Islamic Finance in Japan -New Legislative Framework

Transcription

1 Islamic Finance in Japan -New Legislative Framework for Sukuk Issuances Inter Pacific Bar Association 22 nd Annual Meeting & conference Islamic Financial International Trade - Challenges & Issues 2 March 2012 Naoki Ishikawa

2 OUTLINE 1. The landscape of Islamic finance in Japan 2. Legal framework and tax reform for sukuk issuance in Japan 3. Alternative Sukuk Structure 4. Listing and Clearing system 5. Challenges 2

3 1. The landscape of Islamic finance in Japan 3

4 2. Legal framework and tax reform for Sukuk Issuance in Japan (1) Legal Framework (general) Sukuk = certificates with each sakk representing a proportional undivided ownership right in tangible assets, or a pool of predominantly tangible assets, or a business venture (such as mudarabah) (Capital Adequacy Requirements for Sukuk, Securitisations and Real Estate Investment, Islamic Financial Services Board (2009)) In order to generate returns for investors all Sukuk structures rely upon either: (i) performance of an underlying asset; or e.g., lease (figure I) (ii) a contractual arrangement in connection with that asset e.g., equity based partnership arrangement (figure II) 4

5 1 figure I Sukuk al Ijarah 2Sale of assets Issuer SPV as issuer and trustee 3 Lease of assets in the form of Ijarah Originator 5 Purchase undertakings c.f. conventional bond issue 4 Periodic/ Dissolution Distribution 1 Subscription proceeds ( Principal Amount ) Exercise price can be fixed at the outset to be an amount equal to the Principal Amount + unpaid Periodic Distribution Amounts owning to the investors. Investors Issuer (Subsidiary) Promise to pay In case of a trust deed structure, covenant to pay would be held on trust by the trustee for the benefit of the Bondholders Bondholders Guarantor (Parent Co) Guarantee 5

6 2 figure II Sukuk al Mudaraba Issuer SPV as trustee and Rab al Mall 3 Periodic/ Dissolution Distribution 2 Mudaraba Agreement (equity based partnership) Cash contribution Share in Profits Mudaraba Enterprise 1 Subscription proceeds ( Principal Amount ) 4 Purchase etc. undertakings Investors Management Fees Originator as Mudarib Post AAOIFI statement in 2008, where originator and the purchaser are the same entity the exercise price cannot be fixed and must be determined by reference to Trustee s share of the market value of the Mudaraba assets at the time of sale. 6

7 (2) Japanese Legal Framework The law Asset Securitisation Act (Act no 105 of 1998 (as amended)) - originally tailored for asset securitisation involving a specific purpose limited liability company ( TMK ) or specific purpose trust ( SPT ). - The Sukuk issuance in Japan will take the form of Quasi Bond Beneficial Interest issued by the SPT. - Anticipated sukuk structures: primarily, Sukuk al Ijarah; alternatively, Sukuk al Musharaka / Sukuk al Mudaraba; and possiblility for Samurai Sukuk. 7

8 (3) Legal Framework primary structure (difference from precedent cross border Sukuk al Ijarah structure) 1 e.g., Nomura Sukuk structure (English law based) Trustee (declaration of trust) Periodic / Dissolution Distribution Guarantee Purchase etc undertakings Sale and Ijara Lease back Investors Nomura Holdings Leasing SPV Lease Air Carrier 2 Japanese Sukuk al Ijara structure Trustee (SPT) 4 Periodic Distribution 6 Dissolution Distribution 1 Entrustment and 3 Ijara Lease back 5 Purchase etc. undertakings Originator (settlor) Quasi Bond Beneficial Interests 2Sale of Quasi Bond Beneficial Interests Investors 8

9 (4) Tax Reform to level the playing field between Sukuk and conventional bonds. Dividends received by foreign investors/domestic financial institutions are not subject to Japanese withholding tax Trustee (SPT) Periodic/ Dissolution Distribution Entrustment and Ijara Lease back Purchase etc. undertakings Originator (Settlor) Quasi Bond Beneficial Interests Sale of Quasi Bond Beneficial Interests Investors No registration and license tax or real estate acquisition tax imposed on the repurchase transaction 9

10 3. Alternative Sukuk Structure (1) Sukuk al Mudaraba (only available for asset backed transaction) Trustee (SPT) Periodic/ Dissolution Distribution Purchase etc. undertakings c.f. AAOIFI Entrustment of statement Tokumei Kumiai (TK) unit Quasi Bond Beneficial Interests Originator (settlor) Sale of Quasi Bond Beneficial Interests Investors TK Agreement ( Mudaraba Agreement) Operator (Mudaraba Enterprise) 10

11 (2) Samurai Sukuk? Trustee (SPT) Periodic/ Dissolution Distribution Entrustment of trust beneficial Redemption of the trust beneficial Quasi Bond Beneficial Interests interest interest Sale of Quasi Bond Beneficial Interests On Shore Investors Off Shore Originator (declaration of trust) Possible candidates for the underlying assets to be held on trust for the benefit of the SPT 11

12 4. Listing and Clearing (1) Listing - a number of advantages for foreign issuers Tokyo PRO-BOND Market launched by Tokyo AIM, Inc. Eligible for Professional Investors - i.e., QIIs, and other prescribed entities plus nonresidents (including corporations and individuals). No requirement of Securities Registration Statement and Securities Report - under Financial Instruments and Exchange Law. Disclosure language - English is available in whole or in part. (2) Clearing Japan Securities Depositary Center, Inc. Outline of the handling of Quasi Bond Beneficial Interest announced 7 October 2011 Planned to commence handling from spring Platform will be the existing Book-Entry Transfer System for Corporate Bonds. 12

13 5. Challenges (1) non-existence of institutional Islamic investors and Sharia advisors in Japan; (2) statutory formalities under the Asset Securitisation Act filing with local finance bureau etc; (3) details of supporting financial infrastructure to be clarified book entry system, clearing and listing etc; and (4) Sunset provision! 13

14 Islamic Finance in Japan -New Legislative Framework for Sukuk Issuances Naoki Ishikawa Tel Marunouchi Park Building, Marunouchi Chiyoda-ku Tokyo , Japan