Prepared by: Fatimah 1000411,

Aida 1000080, Khairul 1000156,

Nadzri 0900343 Cheah 1000164

BK 6503/5503 Sep – Dec 2010 Semester INCEIF, Kuala Lumpur

17 OCT 2010

OUTLINE OF PRESENTATIONOUTLINE OF PRESENTATION

• What is Sukuk• Summary of ELITE Musyarakah Sukuk • Shariah Parameters

• Aqad• Financial Reporting & Legal Documentation• Maqasid al-Shariah

• Conclusion

SUKUK : DEFINITIONSUKUK : DEFINITIONLiteral MeaningSukuk (Arabic: ص=كوك , plural ofص=ك ,Sakk) means "legal instrument, deed"check

Literal MeaningSukuk (Arabic: ص=كوك, plural of ص=ك Sakk) means "legal instrument, deed, check"

Technical MeaningSukuk refer to securities / certificates / papers with the features of liquidity, tradability and “cash equivalence”

Technical MeaningSukuk refer to securities / certificates / papers with the features of liquidity, tradability and “cash equivalence”

AAOIFI’s definition of Investment Sukuk – Standard 17(2): “Investment sukuk are certificates of equal value representing undivided shares in ownership of tangible assets, usufruct and services (in the ownership of) the assets of particular projects or special investment activity.

AAOIFI’s definition of Investment Sukuk – Standard 17(2): “Investment sukuk are certificates of equal value representing undivided shares in ownership of tangible assets, usufruct and services (in the ownership of) the assets of particular projects or special investment activity.

Malaysian Securities Commission’s “Guidelines on the Offering of Islamic Securities” in Appendix 1 (B) defines sukuk as “a document or certificate which represents the value of an asset”

Malaysian Securities Commission’s “Guidelines on the Offering of Islamic Securities” in Appendix 1 (B) defines sukuk as “a document or certificate which represents the value of an asset”

Contract StructureContract Structure

“A partnership arrangement between two parties or more to finance a business venture whereby all parties contribute capital either in the form of cash or in kind for the purpose of financing the business venture. Any profit derived from the venture will be distributed based on a pre-agreed profit sharing ratio, but a loss will be shared on the basis of equity participation.”

Important Principles:(i)Capital & Profit are not guaranteed(ii)Profit distribution follow exactly capital invested or pre-agreed ratio(iii)Loss according to capital invested

MUSYARAKAH : DEFINITIONMUSYARAKAH : DEFINITION

Key Transaction

Issuer Seafield Capital Bhd

Instrument RM 1.5 bil Musyarakah Sukuk Programme

Ratings (by RAM Rating Services Bhd)

AA2

Issuance date 27 May 2009

Islamic contract Musyarakah

Underlying asset / venture

Investment in the Trust Asset, comprising the respective Trust Units of Concession Assets

Lead arranger CIMB Investment Bank Bhd

Shariah adviser CIMB Shariah Islamic Committee

Purpose of issue To meet ELITE’s funding requirements

Trustee Universal Trustee (Malaysia) Bhd

Sukuk Holders

Seafield Capital (Issuer)

Puncak Tulus (SPV 1)

ELITE(Obligor)

ELITEOwner of

ConsessionaireSale of Beneficial Ownership

Purchase undertaking deed

Sale of beneficial ownership

SukukSukuk sale proceeds

Sale price

Sale price

Sale undertaking deed

Aqad

Agents of Contract

Transaction 1 - Sale of Beneficial Ownership in the Concession Agreement between ELITE and Pucak Tulus (SPV).

Transaction 2 - Subsequent sale of the Beneficial Ownership in the Concessionary Agreement between Puncak Tulus (SPV) to Seafield (Issuer).

Transaction 3 - Sale of Sukuk between Seafield and Sukukholders.

Musyarakah Contract is formed among the investors.

Trustee Management Company and Beneficiaries (Sukuk Holders)Purchase Undertaking Deed between ELITE and Seafield (Issuer)

Objectives of Contract

Refinance ELITE’s existing borrowingsFund the fees, costs, expenses and other amounts payable in relation to the Sukuk programRemaining amount for general funding, capex and working cap of ELITESale: To transfer the ownerships in financial asset (in the form of trust units).

Musyarakah: To share the profit derived from ELITE’s toll revenue and income under Concession Agreement. Trust Deed: To protect the rights and interest of the Beneficiaries.Purchase Undertaking: Promise to repurchase the Trust Units

Subject matter

Financial Asset (trust units), Beneficial Ownership in the Concession Assets, Debts.

Offer and acceptance

Offer and Acceptance are done in writing, Initial Public Offerings and other legal documentations.

Observations: Sale Contracts: - Objective: Transfer of ownership. There is no transfer of legal ownership

from ELITE to SPV1, SPV1 to Issuer and Issuer to Sukuk Holders. AAOIFI Rules On Sukuk No.21- Subject Matter- Financial Asset/trust units ( To refinance BAIDS taken earlier worth RM 850 million).

Musyarakah contracts- - Objective: Profit/Loss Sharing - Participation in the equity. - But, there is no risk taking. The requirements of Top Up account, Purchase

Undertaking, Capital and profit are secured. No real profit/loss sharing.

Purchase Undertaking - Promise to repurchase at Par Value ( The capital) - Is it valid? How does it affect Musyarakah Contract? - Is it enforceable in the court of law?

Nevertheless, the Sukuk is valid per SAC’s Securities Commission Malaysia Guidelines.

Purchase undertaking for capital protection – is it valid?◦ Page 29 of PT & C, ELITE is obliged to buy

Sukukholders’ interest at Exercise Price upon occurence of Maturity Date or early dissolution of Sukuk.

◦ AAOIFI in Nov 2007, raised concerns – ◦ purchase undertakings are allowed for

ijarah, and not other contracts.◦ liquidity facilities via loan from issuer also

disallowed

Financial reporting – aims to provide information transparency – to all parties involved in sukuk transaction.

ELITE verifies that:◦ Trust units are reported as non current asset in the

balance sheet of ELITE – complies with application of al bay principles

However, the legal and beneficial rights of the underlying asset (trust units) are only transferred to SPV1 and to issuer. AAOIFI Feb 2008 ruled that a sukuk is not Shariah compliant when the SPV fails to transfer ownership of asset to the holders.

What is the asset? Unit trust. Purpose – to re-finance BaIDS of RM 800

mil. Ownership of underlying asset – in the form

of security asset Does it comply with the ownership

requirements? issuance of debt against debt (al kali bi al kale) is

forbidden by fiqh Implications for maqasid:

◦ Debt creation◦ Limited recourse for sukuk holders

Securing of benefits (Manfa’ah); and

Repelling of Harm (Madarrah)

The Musyarakah Sukuk is exercised to raise funds to refinance debt.

There are fiqh / aqad / maqasid implications◦ Are musyarakah principles suitable for such an objective?◦ Perhaps BBA or Inah type contracts are by nature more

representative of the objective At legal documentation and financial reporting levels, the

following concerns were raised:◦ Capital and return guaranteed but AAOIFI restricts purchase

undertaking only to ijara◦ Islamic law of contract stipulates that musyarakah is

participatory financing for a genuine business venture. Is debt refinancing a valid business venture?

This sukuk can be better repositioned based on other bay contracts, e. g. BBA.

THANK YOU