HSBC Amanah

Global Sukuk Market:

Current Status & Growth Potential
Prepared for: Conference on the Role of Sukuk in Development
Date: May 18, 2012
Contents

Overview of Islamic Finance Market Section 1

Overview of Sukuk Market Section 2
Sukuk Structures Section 3
A. Ijara Sukuk (Sale & Leaseback)
B. Wakala Sukuk
C. Istithmar Sukuk
D. Manafae Sukuk
Project Sukuk Section 4

2
Overview of Islamic Finance Market
Islamic Finance Industry Growth
Resilient growth in the midst of recent financial instability

The size of the industry has

reached USD 1 trillion in 2010.
Overview
However, it is far below the
potential size estimated based Current potential size of the Islamic Finance industry USD 4.4 trillion growing at 10% p.a.
on the population and
economies of Muslim Actual global size of the Islamic Finance industry USD 1.13 trillion
populations among others,
Size gap USD 3.27 trillion
leaving substantial room for
continuous growth and Global growth rate 10% (2010); 25% (2011E)
development

Though the current financial Catch up parameter

9 years
crises and turmoil have (with the estimated annual growth rate in the actual size)
slowed the industry’s pace
and progress, the Source: Global Islamic Finance Report 2011 (BMB Islamic)
development of Islamic
Finance has not been directly Size of the Islamic Financial Services Industry
affected
(USD in mn)
The industry has experienced 1,500 1,424
average 21% growth per 25%
annual from 2007 to 2010 and Other countries
10% 1,139
is expected to increase growth
momentum in the years to 26% 1,036 92 5 Indonesia
1,000 85 4 120 27
come at the CAGR of 25% 822 24
29% 109 UK
66 3
639 87 19 406 1,424
54 3 369 Malaysia
500 67 18 293 Iran
235
445 489 GCC
354
262
-
2007 2008 2009 2010 2011(E)
Source: Global Islamic Finance Report 2011 (BMB Islamic)

4
Islamic Finance Industry Growth (cont‟d)
Resilient growth in the midst of recent financial instability

The growing demand and Size of Global Islamic Assets Islamic Asset Market Share in Select Markets
strengthening of legal and
regulatory frameworks (USD in bn)
contribute to the growing
number of Islamic banks and
funds globally

The Islamic banking market

share has steadily increased
across major Islamic Finance
markets in Southeast Asia and
the Middle East

Source: The Banker 2011

Size and Number of Islamic Funds

(USD in bn)

Source: Islamic Funds and Investment Report 2011 (published by Ernst & Young) Source: Central Banks, McKinsey

5
IF Industry Development & Evolution

First corporate Sukuk by World‟s first global Sukuk by Largest global Sukuk by Govt.
Shell MDS (USD33mn) Govt. of Malaysia of Malaysia
Sukuk (1990) (USD600mn) (2002) (USD2bn) (2011)

First global Sukuk by Govt. of 2nd global Sukuk by Govt. of

Indonesia (USD650mn) (2009) Indonesia (USD1bn) (2011)

1st Islamic Dubai Islamic Bank AAOIFI3) established IFSB4) established (2002) IILM5) Corporation established
bank in Egypt established (1975) (1990) (2010)
Institutions (1963) Dubai Financial Market
IDB1) established structured into world‟s first
(1975) Islamic bourse (2006)

Malaysia passes IFSB4) introduces „Standards‟ on Oman passes legislation on

legislation on IF (1983) Basel ll compliance (2005) IF (2011)
Regulations
Banking becomes 100%
interest-free in Iran (1983)
and Sudan (1989)

1960s 1970s 1980s 1990s 2000s 2010s

• Banking • Banking • Banking • Banking Islamic assets expected to
• Project finance • Project finance • Project finance exceed USD 2 trillion by
• Syndications • Syndications • Syndications 2017
Products & • Takaful • Takaful • Takaful
Capabilities • Equity (index) • Equity (index)
• Leasing • Leasing
• Sukuk market
• Structured alternative assets
• Risk management
1) Islamic Development Bank • Private equity
2) Organization of the Islamic Conference
3) Accounting and Auditing Organisation for Islamic Financial Institutions
4) Islamic Financial Services Board
5) International Islamic Liquidity Management

6
Overview of Sukuk Market
Islamic Capital Market Growth
Growing issuances and sophistication

The strong end to the largest year

for Sukuk issuances ever has Historical Sukuk Issuance Volume (since 2002)
continued robustly into 2012, with
USD 6.6bn of issuances globally
to date, with large issues out of
both Saudi Arabia and Malaysia
44.0
The Government of Malaysia
closed out 2011 with a jumbo Total Sukuk volume issued globally has 33.6
multi tranche local currency issue reached USD 177 bn. 31.2
of MYR 30.6bn (USD 9.6bn). This HSBC Amanah forecasts USD 44bn for 2012. 26.1 23.3
trend continued into 2012 with the
19.0
General Authority of Civil Aviation
of Saudi Arabia issuing a SAR 12.8 12.7
15bn (USD 4bn) MoF guaranteed
Sukuk in January 2012. This 6.1 7.4
represents the largest single 3.5
0.9
tranche Sukuk ever, and largest
government guaranteed issue in
the Emerging Markets for the last
decade
Volume by Region (2009–20112YTD) Volume by Tenor (2009–2012 YTD) Volume by Currency (2009–2012 YTD)
The FI market began the year with
USD 500mn issuances by both
Emirates Islamic Bank and First
Gulf Bank. Both institutions were
able to take advantage of the tight
spreads at that time, pricing at
4.718% and 4.046% respectively

Majid Al Futtaim Holding became

the first corporate to issue in the
Sukuk space this year, with a USD
400mn Sukuk priced at the tight
range of guidance of 5.850%,
representing a spread over
midswaps of +482bps

Source: HSBC, Deallogic 29 April 2012

8
 Sukuk Issuances Have Witnessed Diverse International Participation

• Given the nature of the investor base, Sukuk distribution by geography is skewed towards the Middle East
• However, Malaysia and Indonesia achieved broad investor diversification, with US investors comprising a sizeable
component of the allocation
• The Islamic investor base is dominated by commercial banks
• Fund managers are playing an increasingly important role, and CBs and Government Agencies are big players in SSA
issuances

Malaysia ’21 Malaysia ’16 IDB ’16 Malaysia ’15 Bahrain ’14 Indonesia ’14
(RegS/144a) 10yr (RegS/144a) 5yr (RegS) 5yr (RegS/144a) 5yr (RegS) 5yr (RegS) 5yr
Breakdown by Geography

*Other - Malaysia *Other - Malaysia

MENA Asia Europe USA Other
Breakdown by investors

$800mn $1200mn $750mn $1250mn $750mn $650mn

9
Banks Funds Insurance / Private Banks CB / Govt Agencies Others
Sukuk Treading Tighter than Conventional MENA Bonds
Sukuk supply lagging demand by investors

During the financial crisis, and

HSBC Nasdaq Dubai USD Sukuk Index Volatility vs. Conventional Bond Index Volatility
particularly after the asset bubble
burst in the GCC, Sukuk spreads
widened considerably, especially
relative to conventional
counterparts Sukuk tighter than conventional

In the last year, however, Sukuk

spreads have continually
tightened with spreads now
tighter than conventional bond
indices

This is as a result of the high

demand for Sukuk and the lack of
supply to satisfy the liquidity
available with Islamic banks in the
region

With supply being limited, a

substantial gap has opened
resulting in Sukuk yields
tightening vis-à-vis their
conventional counterparts as
banks chase a finite amount of
quality Sukuk instruments

Source: Bloomberg, 29 April 2011

Indices: SKBIAS, MEBIAS

10
Sukuk Structures
Sukuk Structures
A. Ijara Sukuk (Sale & Leaseback)
Ijara Sukuk (Sale & Leaseback): Structure Overview
Republic of Indonesia‟s USD 650 million Sukuk Al Ijara 2009

The structure is based on a

lease (Ijara) of a certain
Inception Ongoing & Maturity
leasable underlying asset

Sukuk al-Ijara is the most

widely accepted Sukuk
structure in the global capital GOVT GOVT GOVT GOVT
markets and quickest to bring (Seller of Assets) (Lessee) (Purchaser of Assets) (Lessee)
to the markets

Most sovereign Sukuk

transactions were under the
Ijara structure, i.e., Malaysia, Purchase Asset Asset Exercise Rental
Indonesia Qatar, Pakistan, etc Asset Sale 2 Price Lease 3 Repurchase 6 Price 4 Payments

Main Documentation:
Purchase Agreement
Lease Agreement
Service Agency Agreement
Purchase Undertaking SPV SPV
Sale Undertaking (Issuer / Trustee / Lessor) (Issuer / Trustee / Lessor)
Declaration of Trust
etc.
Sukuk Redemption Periodic
Sukuk Issue 1 Sukuk Proceeds
Redemption 7 Amount 5 Distribution

Sukuk Holders Sukuk Holders

Transaction
Fund flow

13
Ijara Sukuk (Sale & Leaseback): Case Study
Republic of Indonesia‟s USD 650 million Sukuk Al Ijara 2009
On 16 April 2009, the Republic
of Indonesia (“Indonesia”)
priced its debut international
Sukuk, a highly successful
USD650m 5-year issue
At the time this landmark
transaction reopened the
Sukuk market as the first
benchmark USD Sukuk since
March 2008, and was the
largest USD Sukuk globally
since July 2007
HSBC acted as Joint Lead
Manager and Joint
Bookrunner on this
groundbreaking transaction
Transaction Overview
Breakdown by Geography
Sukuk Issuer Perusahaan Penerbit SBSN Indonesia I (PPSI-I)
Sukuk Obligor Republic of Indonesia
Currency / Format US Dollar 144A/Reg.S
Structure Sukuk Al-Ijara
Obligor / Sukuk Ratings Ba3 (Moody‟s) / BB- (S&P) / BB (Fitch) (all stable)
Sukuk Assets Beneficial rights over 70 properties used as government offices
Amount USD 650 million
Pricing / Settlement Date 16 April 2009 / 23 April 2009
Maturity Date 23 April 2014
Periodic Distributions 8.80% per annum, payable semi-annually
Price / Re-offer Spread 100% / UST5 + 705.3 bps
Listing Singapore Stock Exchange
Governing Law English Law (asset-related documents under Indonesian Law)
HSBC‟s Role Joint Bookrunner and Joint Lead Manager
Transaction Highlights
 After several years of preparations, Indonesia passed a new law on Sovereign Shariah
Securities in May 2008. Once the law was passed, Indonesian Ministry of Finance officials Breakdown by Type
visited the Middle East several times, including Saudi Arabia and Dubai, to meet with Sukuk
investors and prepare the debut sovereign Sukuk.
 With market conditions globally improving rapidly in April 2009, Indonesia decided to move
forward with the execution of the USD Sukuk. The execution process was very efficient, with just
36 hours from announcement to pricing of the debut Sukuk.
 The transaction was announced on Wed 15 April Asia a.m., and met with very strong investor
demand, especially from Asia and the Middle East. Official price guidance of „9.25% area‟ was
released late that evening, and this was revised the next morning to final guidance of 8.80-
9.00%.
 An overwhelming response from investors globally saw the orderbook reach USD4.6 billion, or
7x oversubscribed, via 230 investors. This enabled the transaction to price at the tight end of
revised guidance, at 8.80%, implying a new issue premium of just 30bps vs. pre-announcement
secondaries.
 This landmark transaction marks a major step forward for Indonesia‟s offshore funding program,
diversifying its investor base successfully into non-interest accounts and the Middle East, and
setting the foundation for further successful issuances in this format in the future.
14
Sukuk Structures
B. Wakala Sukuk
Wakala Sukuk: Structure Overview (1/2)
Government of Malaysia‟s USD 2 Billion Dual-tranche Wakala Sukuk 2011

This structure allows

issuances above the value of
Inception
available assets

The Sukuk Proceeds are Tangible Assets (Asset Pool) Component (52% Proceeds) Murabaha Receivable Component (48% Proceeds)
invested and managed by
Obligor (as Wakeel) in the
following manner: Commodities Sale
GOVT GOVT GOVT GOVT
52% Tangible Assets 7 Trader B
Min26% are lease assets (Seller) (Lessee) (Wakeel) (Purchaser)
Spot Payment
Max 26% are corporate shares,
(48%)
which meet Shariah screening
Appointment
criteria
of Wakeel
49% Commodity Murabaha
Sale of Asset Sale Price Asset Commodities Sale for
Main Documentation: Pool 2 (52%) 3 Lease 4 6 Deferred Payment (49%)
Sale and Purchase Agreement
Lease Agreement
Wakala Agreement
Murabaha Agreement Commodities Purchase (via
Purchase Undertaking Wakeel)
Substitution Undertaking SPV
5 Trader A
Declaration of Trust (Issuer / Trustee / Lessor)
etc. Spot Payment
(48%)
Sukuk Issue 1 Sukuk Proceeds

Sukuk Holders

Transaction
Fund flow

16
Wakala Sukuk: Structure Overview (2/2)
Government of Malaysia‟s USD 2 Billion Dual-tranche Wakala Sukuk 2011

Rental Payments from the

Tangible Assets are used to
Ongoing & Maturity
provide Periodic Distributions
to the Sukuk Holders
Tangible Assets (Asset Pool) Component (51% Proceeds) Murabaha Receivable Component (49% Proceeds)
At Maturity, the deferred
payment from the Commodity
Murabaha Agreement (49%)
combined with the Exercise
GOVT GOVT GOVT GOVT
Price of Asset Pool (51%) are
paid to the Sukuk Holders to (Obligor) (Lessee) (Wakeel) (Purchaser)
redeem the Sukuk
Management of Asset
Pool
Purchase Exercise
Lease
of Asset 11 Price 9 8 12 Deferred Payment (49%)
Rental
Pool (51%)

SPV
(Issuer / Trustee / Lessor)
Periodic
Redemption Sukuk
10 Distribution 13
Amount Redemption
Amount

Sukuk Holders

Transaction
Fund flow

17
Wakala Sukuk: Case Study
Government of Malaysia‟s USD 2 Billion Dual-tranche Wakala Sukuk 2011

Transaction Overview
Breakdown by Geography
Sukuk Issuer Wakala Global Sukuk Berhad
Sukuk Obligor Government of Malaysia 5-yr 10-yr
Currency / Format US Dollar 144A/Reg.S
Structure Sukuk Wakala
Obligor / Sukuk Ratings A3 (Moody‟s) / A- (S&P) (all stable)
On 28 June 2011, the
Sukuk Assets (i) Tangible Asset Component (52%) of Lease Assets and Shariah
Government of Malaysia compliant shares; (ii) Murabaha Receivable Component (48%) of Shariah compliant
(“Malaysia”) priced a highly commodities
successful USD2bn Global Tenor 5-year 10-year
Sovereign Sukuk, comprising a Maturity 6 July 2016 6 July 2021
USD1.2bn 5-year tranche and a Amount USD 1.2 billion USD 800 million
Pricing / Settlement Date 28 June 2011 / 6 July 2011 M alaysia (26%) M alaysia (28%)
USD800m 10-year tranche
Periodic Distributions 2.991% p.a. 4.646% p.a.
M iddle East (43%) M iddle East (7%)
Price 100% 100%
This USD2 billion transaction by Other A sia (18%) Other A sia (29%)
Re-offer Spread UST5 + 145 bps UST10 + 165 bps
Malaysia represents: the first Listing HKSE, Bursa Malaysia and Labuan Euro pe (9%) Euro pe (21%)
global sovereign US Dollar HSBC‟s Role Joint Bookrunner and Joint Lead Manager US (4%) US (15%)
Sukuk for 2011; the largest ever
US Dollar Sovereign Sukuk; the Transaction Highlights
largest issuance to-date by Breakdown by Type
Malaysia in the international USD  Malaysia undertook a global investor roadshow, taking in Kuala Lumpur, Hong Kong, Singapore, 5-yr 10-yr
markets; and the first ever 10- Abu Dhabi, Dubai, Riyadh, London and New York, covering both Islamic and conventional
year US Dollar Sovereign Sukuk investors
 The transaction was announced on Tuesday 28 June Asia noon, with a price guidance of
„T+160bps area‟ for the 5-year tranche and „5-year T-spread plus 20 bps‟ for the 10-year
Malaysia achieved, on the 5-year tranche. This was strongly received by investors, with the books at approx USD4.5bn within a
tranche, the lowest ever yield on few hours of announcement. Final price guidance of „T+150bps area‟ for the 5-year tranche and
an Asian sovereign USD issue „T+170bps area‟ for the 10-year tranche was released at Asia close, with the books continuing to
grow strongly into Europe and the US.
This transaction also represents  The transaction saw an overwhelming response from international and domestic investors, with
the first US Dollar Sovereign significant participation from the Middle East. The final orderbooks were at USD9 billion, or
B anks (56%) B anks (26%)
Sukuk to be structured under the 4.55x oversubscribed, via over 320 orders, and pricing at the tight end of revised guidance, at
T+145 bps and T+165 bps respectively. Fund M anagers (17%) Fund M anagers (45%)
Islamic principle of Wakala,
 The transaction represents Malaysia's third USD sovereign Sukuk, following previous issuances Go vt Insitutio ns (24%) Go vt Insitutio ns (19%)
establishing Malaysia at the in 2002 and 2010, further reinforcing Malaysia's position as a leading international Islamic
forefront of Islamic finance Insurance (2%) Insurance (8%)
financial center.
P rivate B anks (1%) P rivate B anks (2%)

18
Sukuk Structures
C. Istithmar Sukuk
Istithmar Sukuk: Structure Overview
Saudi Electricity Company‟s SAR 7 Billion Sukuk Al Istithmar 2009

SEC 2009 Istithmar Sukuk is

based on the Sukuk Assets
Inception Ongoing & Dissolution (Maturity)
comprising the right to
undertake the Connection
Services and levy the
Connection Charges for 20
years SPV SEC
SPV
(Custodian) (Custodian)
(Issuer / Trustee / Lessor)
SEC (as Issuer) transfers the Sukuk Assets (Connection Service Rights) Sukuk Assets (Connection Service Rights)
Sukuk Assets to the SPV (as
Custodian), and SEC (as
Administrator) administers the
Sukuk Assets and receives the
Net Income from the Sukuk Transfer of Sukuk Assets Admini- Purchase of
Assets to pay the Periodic 2 to Custodian
Net Income 3 stration 7 Sukuk Assets
Distribution Amount
Excess
Income 4
The Sukuk can be redeemed Top-up
(if any)
(if shortfall)
every 5 years as the Sukuk
Holders retains (via Sukuk SEC SEC SEC
Holders’ Agent) the right to Reserve* 5
(Issuer) (Administrator) (Issuer)
sell the Sukuk Assets at 5 year
intervals
Extra Redemption Periodic Sukuk Purchase Price
Sukuk Issue 1 Sukuk Proceeds
Amount (i.e. 10%) 8 Distribution 6 Redemption 8 (i.e. 90%)
Main Documentation:
Sukuk Assets Transfer
Agreement
Sukuk Assets Administration Sukuk Holders Sukuk Holders
Agreement
Purchase Undertaking
Payment Administration * SEC (as Administrator) uses the Reserve to pay to the Sukuk Holders in case the
Net Income does not meet the required Periodic Distribution Amount
Agreement
Upon dissolution of the Sukuk, SEC (as Administrator) receives the balance of the
Declaration of Agency Reserve (if any) as an incentive fee
etc. Transaction
Fund flow

20
Istithmar Sukuk: Dissolution/Maturity Payment Options
Saudi Electricity Company‟s SAR 7 Billion Sukuk Al Istithmar 2009

The maturity of the Sukuk is 20

years, but the Sukuk Holders
may request the purchase of
the Sukuk by the Issuer every
5 years, pursuant to the Up to End of End of End of End of
Put Option Exercise Timing
Purchase Undertaking Year 5 Year 5 Year 10 Year 15 Year 20
The Sukuk Holders have an
Purchase Price 100% 90% 60% 30% 0%
incentive to exercise their right
to put the Sukuk at the end of
Year 5 to receive 100% of the Extra Amount 0% 10% 20% 30% 40%
Suck's face value (i.e. 90%
Purchase Price and 10% Extra
Amount); after the end of Year Total Face Value Received
100% 100% 80% 60% 40%
5, the Redemption Amount (Redemption Amount)
gradually decreases after the
end of Year 5

In case the Net Income is not

sufficient to pay a Periodic
Distribution during the first 5
years, the Sukuk Holders have
the right to require the Issuer
to purchase their Sukuk for
100% of the total face value

21
Istithmar Sukuk: Case Study
Saudi Electricity Company‟s SAR 7 Billion Sukuk Al Istithmar 2009
On 6th July 2009, Saudi
Electricity Company issued a
SAR 7 billion Sukuk-al-
Isthithmar, its second such
issuance in the local market
This was the largest local
currency Sukuk or bond for a
utility in the GCC region, and
generated by far the largest
order book in Saudi Arabia for
any debt issuance
Prior to this HSBC sole led
SEC’s debut Sukuk issuance,
and has now lead managed all
public SAR issues in Saudi
Arabia
Transaction Overview
Breakdown by Geography
Issuer: Saudi Electricity Company (“SEC”)
Rating: A1/AA-/AA- (Issue is restricted to Saudi nationals
Structure: Sukuk Al Istithmar and entities only)
Sukuk rating: AA- (Fitch)
Issue Date: 06 July 2009
Maturity Date: 06 July 2029 (first Put: 06 July 2014)
Issue Amount: SAR 7 billion (USD 1.9 billion)
Coupon/Profit: 3m SAR Sibor + 160 bps
HSBC‟s Role Joint Lead Manager and Bookrunner
Transaction Highlights
 For the second time in succession, HSBC lead managed for SEC (the largest utility company by
market value in the Middle East) a successful public Sukuk issuance in the Saudi Arabian
market, the first such public Sukuk in 2009
 HSBC also acted as the sole rating advisor, assisting SEC in securing rating for both Sukuk.
The HSBC Amanah Shariah Supervisory Committee approved the structure, and SABB
Securities Ltd acted as Sukukholders‟ Agent
 Notwithstanding the volatile credit environment, HSBC successfully positioned SEC‟s credit as
Breakdown by Type
very closely aligned to the sovereign, and helped devise and execute a successful book-building
strategy to generate demand
 As a result, the issuance was very well received by the market with total orders exceeding SAR
20.5 billion (USD 5.6 billion), incorporating existing and new investors
 This helped SEC issue at a size of SAR 7 billion (the largest issuance by a GCC utility), at a
price tighter than similar-rated issuances by sovereigns or corporates in the region
 This transaction firmly cements HSBC leadership in the Saudi market, having led all public
issuances in the Kingdom. HSBC has now raised SAR 28 billion in the public format since sole
leading the market‟s debut issuance in 2006
22
Sukuk Structures
D. Manafae Sukuk
 Manafae Sukuk: Structure Overview (1/2)
Voucher-based

The Manafae Sukuk structure is Description

based on concepts (rights based
Inception
underlying assets) initially
developed by HSBC for a number
of transactions starting with
Saudi Basic Industries
Corporation (SABIC)’s SAR3 bn
Sukuk in 2006
The underlying asset is the
capacity or rights of commercial
activities, allowing for the use of
intangibles
The SPV (Issuer) issues Sukuk which entitle Sukuk Holders to
Periodic Distribution Amounts and the Redemption Amount, and the
1 SPV receives the Sukuk Proceeds.
Corporate’s
Customer Base
The SPV applies full proceeds of the issuance towards the purchase
of Vouchers from Corporate (Seller of Assets) pursuant to a Purchase
Agreement.
2 The Vouchers entitle the SPV to a certain prescribed quantum of
Corporate Corporate underlying assets and the rights to receive any proceeds from the sale
of the underlying assets to end-customers (Corporate‟s Customer
(Seller of Assets) (Distributor) Base).

In case unencumbered tangible Corporate (Distributor) is appointed as the sole and exclusive
assets are limited, this structure Sale of Appointment of distribution agent by the SPV pursuant to a Distribution Agreement for
will potentially allow the greatest Voucher
Purchase Price
Distributor 3 the distribution and sale of the Vouchers (and the assets represented
2 3 by such Vouchers) to its customers.
potential amount of issuance for
both one-off and programme
issuances as well as for either
amortising or bullet maturing
Sukuk SPV
(Issuer / Trustee)

Sukuk Issue 1 Sukuk Proceeds

Main Documentation:
Purchase Agreement Investors
Distribution Agreement
(Sukuk Holders)
Purchase Undertaking
Declaration of Trust
etc.
Transaction
Fund flow

24
 Manafae Sukuk: Structure Overview (2/2)
Voucher-based

Corporate, acting as distribution Description

agent of the Vouchers for the
Ongoing & Maturity
SPV (Trustee), sells the Vouchers The number of Vouchers required to be distributed and sold during a
to Corporate’s end-customers at Collection Period (which corresponds to Periodic Distribution periods)
will be set out in a Distribution Notice sent by the principal paying
a minimum sale price (“MSP”)
Corporate’s agent to Corporate prior to each Collection Period.
and pays the Required
Distribution Revenue to the Customer Base 4 The prescribed minimum sale price (“MSP”) for each Voucher will also
Sukuk Holders via the SPV be set out (comprising a cost price and profit element), with the
Sale of Sale aggregate profit amount payable in respect of all Vouchers sold in that
Voucher 4 Revenue Collection Period being equal to the relevant periodic distribution
If Corporate sells the Vouchers in amount.
excess of the MSP, it retains the Corporate
Corporate
excess as an incentive fee
(Purchaser / Obligor) (Distributor) a. An amount equal to the relevant Periodic Distribution Amount is
required to be paid across to the SPV (via the transaction
In the event of a shortfall as a Required account) on the relevant Periodic Distribution Date.
Excess Excess
result of a sale of all Vouchers at
Distribution
Revenue 5b 5c Allocated b. Amounts in excess of the Periodic Distribution Amount if any are
Revenue
a price less than the aggregate credited to a ledger Reserve Account held by Corporate via a
MSP, Corporate will indemnify Reserve 5 Collection Account.
7 5a
the SPV for the shortfall Sale of
Exercise
Account c. Such amounts will (i) firstly, be used to purchase additional
Excess Vouchers and (ii) secondly, be retained on account by Corporate
Price (by way of incentive fees), and such incentive fees may be
Voucher Excess
If a shortfall arises as a result of a 5c Allocated required to be returned in certain circumstances (such as a
sale of an insufficient number of shortfall).
Vouchers, Corporate will be SPV
required, pursuant to a Purchase (Issuer / Trustee) The SPV pays a Periodic Distribution Amount to the Sukuk Holders on
Undertaking, to purchase the 6 the relevant Periodic Distribution Date.
remaining Vouchers for an
amount equal to the shortfall the Sukuk Redemption Periodic Distribution Upon an event of default or at maturity, the SPV will, pursuant to a
Redemption 8 Amount 6 Amount Purchase Undertaking, require Corporate to buy all remaining
SPV will exercise
Vouchers at a price equal to the outstanding face amount of the
7 Sukuk and any accrued and unpaid periodic distribution amounts, less
Investors any amounts standing to the credit of the Collection Account (the
“Exercise Price”).
(Sukuk Holders)
The Exercise Price will be paid across to the SPV for onward payment
8 to the Sukuk Holders, and the Sukuk are redeemed.
Transaction
Fund flow

25
Project Sukuk
Trans Thai-Malaysia (“TTM”) Sukuk Berhad
MYR600 million Sukuk Issuance
In Nov 2010, TTM Sukuk Berhad
(“TTM”) successfully priced a
MYR600mn Sukuk issuance
This landmark transaction
achieved many firsts in the capital
market space:
 First-ever cross border
project bonds in Asia and in
Islamic format
 First-ever Sukuk offering by a
Thai entity and the first Islamic
financing transaction for a
company under the PTT Group
 First Thai borrower in the
Malaysian Ringgit debt market
 The first project finance bond
offering by a foreign borrower in
the Malaysian Ringgit capital
markets and the first project
finance bond transaction in
Malaysia since 2008
The hedge transaction represents
the longest tenor for a MYR/USD swap
transacted
HSBC acted as Joint Lead Arranger
and Manager on this prestigious MYR
landmark Sukuk transaction
HSBC also acted as Joint Swap
Counterparty in respect of the
hedging of the transaction for TTM
“Best Islamic Finance Deal of the Year in Southeast Asia” “APAC Oil & Gas Deal of the Year” “Cross Border Deal of the Year”
Summary of terms and conditions Distribution by investor type
% of allocation
Issuer TTM Sukuk Berhad (“TTM”)
Format Islamic Sukuk (Senior)
Structure Sukuk Commodity Murabaha
Issue Ratings AAA (MARC)
Amount MYR600m
Settlement Date 15th November 2010
Maturity November 2015 to 2025
Tenor 5 to 15 years
Coupon/Profit 4.00% to 5.05%
Governing Law Malaysia
HSBC Role Joint Lead Arranger and Manager and
Swap Counterparty
Execution highlights
 Trans Thai-Malaysia (Thailand) Ltd (“TTM(T)”) is equally owned by PTT and Petronas and was established to own and operate the
natural gas pipeline system that delivers and processes gas to Thailand and Malaysia
 The MYR Sukuk transaction was successfully executed through a 1.5 days bookbuilding process and attracted over MYR2.6bn in
bids from a wide group of investors to arrive at an over-subscription rate of more than 4.33x over the issue size guidance of
MYR600m
 The transaction had a balanced distribution as follows: Funds (21.7%), Insurance companies (30.0%), Financial institutions (43.3 %)
and Government agencies (5.0%)
 The MYR Sukuk was rated by MARC, with HSBC assisting in the ratings process. TTM succeeded in achieving the highest rating of
AAA from MARC
 This is a ground-breaking transaction achieving a financing tenor which is longer than typical USD denominated project financings in
Thailand or Malaysia
 TTM successfully achieved a weighted average pricing (on an after swap to USD fixed rate basis) of below 4.00% which is extremely
attractive for TTMT especially for up to 15 years tenor and significantly lower than recent non-recourse project financings in Asia,
reflecting HSBC's strength in the MYR debt capital markets and MYR swap market
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Malakoff Corporation Bhd (Tanjung Bin Energy Issuer Bhd)
Malakoff Corporation Bhd 1,000 MW supercritical coal-fired power plant

Early 2010 Transaction highlights

March 2012  First International Bank project financing of an IPP in Malaysia;
 First combined Islamic project bond/ USD loan solution in the IPP sector in Malaysia;
 First competitive tender procurement of power generating capacity in Malaysia;
 Innovative financing plan and dual-SPV structure developed and implemented by HSBC combined Islamic
Tanjung Bin Energy Sdn Bhd project bonds, senior dual-currency loans, junior MYR loans to achieve the lowest all-in cost of financing for the
Tanjung Bin Energy Issuer Bhd project;
 AA3 rating achieved for a structure not previously seen in the Malaysian market. Transaction instrumental in the
MYR6.5bn (USD2.1bn) evolution of the bond market for Malaysian IPPs and paves the way for future non-vanilla bond structures.
Senior USD Loan
Senior Sukuk Murabahah
 HSBC acted as Financial Advisor, Coordinating Bank, USD Loan Mandated Lead Arranger, Islamic project bond
Senior MYR Loan
Junior MYR Loan (Sukuk) Joint Lead Arranger and Joint Lead Manager, Lead Hedge Coordinator and Swap Provider, Account
Bank, Senior Security Agent, Senior Intercreditor Agent, Senior Facility Agent for the Tanjung Bin Energy 1,000
Malaysia MW supercritical coal-fired power plant in Johor, Malaysia, with total Project Cost of MYR 6.7bn (USD 2.2bn);
 The Project is a cornerstone of the strategy of the Malaysian government to diversify the power generation fuel
Financial Advisor, Coordinating Bank, mix from gas to coal and will serve to meet the increasing demand for power in line with projected growth under
Senior USD Loan MLA, Sukuk Murabahah the 10th Malaysia Plan. The plant will commence generation in 2016 and serve base loads ensuring system
JLA and JLM, Hedge Coordinator, Swap
stability and reliability in the light of a projected reduction in the reserve margin in Peninsular Malaysia;
Provider, Account Bank, Senior Security
Agent, Senior Facility Agent, Senior  Malakoff Corporation Bhd (“Malakoff”) is the leading IPP in Malaysia, with 25% market share in the power
Intercreditor Agent generation sector. The Project will increase Malakoff’s effective generating capacity to over 6 GWs and is a core
component of the Sponsor’s strategy to maintain its leading position in Malaysia and regionally.

Facility Amount Tenor Borrower: Tanjung Bin Energy Issuer Bhd

1) Senior Sukuk MYR3,290m 20 yrs Sponsor: Malakoff Corporation Bhd
Transaction 2) Senior USD Loan USD400m 15 yrs Financial Close: March 2012
Details 3) Senior RM Loan MYR700m 12 yrs Ranking: Senior secured / junior unsecured with Sponsor recourse
4) Junior Equity Bridge Loan MYR1,300m 5 yrs Repayment: Senior: amortising with balloon amounts of c. 20% of issuance
Junior: 100% bullet at maturity

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Malakoff Corporation Bhd (Tanjung Bin Energy Issuer Bhd)
MYR3,290 million Sukuk issuance

On 6 March 2012, Tanjung Energy

Issuer Berhad (“TEIB”) successfully
priced a MYR3,290mn Islamic Medium
Term Notes issuance with tenors Summary of Terms and Conditions Distribution by Investor Type
ranging from 5 to 20 years
Issuer: Tanjung Bin Energy Issuer Berhad (“TBEIB”)
% of allocation
Format: Islamic Sukuk (Senior)
HSBC acted as Joint Lead Arranger
Structure Sukuk Commodity Murabaha
and Manager on this prestigious MYR
Sukuk transaction Issue Ratings AA3 (RAM)
Amount MYR3,290mn
Settlement Date 16th March 2012
HSBC acted as the sole coordinating
bank for this landmark non-recourse Tenor 5 to 20 years
project financing for a greenfield Coupon/Profit 4.65% to 6.20%
power plant; both for the senior and Governing Law Malaysia
junior facilities
HSBC Role Joint Principal Adviser/ Joint Lead Arranger and Joint
Lead Manager
This ground-breaking transaction
marks the commencement of Tanjung
Bin’s expansion and serves to
strengthen Malakoff’s position as the
leading independent power producer Execution Highlights
in Malaysia and the ASEAN region
 Tanjung Bin Energy Issuer Berhad, a 100% owned subsidiary of Tanjung Bin Energy Sdn Bhd, who in turn is wholly owned by Malakoff
Corporation Berhad, was structured as a vehicle to issue Islamic bonds for the development of the new 1,000 MW super-critical coal fired
power plant.
 The Sukuk was part of a financing package which includes a senior facility of US$400 mil term loan and a RM700 mil term loan and a junior
facility comprising equity loans of RM1.3bil.
 The MYR Sukuk transaction was successfully executed through an accelerated 2 hour bookbuilding process and attracted over MYR16.9bn
in bids from a wide group of investors to arrive at an over-subscription rate of more than 5.13x over the issue size of MYR3.29bn.
 The transaction had a balanced distribution as follows: Funds (18.7%), Insurance companies (13.2%), Financial institutions (39.9 %) and
Government agencies (5.0%)
 The MYR Sukuk was rated by RAM, with HSBC leading in the ratings process. TBEIB was awarded a rating of AA3 from RAM reflecting the
projects high reliability and credit worthiness and setting a new Malaysian benchmark for AA3-rated project bonds.
 This ground-breaking transaction is a significant milestone for Malakoff as it marks the commencement of Tanjung Bin’s expansion and
serves to strengthen Malakoff’s position as the leading independent power producer in Malaysia and within the ASEAN region
 The transaction also marks the first participation of international lender for a power project financing in Malaysia.
 This transaction pioneered the Malaysian infrastructure market as the 1st combined MYR bond and USD loan project financing for an IPP
in Malaysia.

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Disclaimer

The Wholesale Banking division of HSBC Amanah Malaysia Berhad (“HSBC Amanah”) has prepared this document (the “Document”) for information
purposes only. This Document does not constitute a commitment to underwrite or purchase or subscribe for all or any portion of the securities
mentioned herein. Any such commitment shall be evidenced only by a fully executed subscription agreement, purchase agreement or similar
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HSBC Amanah has based this Document on information obtained from sources it believes to be reliable but which it has not independently verified.
HSBC Amanah makes no guarantee, representation or warranty and accepts no responsibility or liability for the contents of this Document and/or as
to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or
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