ICIEC SUKUK-BASED SOLUTIONS FOR PROJECT FINANCING By: Oussama A. Kaissi CEO, ICIEC Jakarta 17 th May 2016
Sukuk Market Overview Global Sukuk issuances have grown significantly over the past 15 years, Fall in 2014-15 has primarily been due to Bank Negara Malaysia s policy decision to discontinue short-term investment Sukuk Domestic Sukuk issuance still accounts for the lion s share of total issuances (~ USD 618 mn, or 81%) 2
Sukuk Market Overview Issuer Region Number of Issues Amount (USD mn) % of Total Value Middle East & GCC 243 96709 65.0% Asia & Far East 78 42962 28.9% Europe & Others 36 8524 5.7% Africa 2 630 0.4% Global Total 359 148825 100.0% The Middle-East and GCC region is the largest Issuer of Sukuk, both in terms of number of issues and volume Issuances in the Asian region are second highest, dominated by Malaysia (~20% of total) There have been only two Sukuk issuances in Africa (Sudan and South Africa) As the Table clearly illustrates, there is untapped potential for Sukuk Issuance in Emerging Markets Innovative Sukuk-based instruments can potentially be utilized for project-finance transactions 3
Challenges In Funding Projects In Less-developed IDB Countries Under-developed banking systems and capital markets Lack of an Investment grade credit rating Perceived Country and Credit Risk in projects reduces investor demand Lack of Shariah compliant Financing Structures 4
Sukuk-based Project Finance A Win- Win Proposition A potential solution to the problem of mobilizing resources for Project Financing is Sukuk-based structures Such structures can be wrapped in an ICIEC Insurance cover, which would allow the project to benefit from ICIEC s strong Aa3 Rating By providing a strong rating, the insurance cover could open up the Sukuk to demand from a broader range of investors 5
Sovereign Sukuk-based Project Finance An Illustration Transfers Assets Issues Sukuk Sukuk Originator (ICIEC MC) Transfers Funds SPV (ICIEC MC) Pays Premium, Receives policy Proceeds of Sukuk Sale Sukuk Investor Risk Transfer Strategic Reinsurance Partners 6
Sukuk-based Structures - Rationale Developmental needs of IDBG Member Countries are vast, with investments required in practically every strata of the economy Risk-tolerance of traditional project-finance providers is limited, and resources available are also limited Multilaterals and DFI s are expected to play an outsize role in these countries, which is a challenge due to limited resources Asset Classes available for investment for Shariah-compliant financial institutions and investors are limited Structures like Sukuk-based project finance structures can serve as the bridge between Investors seeking Sharia-compliant Assets, and projects which are in need of funding Adding a Shariah-compliant Takaful wrap on such structures makes transactions bankable, and accessible to a wider range of investors 7
Benefits of Sukuk-based Project Finance Sukuk issue would benefit from a strong credit rating, which in turn would lead to lower pricing for the Sukuk Issuer Structure opens up this asset class to non-traditional investors and Islamic Banks looking to invest in this asset class, thereby accessing untapped pools of liquidity Reinsurance support allows large transactions to be brought to market Once executed, the model can be replicated quickly over different sectors and geographies 8
Why ICIEC? Only Shariah compliant Credit and Political Risk insurer in the World Strong credit rating (Aa3) Part of the Islamic Development Bank Group Risk-transfer ability due to strategic relationships with major insurers and reinsurers Strong and spotless track record when it comes to covering Sovereign risk Close relationship with Member Country Governments 9
Some Final Thoughts. Innovation is key in order to meet developmental challenges which Member Countries face Financial instruments that comply with Shariah principles offer a win-win proposition for both Issuers and Investors, seeking to further the reach and impact of Islamic Finance Multilaterals need to serve as enablers of private-market capacity, resources, and assets in order to meet their mandate 10
Thank You! www.iciec.com ICIEC Headquarters UAE Rep. Office ICIEC Rep. in Africa ICIEC Rep. in Turkey & CIS P.O.Box 15722, Jeddah 21454 1501, Sobha Sapphire, IDB Group Regional Office, IDB Group CGO Kingdom of Saudi Arabia Business Bay, Dubai, UAE Dakar Etoile Senegal Istanbul- Turkey Tel.: +966-12 644 5666 Tel: +971-42776255 Tel: (+221) 338891144x 7735 Tel: +90-212 234 8100 5556 E-mail: sales@isdb.org E-mail: mdiyan@isdb.org E-mail: mosow@isdb.org E-mail: fsarioglu@isdb.org