My presentation on Sukuk for the MENA SUKUK Congress in Dubai

1. UNTAPPED POTENTIAL

3. Sukuk value and volume have consistently grown in
the last five years… but plunged in 2013
Global AGGREGATE SUKUK HISTORICAL TREND (1996 - Q3 2013)
$ billion
# Issues
160
800
713
140
700
531
120
600
552
429
100
500
80
400
257
60
300
231
183
183
40
200
150
115
20
47
2
1
0
40
56
100
49
4
0
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
Amount Issued
2005
2006
2007
Number of Issues
2008
2009
2010
2011
2012
YTD
Q3
2013

4. This collapse was mostly driven by U.S. Fed idea of
tapering its stimulus package in May 2013 sending
bond yields up around the world, and making it less
attractive to issue debt..
YTD (OCT 2013) JPMORGAN GLOBAL AGGREGATE BOND INDEX VS HSBC/NASDAQ DUBAI US
DOLLAR SUKUK INDEX
6
September US Jobs data below
forecasts
5
16-May: First Hint of tapering by
the FED
4
3
2
1
0
1-Jan 16-Jan 31-Jan 15-Feb 2-Mar 17-Mar 1-Apr 16-Apr 1-May 16-May 31-May 15-Jun 30-Jun 15-Jul 30-Jul 14-Aug 29-Aug 13-Sep 28-Sep 13-Oct
JPM GABI
SKBI

5. MENA issuance stood at 51% of global in 2006 & was
at 23% in 2013…
140,000
60%
133,231
120,000
114,280
51%
51%
50%
100,000
40%
79,180
80,000
30%
60,000
50,368
37,039
40,000
22,561
20,000
19,061
11,421
23%
15%
20,316
8,298
20%
19%
33,790
19,734
8,162
25,106
26,442
10%
7,776
0
0%
2006
2007
2008
Global (Mn$)
2009
2010
MENA (Mn$)
2011
2012
2013
MENA%
Sukuk issuance grew from $22bn in 2006 to $133bn in 2012, MENA’s share
of total issuance declined over the years..

6. Outstanding Sukuk globally currently stands at
$270bn of which $80 are in MENA!
Outstanding Sukuk
Market (Bn$)
Distribution of Outstanding
Sukuk in MENA (Mn$)
40,000
37,648
35,000
80.82
30%
30,000
24,196
25,000
20,000
13,565
15,000
189.93
70%
10,000
4,074
5,000
869
130
130
120
0
MENA
Other
Saudi
Arabia
UAE
Qatar Bahrain Kuwait Sudan Oman Jordan
Mn$
MENA/GCC accounts for 30% of
outstanding global Sukuk market
Saudi Arabia managed to become the
world’s second largest issuer of Sukuk

7. In 2013, only MENA’s GCC states sold sukuk, Saudi
Arabia led, Oman joined…
16,000
30
15,215
14,000
25
24
12,000
20
20
10,000
8,000
15
7,116
13
6,000
10
9
4,000
2,349
5
1,589
2,000
1
130
44 2
0
0
Saudi Arabia
UAE
Qatar
Bahrain
Mn$
No of Issues
Absence of non-GCC issuers in 2013..
Oman
Kuwait

8. Yet, historically, UAE is still the largest issuer in
MENA, followed by Saudi Arabia
All-time MENA Sukuk Issuance (Mn$)
60,000
300
279
50,000
49,463
250
46,525
40,000
200
30,000
150
23,792
20,000
100
76
14,413
70
10,000
50
2,984
22
24
251
221
2
UAE
Saudi
Arabia
Qatar
Bahrain
Kuwait
Mn$
No
2
Yemen
0
Sudan
130
120
1
1
Oman
Jordan
0

9. Financial services and real estate top charts after
governments.. Oil and gas lag behind
MENA Sukuk Issuance by Sector – All to date
Mining and Metals
Education
Conglomerates
Leisure and Tourism
Telecommunications
Food and Beverages
Construction
Oil and Gas
Power and Utilities
Transport
Real Estate
Financial Services
Governmental Institutions
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
Mn$
Oil and gas sukuk issuance is not proportional to the size of the sector
in the region…

10. At 48%, MENA international sukuk is well above the
world’s average of 15% out of total (2013 figures)
120,000
114,280
60%
100,000
48%
50%
80,000
40%
60,000
30%
40,000
20,000
20%
15%
26,442
17,588
12,750
0
10%
0%
Global (Mn$)
Total (Mn$)
MENA (Mn$)
International (Mn$)
% of Int'l
GCC issuers more often look into international markets while Asian
sell more domestically >> domestic sukuk market
underdeveloped/underserved in the MENA..

11. In 2013, MENA Stock Exchanges grabbed 12 listings
out of 53 listings globally.. mostly by Nasdaq Dubai..
Irish SE grabbed most globally
12,000
16
15
14
10,000
12
8,000
10
9
6,000
4,000
8
8
6
5
4
2,000
2
0
0
Mn$
No
Most of the Sukuk listed on Nasdaq Dubai are by UAE issuers, will
the trend change with IDB, and other issuers listing on Nasdaq
Dubai

12. Most of the listed MNEA issuers list on international
stock exchanges such as ISE & LSE, but Nasdaq
Dubai managed to attract some… (2013 figures)
9,000
8,000
14
12
12
7,000
10
6,000
9
5,000
8
4,000
6
3,000
4
2,000
3
2
2
1
1,000
1
1
1
0
0
Irish SE
Nasdaq
Dubai
London SE
Saudi SE
Mn$
Bursa
Malaysia
No
Dubai FM
Bahrain SE
Muscat SM

14. The Saudi Model
From a dormant issuer to a key player in the
market – GACA set the pace
Second largest issuer of sukuk in 2013 worldwide n
after Malaysia!
Diversity in issuers profiles: banks, oil & gas, real
estate and construction, agriculture and food..
Mostly domestic and in SAR, yet some
international sukuk
Way to go in terms of liquidity and trading

15. The UAE Model
• UAE maintained a spot among world’s top issuers
despite the credit crunch and global financial crisis
• Mostly skewed towards financial services (banks) –
followed by real estate, power and oil & gas
• Quasi-sovereign but not federal or sovereign or
government sukuk! >> area to develop
• Private-sector credit growth in the UAE is expected
to accelerate between 2014 and 2020

16. DUBAI – THE HUB
• HH Sheikh Mohammed’s initiatives to give big push
to the Sukuk market: more issuance, better
regulatory framework, more facilities, encourage
listing and boost trading!
• Dubai Expo 2020 is expected to leave a positive
impact
• Innovative structures
• DFM and Nasdaq Dubai initiatives supportive

17. The Omani/Kuwaiti Models
KUWAIT – Defaults Hurt
Kuwaiti companies started well, witnessed few
defaults and now rarely sell sukuk
We have not seen any new initiatives from the
regulators
OMAN – Cautious Approach
Started by regulating the industry First corporate sukuk in 2013
Oman sovereign sukuk anticipated

18. The Qatari Model
In March 2013, central bank began quarterly issues
of riyal-denominated government bonds and sukuk,
with maturities of three and five years
In June 2013, Qatar started trading government
bonds & sukuk – a step expected to deepen debt
market
Maintaining a spot with huge issuances from either
the government or the private sector once a year
QSE announced few initiatives, any follow up?
Will World Cup 2022 drive growth?

19. The Bahrain Model
 One of the oldest issuers in the region and the world
 Constantly selling the Short-term Ijara Sukuk and Al Salam
sukuk (24+ issues a year)
 Occasionally selling 6-months or 12-months paper
 Corporate issuance declined
 In December, the central bank formally combined existing
rules for issuing and listing financial securities, including
sukuk, in an effort to make the process more efficient The
incorporation of an issuing agent or special purpose vehicle
for sukuk will not take more than 48 hours from the time
offering documents are approved, whether for local or for
international sukuk issuance

20. Other MENA countries’ baby steps…
Morocco: The government adopted in January
2014 a bill regulating Islamic banks and sukuk, law
yet to be approved
Egypt: Egypt's financial regulator is expected to
submit new rules to the government in 2014 to
facilitate issuance of sukuk as part of a capital
market law – political hurdles preventing
development
Tunisia: huge potential – untapped potential

22. If current trends continue, demand-supply gap for
sukuk will taper of by 2018 to reach $187 billion
SUKUK DEMAND & SUPPLY LEVELS (2013 - 2016)
$ bln
1000
900
Supply & Demand Gap: Despite the huge
sukuk issuance growth in 2012, the market was
still undersupplied. However, despite the plunge
in 2013, sukuk market growth rates are
expected to return to a steady growth
800
700
600
500
400
300
200
100
0
2008
2009
2010
Total Global Sukuk Matured
2011
2012
Total Global Sukuk Issued
2013
2014
2015
Total Outstanding Global Sukuk
2016
2017
Total Sukuk Demand
2018

23. Many emerging and frontier markets are paving the
way for sukuk market development by first
establishing suitable regulations…
Which of the following emerging markets is the most attractive for sukuk
investment/issuance?
4.07
Oman
4.46
3.19
Morocco
3.42
3.17
Azerbaijan
2.88
2.91
Libya
3.00
2.84
Tunisia
3.31
2.76
Egypt
3.00
2.22
Nigeria
2.89
0.00
0.50
1.00
1.50
2.00
BUY SIDE - Preference
2.50
3.00
SELL SIDE - Expectation
3.50
4.00
4.50
5.00

25. Lead arrangers and issuers believe the main reason for issuing
sukuk is to diversify their sources of funding as investors mostly
invest in sukuk due to Shariah requirements
BUY SIDE: what is your primary reason for
investing in sukuk?
Yield
SELL SIDE: What is your most common reason for
sukuk issuance?
14.3%
Diversify source of funding
Diversification
44.4%
Business Expansion
20.6%
22.2%
Cheaper funding and better pricing
Refinancing
Opportunistic
Religious mandate to only invest
in Islamic instruments
14.8%
14.8%
11.1%
54.0%
Restructuring
3.7%
0.0%10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
0%
10%
20%
30%
40%
50%

26. Lead arrangers and investors agree that global market
interest rates are the most important factor affecting
sukuk pricing
The most important factors based on their significance to sukuk pricing
4.0
Global market interest rates
4.1
3.2
Sukuk rating
3.7
3.0
Type of issuer
3.1
2.9
Type of currency
2.4
2.8
Investor business structure/diversity
2.3
2.8
Type of sukuk - asset-based or asset-backed
2.7
2.8
Purpose of sukuk issuance
2.7
2.6
Type of market (international or domestic)
3.1
2.6
Size of sukuk
2.7
0.0
0.5
1.0
BUY SIDE
1.5
SELL SIDE
2.0
2.5
3.0
3.5
4.0
4.5

27. While liquidity and tradability are still considered the
main issues causing the price gap between sukuk and
bonds
SELL SIDE: What drives the price gap between sukuk and bond?
Liquidity & Tradability
69.6%
Sharia non compliance risk
13.0%
Sukuk structure
8.7%
Sukuk paper scarcity
8.7%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%

28. Things to watch
• Are we going to see more synergy between SEA
and GCC standards?
• More cross-border sukuk? Will non-MENA issuers
tap MENA markets?
• Malaysian or Turkish issuers list on Nasdaq Dubai?
• Oman to emerge as new hub?
• Will Egypt, Libya, Morocco, Tunisia and other
states join the club anytime soon?
• Will Dubai initiatives work out?

29. Things to watch
• How will Expo 2020 and FIFA 2022 affect the
market?
• How will QE2 affect sukuk issuance in the region?
• Are we going to see retail Sukuk anytime soon in
the MENA?