 1,256 5 6.2
21 Standard Bank 289 1 1.4 6 Sri Lanka 350 2 1.7
21 National Bank of Kuwait 289 1 1.4 7 Pakistan 233 6 1.2
21 Gulf Bank 289 1 1.4 8 Singapore 207 1 1.0
9 Indonesia 183 4 0.9
21 DBS 289 1 1.4
10 Brunei Darussalam 170 1 0.8
21 Credit Agricole 289 1 1.4
26 Mashreqbank 226 4 1.1 Top Islamic Finance Related Loans by Sector 12 Months
27 Al Hilal Bank 224 6 1.1
Telecommunications
28 Qatar Islamic Bank 223 2 1.1
Construction/Building
29 Qatar International Islamic Bank 213 1 1.1
29 Masraf Al Rayan 213 1 1.1 Finance

Utility & Energy

Top Islamic Finance Related Loans Mandated Lead Arrangers
12 Months Transportation
US$ bln 0 1 2 3 4 5 6
Bookrunner US$ (mln) No %
1 Credit Agricole 867 1 11.4
Global Islamic Loans - Years to Maturity (YTD Comparison)
1 Banque Saudi Fransi 867 1 11.4
1 Al-Rajhi Banking & Investment 867 1 11.4 2012
4 QInvest 517 2 6.8 2011
2010
5 HSBC 500 4 6.6
2009
6 Abu Dhabi Islamic Bank 470 5 6.2
2008
7 Emirates NBD 408 4 5.4
2007
8 Standard Chartered Bank 399 6 5.3 2006
9 Citigroup 390 4 5.1 0% 20% 40% 60% 80% 100%
0-3yrs 3-5yrs 5-7yrs 7-10yrs 10+yrs
10 Noor Islamic Bank 330 3 4.3

Are your deals listed here?

If you feel that the information within these tables is inaccurate, you may contact
the following directly: Mandy Leung (Media Relations)
Email: mandy.leung@dealogic.com Tel: +852 2804 1223

37 7th November 2012

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38 7th November 2012

 COMPANY INDEX

AAOIFI 16,17 Dealogic 13 Maybank Investment Bank 11

Absa Bank 10 Dialog Axiata 6 Maybank Islamic 12
Abu Dhabi Islamic Bank 4,6 Doha Bank 13
MCB Islamic Banking Group 28
Ahli United Bank 13 Dubai Islamic Bank 9,13,21
Meezan Bank 27
AIA AFG Takaful 3 Dubai Properties 21
Al Baraka Bank 10 Durham University UK 27 Mobily 3
Al Baraka Bank (Pakistan) 8 Edbiz Consulting 28 Moodys Middle East 27
Al Baraka Banking Group 8 Eiel Management 21 Morgan Stanley 4,6
Al Baraka Islamic Bank 8 Emirates NBD 1
Nakheel
Al Hilal Bank 13 Emirates NBD Asset Management 9
Al Madina Financial & Investment Services Company 9 Emirates REIT 21 National Bank of Abu Dhabi 6,8
AlAqar KPJ REIT 21 Etiqa Takaful 9 National Bank of Sharjah 30
Al-Hadharah Boustead REIT 21 Etisalat 3 New Economics Foundation (London)
Alizz Islamic Bank 9 Eurekehedge 21
OIC 12,16
Allen & Overy 1 Exotix 11
Old Mutual Investment Group 10
Almarai Company 6 Faisal Private Bank 8
Alwyni International Capital 12 First Gulf Bank 4,13 Philippine Stock Exchange 3
Amana Bank 7 First National Bank 10 Public Mutual 8
Amanie Advisors 9 Fitch 9 PwC 28
American International Assurance 8 Fortress Investment Group 6
Qatar International Islamic Bank 9
AmInvestment Management 8 GACA 3
Qatar Islamic Bank 13
Antwerp Bar Association 29 Gold Arab Emirate 9
Arcapita 6 Goldman Sachs 5 QInvest 13
ARI 8 Halal Investments 20 RAM 9
Ashmore Group 11 HBZ Bank 10 Reserve Bank of India 7
Axiata 3 Hong Leong Investment Bank 14
Responsible Investment Association Australasia 15
Axiata Group 6 Hong Leong Islamic Bank 14
Axis Reit 21 HSBC Amanah Malaysia 4 RHB Investment Bank 14
Azmi & Associates28 29 HSBC Holdings 6 RHB Investment Management 8
Bank Danamon Syariah 12 Hwang Investment Management 8 Sabana REIT 21
Bank Muamalat Indonesia 12 IDB 12
Saudi International Petrochemical Company 3,4
Bank Muscat 30 IFSB 7
Securities Commission Malaysia 8
Bank Negara Malaysia 1,16 Indian Center for Islamic Finance 7
Bank of China 23 ING Funds 8 Seoul Metropolitan Government 8
Bank of London and The Middle East 15 Institute of Islamic Banking and Insurance 30 Sharjah Islamic Bank 30
Bank Permata Syariah 12 Insurance Regulatory Authority (Kenya) 7 Silver Point Capital 6
Bank Syariah Mandiri 12 Islamic Bank of Thailand 3
Spinnaker Capital 11
Barwa Bank 13 ITFC 12
Standard Chartered Bank 6,15
BlackRock 11,22 Ithmaar Bank 8
Central Bank of the UAE 9 JP Morgan 22 Standard Chartered Saadiq 9
Centurion Global 29 Kagiso Asset Management 10 Tadhamon International Islamic Bank 9
Cerah Sama 9 KFH Research 8,9 Takaful Insurance of Africa 7
CIMB Islamic 11 Kumpulan Wang Persaraan 4,11
TH Plantations 6,14
CIMB Niaga Syariah 12 Kuwait Finance House 8
CIMB-Principal Asset Management 8 Latham & Watkins 3,4 Trans-Caledon Tunnel Authority 10
CISFED 12 Lembaga Tabung Haji 6,14 Tpra 13
Cliord Chance 4,5 London Stock Exchange 3 Turus Pesawat 11
Commercial Bank of Qatar 13 Majid Al Futtaim Properties 3
Universiti Teknologi MARA 8
Crescent Wealth 15 Malaysia Airline System 4,11
University of East London 9
Damansara REIT Managers 21 Malaysia Building Society 3
Dana Gas 3,4,11 Manulife Unit Trust 8 Wisdom Management Consultancy 18
Dananeer 29 MARDI 26 World Bank 8

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