The Islamic Corporation for the Insurance of Investment and Export Credit. ICIEC is a member of the Islamic Development Bank Group.

Transcription

1 The Islamic Corporation for the Insurance of Investment and Export Credit CREDIT ENHANCEMENT AND RISK MITIGATION FOR SUKUK ISSUES: AN ICIEC PROPOSAL By Dr. Abdel-Rahman Taha General Manager, ICIEC Presented to: Global Sukuk Summit, London, June The Islamic Corporation for the Insurance of Investment and Export Credit ICIEC is a member of the Islamic Development Bank Group. ICIEC is the sole multilateral credit and political risk insurer operating in accordance with the Islamic Shariah. 2 2

2 IDB Group Aa3 Rated AAA Rated 3 3 ICIEC- Overview & Objective Legal Status: Multilateral institution with full juridical personality Established: August 1 st, 1994 Capital: USD 255 million Shareholders: Islamic Development Bank (50%), & 37 Islamic States 4 4

3 37 Member Countries 16 ARAB Countries 1. ALGERIA 2. BAHRAIN 3. EGYPT 4. JORDAN 5. KUWAIT 6. LEBANON 7. LIBYA 8. MAURITANIA 9. MOROCCO 10. QATAR 11. SAUDI ARABIA 12. SUDAN 13. SYRIA 14. TUNISIA 15. U.A.E 16. YEMEN 13 AFRICAN Countries 1. BENIN 2. BURKINA FASO 3. CAMEROON 4. CHAD 5. GAMBIA 6. DIJBOUTI 7. GUINEA 8. MALI 9. NIGER 10. SENEGAL 11. UGANDA 12. NEGIRIA 13. GABON 8 ASIAN Countries 1. BANGLADESH 2. BRUNEI 3. IRAN 4. INDONESIA 5. MALAYSIA 6. PAKISTAN 7. TURKEY 8. KAZAKHSTAN 5 5 International Financial Centers in ICIEC's Member Countries Three MCs have renowned international financial centers Bahrain Dubai Malaysia (Labuan) 6 6

4 ICIEC s Mission To Encourage Exports from Member Countries to rest of the world by insuring the risks of non-payment by the overseas buyers. To Encourage Flow of Investments into Member Countries by insuring the political risks of the investment hosting country. Member Countries Member Countries 7 7 Export Credit Insurance Risks Covered Commercial Insolvency of Buyer Failure or Refusal of Buyer to Pay Political Currency Transfer Restrictions Expropriation & Creeping War and Civil Disturbances Breach of Contract 8 8

5 Investment Insurance Foreign Investment Insurance. (Coverage: 15 years standard, 20 years max.) Kenena Sugar Factory Expansion Project, Sudan, Covered by ICIEC 9 9 Investment Insurance Risks Covered Currency Transfer Restrictions Expropriation War and Civil Disturbances Breach of Contract 10 10

6 Investment Insurance Types of Investments eligible for cover by ICIEC Equity Investments such as: Equity Participation Ownership rights in other assets Finance Lease Transactions Loan made for investment purpose Guarantees of Loans Investment Insurance Non-Equity direct Investments such as: Productions-sharing contract Profit-sharing contract Operating Lease Subordinated debentures 12 12

7 Relevance of ICIEC Services to The Sukuk Industry Credit Enhancement PRI Risk Mitigation through Credit Insurance ICIEC s Reinsurance Partners 14 14

8 Risks Identified The following risks can be identified: Underlying assets are subject to the political risks of the country where they are located. Underlying assets may not generate sufficient cash to pay Sukuk holders. Breach of contract by Sovereign Fund raiser ICIEC s Risk-mitigation tools ICIEC can provide both commercial and political risk cover if the pool of the underlying assets consists of future exports contracts; ICIEC can provide political risk cover only if the issuance relates to a new investment project or expansion of an existing project

9 Scenario (1) Covering commercial and political risks (non sovereign fund raiser) Client Client Client Client Exports Fund raiser (Petrochemical manufacturer) Insuring nonpayment risks of buyers Exports Exports Premium Exports Selling his portfolio Price Assignment of policy Payment of compensation SPV Administrator Sukuk holders Scenario (2) Land (Property) Covering non payments risks (sovereign fund-raiser) Ownership Sovereign Fund raiser Selling Land Lease back Undertaking to repurchase SPV Proceeds of sale of Sukuk Sukuk holders Covering : non payments of rentals non payment of repurchase price (if not token) 18 18

10 Scenario (3) Covering political risks only - Global Sukuk issuance Sukuk Assets Located in a country different from the country of the SPV Ownership of Sukuk Assets SPV Insure invested assets against the PRI of the host country Foreign Investment Insurance Policy Administration Agreement Payment of Compensation Payment of Premium, handling the insurance policy Administrator Benefits of ICEC s Risk Mitigation Tools Enabling fund raiser to borrow cheaply, Enabling unrated companies to have access to the international market

11 Proposed New Product Having in mind: The effect of the credit risks of originators on the success of the sukuk issuance, The new Shariah standards prohibiting the Manager of sukuk from guaranteeing the Originator. ICIEC is proposing to establish a Sukuk Insurance Fund which will step down to pay sukuk holders if the assets are not generating enough cash. The policyholders are either SPVs or the Originators. The cost : normal rates prevailing in credit & political risk market ICIEC will seek reinsurance from major international insurers of credit and political risk ICIEC s Reinsurance Partners 22 22

12 Let ICIEC carry the responsibility of protecting your Exports and Investments around the world 23 23