Corporate Bonds for Real Estate

with Sukuk Features

Presented By:
Naim Farooqui
Managing Director
ORIX Investment Bank Pakistan Limited

International Islamic Finance and

Investment Symposium 2006
December 7, 2006

Real Estate Acquisition

Transaction Structure
Bank Syndication
Debt -Rs. 150 m

Corporate House
Equity Rs. 121 m

Equity + Debt
Rs. 271 m

Rentals

Company 1

Purchase

Company 2

Rented
Office Building

Company 3
Company 4

Making a Case for Securitization for

A Real Estate Finance Company (REFC)

Securitization is a process for institutions to turn their

locked up assets i.e. mortgages in the instant case,
which are illiquid and lumpy, into tradable securities
such as bonds.

Securitization is an open market selling of financial

instrument backed by assets cash flow or asset value
(mortgages).

A contractual arrangement whereby the REFC sells its

mortgage receivables to a special purpose vehicle
(SPV).

SPV issues debt instruments (bonds) to finance the

purchase

Securitization Structure

Normal REFC Business

Operations

Receivables

Real
Typical
RealEstate
Estate
Finance
Company
Finance Company
Structure
Mortgage
Backed
Securitization
Cash Proceeds Raised
Via Issuance of Debt
Securities

Mortgages

Extension of Loans
For Real Estate

Housing Mortgage
Receivables

SPV
SPV
Key Issues To be Addressed
1.
2.
3.
4.
5.
6.

Non-Recourse Element
Accounting Clearance
Legal Issues
Market For Instrument
Regulatory Aspects
Security Mechanisms

Debt
Securities

Cash

Safeguarding Investors
Interest

Investors
Trustee
Trustee

Private Placements

Public Placements

Structure of SPV

Originator: entity that generates receivables

Issuer of the securities: SPV (any form, usually

trust, corporation, partnership, etc.)

Advisor/Arranger: structures transaction; prepares

documentation alongside legal, liaison with
auditors

Underwriter: who places securities in the market

Structure of SPVcontd.

Custodian: entity that holds receivables as agent

and bailee for the trustee or trustees

Servicer: who collects receivables and transfers

funds to accounts of trustees

Trustee: who deals with the administration

holds receivables; receives payment on
receivables, makes payment to security holders

Rating agencies: JCR-VIS, PACRA.helps in

structuring; determine opinions needed, etc.

6
General Benefits of Securitization

Why Securitize?

Lower-cost financing

Equity saving

Liquidity crunches?
Leverage restrictions
Reduction of assets create liquidity to
the company

Matched funding / funding

strategy
Earnings

Originator capitalizes the future cash flow

Summing Benefits for all

Stakeholders

To owner/originator

To bondholders/investors

Alternative financing instruments

Improve liquidity in the balance sheet
Reinvestment and freeing up the low-yield assets
Transfer the interest rate risks to SPV
Reducing corporate gearing
New Investment opportunities for diversification
Direct participation in real estate market by small investors
Building as collateral

To Real Estate Market

An active secondary capital market for institutional

investment
Alternative Financing Options

Conclusions

Similarities of SUKUK with the proposed structure

The proposed structure though based on conventional
model can easily be converted into a Shariah Compliant
Sukuk Bond. It has the following characteristics which
are important elements of Sukuks:

Corporate Bonds are easily Tradable Similarly, SUKUK

being liquid real assets, are easily transferred and traded in the
financial market.

Corporate Bonds can be Rated Credit rating increase the

credibility of financial instruments. SUKUK are easily analyzed by
international and regional rating agencies which facilitates their
marketability.

Differences in Main features:

Sukuk have share holding in the underlying asset while Bonds

are purely a debt instrument.
Sukuk are limited to Sharia permissible ventures/products.

Recent
Deals
July 2003
July 2003

International Housing
Finance Limited
International Housing
Finance Limited
Rs. 150 Million
Rs. 150 Million

Mortgage Backed
Bridge Financing
Mortgage Backed
Bridge Financing
August 2003
August 2003

Crescent Ujala Limited

Crescent Ujala Limited
Rs. 150 Million
Rs. 150 Million

Debt Syndication
Debt Syndication
Dec 2003
Dec 2003

July 2003
July 2003

Ittehad Chemicals
Limited
Ittehad Chemicals
Limited
Rs. 250 Million
Rs. 250 Million

Listed Term Finance

Certificates
Listed Term Finance
Certificates
Sept 2003
Sept 2003

Fidelity Investment
Bank Limited
Fidelity Investment
Bank Limited

Rs. 125 Million

May 2004
May 2004

Indus Dyeing &

Manufacturing Company
Indus Dyeing &
Manufacturing Company
Rs. 100 Million
Rs. 100 Million

Commercial Paper
Commercial Paper

Rs. 38 Million
Rs. 38 Million

Lease Syndication
Lease Syndication
Oct 2003
Oct 2003

Grays Leasing Limited

Grays Leasing Limited

July 2003
July 2003

Baluchistan Glass
Limited
Baluchistan Glass
Limited
Rs. 200 Million
Rs. 200 Million

Debt Syndication
Debt Syndication
Nov 2003
Nov 2003

Sigma Leasing Limited

Sigma Leasing Limited

July 2003
July 2003

Brookes Pharmaceutical
Limited
Brookes Pharmaceutical
Limited
Rs. 100 Million
Rs. 100 Million

Debt Syndication
Debt Syndication
June 2004

ORIX
ORIXSecuritization
Securitization
Transactions
Transactions
Completed
Completed
Sept 2003
Sept 2003

Orient Petroleum Inc

Orient Petroleum Inc

June 2004
Rs. 1 Billion

Telecard Limited
Telecard Limited

First Oil & Gas Securitization

Rs. 1 Billion
Company
First Oil & Gas Securitization
Securitization
Company

Rs. 400 Million

Rs. 400 Million

Privately Placed Term

Finance Certificates
Privately Placed Term
Finance Certificates
Jan 2004
Jan 2004

Crescent Standard
Crescent Steel & Allied
Investment Bank Limited
Products Limited
Crescent Standard
Crescent Steel & Allied
Investment Bank Limited
Products Limited

Lease Discounting
Rs. 125 Million
Syndication
Lease Discounting
Syndication

July 2003

NationalJuly
Police
2003
Foundation Security
National
Police
Services
Limited
Foundation Security
Services Limited

Rs. 300 Million

300 Million
Privately Rs.
Placed
Term
Finance Certificates
Privately Placed Term
Finance Certificates
June 2004
June 2004

Eden Developers Pvt

Limited
Eden Developers Pvt
Limited
Rs. 500 Million
Rs. 500 Million

Debt Syndication
Debt Syndication

Rs. 130 Million

Rs. 130 Million

Privately Placed Term

Finance Certificates
Privately Placed Term
Finance Certificates
Dec 2003
Dec 2003

Orient Petroleum Inc

Orient Petroleum Inc
Rs. 300 Million
Rs. 300 Million

Privately Placed Term

Finance Certificates
Privately Placed Term
Finance Certificates
June 2004
June 2004

International Brands
Pvt Limited
International Brands
Pvt Limited
Rs. 110 Million
Rs. 110 Million

Debt Syndication
Debt Syndication

Rs. 100 Million

Rs. 100 Million

Debt Syndication
Debt Syndication
March 2004
March 2004

Sindh Abadgar Sugar

Mills Limited
Sindh Abadgar Sugar
Mills Limited
Rs. 100 Million
Rs. 100 Million

Debt Syndication
Debt Syndication
June 2004
June 2004

Big Bang Communications

Pvt Limited
Big Bang Communications
Pvt Limited
Rs. 32 Million
Rs. 32 Million

Debt Syndication
Debt Syndication

Rs. 200 Million

Rs. 200 Million

Debt Syndication
Debt Syndication
May 2004
May 2004

Al Zamin Leasing
Modaraba Limited
Al Zamin Leasing
Modaraba Limited
Rs. 50 Million

Securitization
April 2005
April 2005

Orient Petroleum Inc

Orient Petroleum Inc
Rs. 1.2 Billion
Naimat Basal oil & Gas
Rs. 1.2 Billion
Securitization Company
Naimat Basal oil & Gas
Securitization
Securitization Company

Securitization

Rs. 50 Million

Lease Discounting
Syndication
Lease Discounting
Syndication
June 2004
June 2004

Al Noor Sugar Mills

Limited
Al Noor Sugar Mills
Limited
Rs. 100 Million
Rs. 100 Million

Debt Syndication
Debt Syndication

Sept 2002
Sept 2002

PILCORP
PILCORP
Rs. 100 Million
First Securitization
Trust
Rs. 100 Million
Company
First Securitization Trust
Lease Receivables
Company

Securitization
Lease Receivables
Securitization

Thank You!