20 - 20230505185334 - Chapter 7 Intro To Islamic Financing

CHAPTER 5
ISLAMIC FINANCING
07/12/23 SADE Research Institute,

Suyono DikunALecture
Study Center for @
Material Infrastructure
SADE ResearchPolicy and Management
Institute 1
Simplified Project Finance
Structure INVESTORS
LENDERS
GOVERNMENT OR
OTHER PUBLIC
SECTOR AUTHORITY
Equity Financing Debt
CONTRACTOR
Construction Contract PROJECT

COMPANY
Input Supply Contract
Off-take Contract
INPUT SUPPLIER
OFFTAKER Operating & Maintenance

Contract
Source : Principles of Project Finance, ER. Yescombe, 2002
07/12/23 SADE ResearchSuyono

Institute,
DikunA Lecture
Study Center
Materialfor
@ Infrastructure
SADE ResearchPolicy and Management
Institute 2
Islam and Economic Challenge
Introduction to Islamic Economy,
Banking and Finance
Farhat Khan
European Institute for Interest Free Economy

Polish Muslim Union
IP Direct Group
Presentation for Strohalm Foundation

Amersfoort 19.11.2004
Definitions I
• Dimensions of Islam
-Spiritual, social, economical, political
-Inner and external
-Horizontal (man - man), vertical (man –
god)
• Origin of Islamic economy, finance
and banking
• Islam vs. Muslims
07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 4

Definitions II
 Maqasid Al-sharia
-falah (human well being) +hayat tayybah (good life)
= Brotherhood, socio-economic justice,
balanced satisfaction of both material
and spiritual life of all human beings

The Vision I
• Human well being is the professed objective
of all societies
• Ghazali: the very objective of the shariah is
to promote the welfare of the people, which
lies in saferguarding their faith, their life, their
intelect, their posterity and their wealth.
Whatever ensures the saferguarding of these
five serves public interest and is desirable

The Vision II
• Ibn al Qayyim: the basis of the shariah is
wisdom and welfare of the people in this
world as well as the hereafter. This welfare
lies in complete justice, mercy, well –
being and wisdom. Anything departs from
justice to oppression, from mercy to
harshness, from welfare to misery, from
wisdom to folly has nothing to do with
sharia

The Reality
• Poverty and ecological disaster
• Injustice and human imbalances
• Wars & violence
• Capitalism/socialism/fascism/welfare
state ?
• OIC – over 1,5B Muslims
• In Europe 15M Muslims
• In the Netherlands – 800K-1.5M Muslims
Negative Results: Clash of
Civilizations
• Samuel Huntington about Muslim era wars
• How to end wars and violence?
• How to end injustice?
• How to end poverty?

Positive Results:
• Exchanges of view
• Mutual cooperation
• Acceptance of critical and logical thinking
• Acceptance of principle of tawhid on
individual level and justice on social level

10
The Islamic Response: Al
Qur’an
God does not change the conditions of

a people until they change
their own inner selves.
Al – Qur’an: Chapter 13 verse 11

11
Wide Gulf: Muslim or Islamic
World
Egypt Malaysia Sierra Leone
Afghanistan Gabon Maldives Somalia
Albania Gambia Mali Sudan
Algeria Guinea Mauritania Suriname
Azerbaijan Guinea Bissau Morocco
Syria
Indonesia Mozambique
Bahrain Tajikistan
Iran Niger
Bangladesh Tunisia
Iraq Oman
Benin Jordan Pakistan
Turkmenistan
Brunei Kazakhstan Palestine Turkey
Burkina Faso Krghyz Rep. Qatar Uganda
Kuwait Rep. of Togo UAE
Cameroon
Lebanon Saudi Arabia Uzbekistan
Chad
Libya Senegal Yemen
Comoros
Cotê d’Ivoire
Djibouti
12
Islamic Worldview and Strategy
The Worlview The strategy
• Tawhid (Divine Unity) • The Filter Mechanism
• Khilafah (Vicegerency) • The Right Motivation
• Adalah (Justice) • Socio-Economic
Financial Restructing
• Role of the State

13
Tawhid (Divine Unity)
• The foundation and the stone of the
Islamic Faith.
• There are two Arabic words that are important to
know. These are tawhid and shirk. Tawhid means
"declaring God one", while shirk means "associating
partners with God". Thus tawhid is monotheism while
shirk is polytheism or idolatry.
• Tawhid al Rububiyya.
(Tawhid ar-rububiyya thus means declaring
that there is only One who.

14
Tawhid (Divine Unity) II
holds these divine functions of creating
and sustaining the universe).
• Tawhid al Esma al Sifat.
(declaring God one in His names and
attributes).
• Tawhid al Ibada.
(tawhid al-ibada means "declaring God one
through our service“).

15
Khilafah (Vicegerency)
• Universal brotherhood
-All human beings are dependents of god
and the most beloved of them before him
are those who are best to his dependents
• Resources are a trust (Q: 2:229)
• Humble life style
• Human freedom

16
Adalah (Justice)
Establishment of justice and eradication of all
forms of injustice have been stressed in the al
Qur’an as the primary mission of all god’s
Messengares (Q: 57:25) Justice is next to piety
(Q: 5:8) 200 places in the Quran against
injustice
• Need fulfillment
• Respectable source of earning
• Equitable source of earning
• Growth and stability

17
Introduction to
Financial System
• The origin of Islam and its financial system
-
• The discovery of oil and its consequences
-
• The 4 branches of the Islamic banking industry
-the internationally catalic (IDB, DMI, DBG)

-the domestically retroactive – responding to legal change (Iran)
-the domestically proactive – responding to demand (Ghamr)
-the internationally retroactive – responding to demand (Citi)

18
Principles of Islamic Finance
• Sharia
• Riba
• Gharar
• Zakat
• Misconception about Islamic finance

19
Sharia
• Regulates Islamic Banking/Finance
• Islamic Law derived from 4 sources:
– Al Qur’an
– Sunna
– Ijma (the dilligent judgment of the scholars
through reasoning and logic)
– Qijas (consensus)

20
Riba
• Prohibition in the Al Qur’an (4 verses)
• -2.275 ex.
• Prohibition in the Sunna
• Interest = Usuary = Riba (Marocco
exception)

21
Gharar
• An exchange in which there is an element
of deception through the ignorance of the
goods or price, or false description of the
goods
• Gambling is the form of gharar

22
Zakat
• Religious tax or alms
• Literary: arab. Purification
• 2 types: Zakat al Fitr and Zakat al Maal
• Zakat al Maal – annual levy on total wealth
if the total is above a certain level (2,5%)

23
Misconception about IF
• Islamic Finance is essentially communist in
nature
• Without interest there will be no investment
• Allah permitted trading and forbade riba; the
distinction between riba and trade
• There are no alternatives to interest –based
investments
• There is no room for innovation and
development

24
Islamic Finance – Banking
Partnership
• Citibank
• ANZ Group
• Societe General
• Deutsche Bank / Commerzbank
• ABN Amro

25
The Techniques of Islamic
Finance
• The role of sharia committee
• Murabah (cost plus sale)
• Musharakah /Mudaraba (partnership
equity/trustee)
• Ijara (leasing)
• Qard al Hasan (loan)
• Bai Salam (purchase with deferred delivery)
• Islamic syndication

26
Islamic Mortgages Techniques
• MODEL A: lease with option to

purchase
(Ijara wa iqtina )
• MODEL B: purchase on installments
• MODEL C: decreasing partnership (rent
to own concept)

27
The Techniques of Islamic Finance – Profit
and Loss Sharing modes (PLS)
PLS mode
Non-PLS mode
• Mudaraba – Trustee Finance
• Qard al Hasana –
• Musharaka – Equity Participation Beneficience loans
• Muzar’ah – MDB in farming • Bai Muajjal – Defferded
• Musaqat- MSH in orchard payment sales
keeping • Bai Salam (Bai Salaf)
• Direct Investment Purchase with deferred
delivery
• Ijara (Ijara wa iqtina)
Leasing/Lease purchase
• Murabaha – Mark up
• Joalah – Service Charge

28
A Comparison Between Islamic &
Conventional Banking
Features Islamic Banking Conventional Banking
Guarantee of the capital value:

Demand deposits Yes Yes
Investment deposits No Yes
Rate of return on deposits Uncertain, not guaranteed for Certain and guaranteed
investment deposits. Demand
deposits are never remunerated.
Mechanism to regulate final returns Depending on bank performance Irrespective of bank
on deposits / profits from investment performance/profits from
investment
Profit-and-loss (PLS) principle applies Yes No
Use of Islamic modes of financing: Yes Not-applicable

PLS & N-PLS modes
Use of discretion by banks with Generally not allowed to reduce Yes, always
regard to collateral credit risk in PLS modes. By way
of exception, may be allowed to
lessen moral hazard in PLS
modes. Allowed in N-PLS modes

29
Two Intermediation Models
Two-tier Mudaraba
- Assets and liabilities fully Two windows model
integrated - Bank liabilities are
- Unrestricted Mudaraba divided into 2 windows:
on depositors site demand deposits and
- Restricted Mudaraba on investments deposits
entrepreneurs site - 100% reserve on
- No specific reserve demand deposits
requirments - Investment deposits
used to finance risk
bearing investments

30
Result of the Models: Stability
• Owing to the structure of their balance
sheet and the use of PLS arrangements
Islamic bank are better poised than
conventional banks to absorb external
shocks
• Socially responsible
• Ethically filtered

31
Islamic banks vs. Conventional Investment
Companies
Operational Similarity
-they both do not Conceptual Difference
-Investment company sell
guarantee either the
their capital to the Public,
capital value of or a
while Islamic banks accept
return on investment
deposit from public
deposits
-Depositor do not have
voting rights
-Depositors do not own any
portion of the bank’s equity
capital

32
Other Issues
• Takafful – Islamic Insurance
• Equity Finance
• Project Finance
• Accounting and Auditing
• Legal aspects of IF& B

33
The Global Islamic Economy
• Prospect of Islamic finance
• Problems of Islamic finance

34
European Institute for Interest
Free Economy
Goals:
• to educate people about alternative money
system(s) which implements concept of justice
better then existing one.
• To improve Islamic banking and finance concept
in Europe.
• To bring together interest free promoting
organization from Islamic and Western world.
• Promoting Sustainable Development based on
Interest Free Economy.

35
European Institute for Interest
Free Economy
Achievements:
• 5th International Conference on
Islamic Economy and Finance in Bahrain.
• http://www.ipdirect.home.pl/dinar/.
• Seminars and translations on Interest Free Economy.
• Cooperation with Strohalm, Islamic Foundation and
Benelux Shura.

36
Questions and Answers
• IP Direct Group www.ipdirect.home.pl
• EIIFE www.ipdirect.home.pl/kmp
• PMU www.ipdirect.home.pl/kmp
• Farhat Khan: islam@ipdirect.home.pl

37
Sources of Presentation
1. Aseambank, Malaysia
2. Infrastructure Development Corporation Limited (IDCL)
3. International Institute of Islamic Finance, Inc. (IIIC)
4. Richard Tinsley. Advanced Project Financing. Euromoney Institutional Investor
PLC, 2000
5. Zaid Ibrahim, Co., Malaysia
6.
7.

38
Definition of Project Financing
1) Is defines as raising funds to finance an economically separable capital

investment project in which the providers of funds look primarily to
the cash flow from the project as the sources of funds to service their
loans and provide the return of and a return on their equity invested
(IDCL)
2) A funding structure that relies on future cash flow from a specific

development as the primary sources of repayment with that
development’s assets, rights, and interests legally held as collateral
security

39
Structure
Independent
Experts
Co-Financing/PRI Advice
ECAs/MLAs
Lead Funders
Agent/ Shareholders Government
/Arrangers
Trustee
Debt Equity Concession/

License
Assignment
Other issues to
consider in
Islamic Insurance Long Term
Policies Special Off-take Contract
Financing: Purpose
Insurer Off-taker
•More complex Project Co
documentation.
•Asset ownership
& risks.
O&M Turnkey
Supply
•Tax treatment in Contract Contract
Agreement
relation to
O&M EPC
conventional Contractor Contractor
debt. Suppliers
Equipment
Warranties Vendors Warranties
Source : Aseambankers, 2006

40
Project Finance Participants
17. Offtaker 18. Transportation
3. Financial
Advisers 5. Exims/
MLAs
10. Government
Delay/
Sales contract/ Insurances 13. Insurers
Subscriber revenues Cofinancing/
PRI
19. Rating
1. Sponsors
Agency
Offshore 6. Agent/
Proceeds accounts Trustee
4. Arrangers/
Concession/ Lead Funders
Site Lease
2. Special
Security Loan
Purpose Agreement
Supply 14. Swap
Vehicle (SPV) counterparties
15. Suppliers Contract
8. Independent Performance Turnkey Performace O&M

Experts Lease
Bonds Contract LDs warranties Contract
7. Lessors
11. Construction 16. Equipment

Banks 12. O & M Co.
Company Vendors
9. Lawyers
Source : International Advisory

07/12/23
& Finance in Tinsley, 2000 Suyono Dikun Lecture Material @ SADE Research Institute 41
41
Chile
CHILE ENAP Performance
Guarantee
5. Exims/
MLAs
Processing
Petropower Service and supply
Energia Ltda. agreement Cofinancing/
PRI
US$ 9.6 million
p.a. revenue PETROX
deficiency 30-year site REFINERY
efficiency Usufructory
agreement 4. Arrangers/
agreement US $ 20 million Lead Funders
Revenue deficiency
agreement
1-year buyout
100% LDs 14. Swap
(100% of PF)
counterparties
FW Cocque
Verde LP
US$ 186 million

EDPC and
commission
Foster Wheeler
Subcontract
59 MW ST
Cogeneration 12. O & M Co.
plant
FW Iberia FW Chile

07/12/23
42
Tollway, Thailand
Government
Financial Shareholders Loss payees
Thai Highway Insurers
Department Advisers (incl. Dwydag)
International
Cash retention banks
Account
Equity
Concession
Bt. 2.4 billion
25 years/site lease
Security Package:
Assignments contract,
performance bond, 58%
borrowers rights,
pledge of shares, toll revenues,
other rights
Independent Supervision/ SPV & Opeartor
Engineer Certification DMT Co. Ltd. Local banks
Debt
Bt. 7.3 billion
42%
Direct and Standby
Performance & Loans
Bank Maintenance Fixed Price
Bonds Contract LDs
LDs = Liquidated Damages
Construction
Construction Company (DTC)
Consortium Dywithai
Dwydag 50% Dywidag 49%
Delta 25% Delta 49%
GTMI 25% Others 2%
Source : Tinsley, 2000

43
Transit, Malaysia
Progressive 6 months
Right of Way late?
Bumiputra/
AEG Rolling Stock,
Malaysian Westinghouse signals
Pension Funds
Buyout
Taylor
55% Tracks and
Woodrow
Stations
30%
M $ 550 million 15% Other Foreign

Support loan Equity
STAR
Cash flow
deficiency
30 year M $ 1.26 billion

BOO concession FX hedge on
Loan + 5% overrun
construction
facility
equipment
Total cost M$ 2.17 billion
Equity M$ 360 million
Equity + 5% overrun
Malaysian Bank Negara
Government Malaysia Central Bank
Banks

44
Contents
Shariah Principles in Infrastructure Financing
Islamic Capital Markets
Evolution of Project Financing
Case Study
Conclusion
Appendix 1 : Aseambankers’ Credentials

45
SECTION
ISLAMIC CAPITAL
MARKETS
Malaysian Islamic Capital Market
Islamic Private Debt Securities debuted in Malaysia in 1990 which saw the issuance of Shell MDS Sdn
Bhd valued at RM140 million.
1980 1990 1995 2005 2006
 Development of  Primary market  Growth in the  Product  Product

Markets, Players & issuance Secondary Development Development
Products
 Investors shy away  Stronger  Shariah  Shariah
 Islamic Banking from Islamic acceptance for Harmonisation Harmonisation
Act 1983 instruments due Islamic products
 Market  Market
to perceived
 Bank Islam  Emergence of Penetration & Penetration &
complexities of
Malaysia 1983 Islamic Funds Development liberalization
structures
 Takaful Act 1984  Liberalize market  International
access Benchmark
Practice
Infant Market Broader Market Deeper Market Developed Market
Islamic capital market guidelines, as well as the Islamic Capital Market Master Plan have strategically
outlined prospective areas of development and growth.
The Islamic Capital Market (ICM) has progress significantly and form an integral part of broader capital
market landscape in Malaysia.
Continuous effort on product development has enable ICM to offer wide range of viable and competitive
products, hence increasing its popularity and acceptability to issuers and investors.

47
Funds raised via Corporate Bonds
Corporate Bond Issuance Trend Total Value of PDS Issued by Instrument
(1990 – 2006) Type, as at 30 June 06
45000
Conventional
40000
PDS
35000 33%
30000
RM mln
25000
20000
15000
10000
5000
Islamic PDS
0 67%
1990
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
1991
2006f
Islamic Conventional Total
Corporate bond market expanded rapidly post-crisis with total issuance increased from RM9.2 billion in
1995 to RM31.8 billion in 2005.
Bonds as a source of funding for long gestation infrastructure projects – water, toll roads and power.
Variation in structures - Straight bonds, Islamic bonds and structured products such as asset-backed
securities.
Islamic principle securities remained the most favored form of fund raising in order to tap larger pool of
investors thus reducing cost of financing.
For 2006, we expect new corporate bonds issuance worth RM40bln, large portion will be channel to finance
infrastructure projects under 9MP, of which 82% is expected to be in Islamic corporate bonds.
48
Opportunities & Benefits of Sukuk
The composition of Islamic fixed income securities vs. total private debt securities issued on the
market grew with increasing significance. As at 30th Dec 05, total Islamic PDS stood at 76% of
total corporate bonds issued. As of today, Islamic fixed income securities constituted more than
45% of total outstanding PDS.
Islamic PDS: Value & Proportion of Total Corporate Bonds
40000 100
30000 80
60
20000
40
10000 20
0 0
96 97 98 99 00 01 02 03 04 05 06f
Is la mic bonds Conventio nnal bonds Is la mic bonds % of total (RHS)

49
Move Towards Shariah Compliant Principles
Total Value of PDS Total Value of PDS

Issued by Islamic Bonds - 2005
Issued by Islamic Bonds - 2006( July)
Instrument Type, in Instrument Type, in

Mudharabah BBA
Al-Dayn 7.8% Ijarah
Musyarakah 0.2%
0.9% Musyarakah 6.8%
9.5%
year 2005 year 2006 (up to

48.2% Istisna
Murabahah
15.9% 3.3%
Istisna
2.9%
BBA July)
Ijarah 68.2% Murabahah
2.4% 33.9%
As at end July 2006, Islamic issues using the musyarakah principle amounted to 48.2% of total issuance of
ISLAMIC CAPITAL MARKETS
Islamic debt and the trend to adopt more Shariah compliant principles is likely to continue in the
foreseeable future
The awareness for internationally recognised Shariah principles underscores the deepening of Malaysia’s
Islamic Capital Market
Investors’ level of sophistication and acceptance of international Shariah principles would further
strengthen Malaysia’s position as the center for Islamic Finance

50
Islamic Infrastructure Deals
Infrastructure Financing Via Capital

Markets (1990-2005) Tanjung Bin Power
RM5.57bln
Kapar RM3.40bln
SAJH RM1.28bln Segari RM930mln
100 PLUS Senai
RM7.36bln RM1.46bln
90 SILK Jimah
RM2.01bln RM5.75bln
80 Splash
RM1.40bln
70 PLUS
60 RM18.1bln
R M b ln
Litrak
RM535mln
50 UEM
40 RM200mln
30
20
10
15.1
0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06f
Government Debt Securities Corporate bonds Equities

51
Yields of Islamic and conventional infrastructure issues
Independent Power Producers Issues

Islamic Conventional
Issuer Rating Tenure Current Yield Issuer Rating Tenure Current Yield
3 years 4.10% 3 years 4.40%
Segari AA1
6 years 4.65% YTLPG AA1 6 years 5.00%
8 years 6.30% 8 years 5.30%
Jimah AA3
11 years 6.60% 4 years 4.25%
Panglima AA2
3 years 5.10% 11 years 5.60%
Tanjung Bin AA3
6 years 5.45%
Toll Highway Issues

Islamic Conventional
Issuer Rating Tenure Current Yield Issuer Rating Tenure Current Yield
3 years 4.40% Litrak AA2 3 years 4.60%
PLUS AAA 6 years 4.75% Selia Selenggara AA3 7.5 years 6.00%
10 years 5.55%
3 years 4.50%
Kesas AA3
8 years 5.40%
Senai Desaru AA3 10 years 6.55%
Expressway Bhd

52
SECTION
EVOLUTION OF PROJECT
FINANCING
“A funding structure that relies on future • Future cashflow.

cashflow from a specific development as
the primary source of repayment,
that development’s assets, rights,
• Proper project risks allocation.
and interest held as collateral security.”
- R. Tinsley
• Funding and repayment
mechanisms.
EVOLUTION OF PROJECT FINANCE
“Financing the development or

exploitation of a right, natural resource or • Legal security and provision to
other asset where the bulk of the financing to handle defaults.
is not to be provided by any form of
share capital and is to be repaid principally
out of revenues produced by the project • Project reporting and
in question.” – G.Vinter compliance.

54
As the market gets more sophisticated, so does the debt instrument.
1980 - 1990 1990 - 1995 1995 - 2000 2000 onwards
• Privatization • Privatization of • Regional • Revision of

policy was power generating economic crisis. privatization
Milestone
announced in assets. policy.
Events 1983.
• PLUS - North- • IPPs – YTL, • Refinancing of • West Coast
South Segari, Genting infrastructure Highway.
Key
Expressway Sanyen, PD debt. • Tanjung Bin
Projects project. Power etc. • Water Power.
privatization. • Jimah Power.
• LRT
• Syndicated Term • Term Loan • Islamic Debt for • Longer tenure

Loan • Conventional Infra project. bond
Bond. • Further
Debt development of
Instrument Islamic Debt.

55
Diversity Of Islamic Private Debt Securities
Total Value of Total Value of

PDS Issued by PDS Issued by
Supra Healthcare Transportation Qard Hassan Bai Inah
Trdg/serv 0% Prop/Real Est Bai Bi Al-Taqsit
0% 1% 1%
4% 21% 1% 1%
Musyarakah
Construction Bai Al-Dayn Murabahah
3%
Sector, Instrument
4% 26%
2% Ijarah
2%
Mudharabah
Industrial prod 0%
as at Dec 05 Type, as at Dec

Istisna
8%
10%
Infra & uti
Consumer prod
53%
1%
ABS
3%
Mining
3%
Plant/Agri
2% 05 Bai Bithaman Ajil
Investment hldg 52%

2%
Financial serv
0%
There are 333 issues of rated and issued Islamic corporate bonds worth RM147.99bln as at Dec
2005.
Infrastructure & utilities dominated at 53%, followed by Property/ Real Estate and Industrial
Products at 21% and 8% respectively.
Preferred Islamic structures are Bai Bithaman Ajil (deferred payment) (56%) and Murabahah (cost +
profit) (29%).
Issuers are venturing into other Islamic structure such as Istisna (commissioned manufacture),
Ijarah (lease), Musharakah (partnership) and Mudharabah (profit sharing) to tap the market.
56
Perspective of Issuers, Arrangers and Investors
Issuers Arrangers Investors
 To meet funding  Fees.  Shariah compliance

requirements. investment.
 Profiling.
 Benefits from  Comparable returns to
 High demand for
incentives being conventional debt
Islamic debt.
offered. instruments.
 Development of Islamic
 Cheaper source of  Conducive market
Capital Market.
funds via wider environment.
investor base.
 Various financing
structures/instruments.
 Shariah compliance.

57
Islamic Capital Market – Conducive Environment
The Malaysian Government ( through the Capital Market Masterplan launched in 2001), has taken
steps to put in place the necessary infrastructure and policies to drive the development of the Islamic
Debt Market. Among the measures taken are as follows:-
Legal and Regulatory

(i) The appointment of the SC as the single approving authority for Islamic PDS.
(ii) The formulation of specific guidelines for Islamic PDS.
(iii) Single Shariah Advisory Council established for the SC and the Central Bank.
Fiscal Incentives
(i) Stamp duty exemption for Islamic Bonds.
(ii) Expenses incurred in issuance of Islamic Securities are eligible for tax deduction over 5 year.
(iii) The sale of assets are not deemed as a sale for tax purposes (No RPGT).
(iv) Refinancing of conventional loans using the Islamic Bank Market is exempted from stamp duty.
Other Measures Introduced

(i) The issuance of Islamic debt securities in the global market, for example the USD600 Million
Malaysian Sukuk Ijara issued in 2002.
(ii) Issuance of new products such as Sukuk musyarakah, sukuk mudharabah, Islamic structured
products and the introduction of the Islamic index
(iii) Issuance of Supranational Ringgit denominated bonds such as International Financial
Corporation and IBRD Wawasan bonds.

58
Selected Projects Financed by ICM instruments
Sector Issue Issuer Instruments Issue Size Tenure
Year (RM mil) (Yrs)
IPPs 2001 GB3 Sdn Bhd* ABBA Serial Bonds 1,000 13
2001 Teknologi Tenaga Perlis Al-Istisna’Serial Bonds 1,515 15
2001 Prai Power Sdn Bhd Al-Istisna’Serial Bonds 780 15
2002 Musteq Hydro Sdn Bhd* ABBA Serial Bonds 108 15
2002 Pahlawan Power Sdn Bhd ABBA Bonds 450 10
2003 Tanjung Bin Power Sdn Bhd* Islamic Medium Term Notes (“IMTN”) 5,600 15
2004 Kapar Energy Ventures Sdn Bhd ABBA Islamic Debt Securities 3,420 15
2005 Ranhill Powertron* IMTN 540 14
2005 Jimah Energy Ventures Istisna’ IMTN 4,847 20
2006 Segari Energy Ventures* Sukuk Ijarah 930 6
Toll Roads 2001 Sistem Lingkaran Lebuhraya Kajang ABBA Bonds 2,500 20
2001 Sistem Penyuraian Trafik KL Barat ABBA Notes Issuance Facility 510 20
2002 Lingkaran Trans Kota* ABBA Bonds, Murabahah CP/MTN 798 7~12
2002 Kesas Sdn Bhd Murabahah NIF/ IMTN, ABBA Bonds 900 4~8
2003 New Pantai Expressway ABBA Islamic Debt Securities 740 10~13
2003 Expressway Lingkaran Tengah ABBA Islamic Debt Securities 800 12
2005 Senai Desaru Expressway Berhad* ABBA Islamic Debt Securities 1,460 18.5
2005 KLBK Secured ABBA 247 17
Water 2004 SAJ Holdings Sdn Bhd* ABBA Islamic Debt Securities 1,280 15
2005 Syarikat Bekalan Air Selangor ABBA, ICP/IMTN 3,000 20
(*) arranged by Aseambankers
59
SECTION
CASE STUDY
TANJUNG BIN POWER SDN BHD
(advised by Aseambankers)
Project Background
Tanjung Bin Power Sdn Bhd (“Tanjung Bin”) is a special-purpose company incorporated to
develop, own, operate and maintain a coal-fired power plant (“the Project”)
Tanjung Bin is 90% owned by Malakoff Berhad, Malaysia’s leading Independent Power Producer
(“IPP”).
Tanjung Bin issued a RM5.6 billion Istisna’ Medium Term Notes Programme (“MTN”) mainly to
finance the cost associated with the site acquisition, development, design, construction, to part
finance profit during construction, to finance issuance expenses and for working capital.
Project Details
Owner : Tanjung Bin Power Plant
Type : Coal-fired (baseload plant)
Capacity : 2,100MW
PROJCT BACKGROUND
Location : Tanjung Bin, Johor

Total cost : RM7.9 billion (Estimation)

61
TANJUN BIN POWER SDN BHD
- RM5.6 billion Istisna Medium Term Notes Programme
EPU
1b Sale price
Istisna’ Sale & Purchase Contact
1a SKS appoints Trustee to construct

and deliver power plant to SKS
TRUSTEE
SKS
Trustee then appoints SKS to
(Wakeel)
construct and deliver plant to
ISLAMIC FINANCING STRUCTURE
2a Trustee
2b Purchase price Sale price

Insurance for
Construction
3 Asset leased to SKS upon completion
INVESTORS

62
Structural Considerations
Why Islamic?
 SPV’s proposed business is “halal” in nature and Islamic issuances are well accepted by investors
in Malaysia
 To allow participation of large institutional investors (Islamic & Conventional) resulting in wider
investor base
Why Istisna / Ijarah?

 Concept of Istisna’ (work-in-progress) is well suited for a green field project financing
 Istisna’ MTN was structured to match the work-in-progress and completion of construction
 Upon completion of construction, the Istisna’ was converted into an Ijarah Contract
 A forward lease agreement was incorporated to allow profit payments to be paid to Investors
even during construction stage.
STRUCTURAL CONSIDERATIONS
Structuring and Legal Considerations

 An SPV - Tanjung Bin, was created to facilitate the transaction
 Sale of Assets is a beneficial sale. Assets are held by SPV in “trust” for Investors
 Trustee is the intermediary between Investors and the SPV, which facilitated a 3 party
transaction
 Each drawdown requires execution of a separate Istisna’ Agreement

63
SEGARI ENERGY VENTURES SDN BHD
Project Background
A financing exercising involving issuance of RM930 million Sukuk Ijarah Notes to refinance
existing RM890.0 million PDS and for working capital purposes
Segari Energy Ventures Sdn Bhd (“Segari”) is a special-purpose company incorporated to
develop, own, operate and maintain a combined cycle gas-fired power plant (“the Project”)
The shareholding of Segari are held by Malakoff Berhad and the Employees Provident Fund Board
Project Details
Owner : Segari Energy Ventures Sdn Bhd
Type : Combined cycle gas turbine
Capacity : 640MW
Location : Segari, Perak
Total cost : RM1.4 billion
PROJCT BACKGROUND

64
- RM930 million Sukuk Ijarah
4 Lease Assets at an
agreed rental rate
TRUSTEE
SEGARI
1
Beneficial sale Cash proceeds to
of Assets meet purchase
consideration
3 Issue Sukuk to
evidence undivided
POWER PLANT proportionate ownership
EQUIPMENT FACILITY AGENT in the Assets and right
to receive rental
payments
Sale of Assets 2
Cash Proceeds
INVESTORS

65
Why Islamic?
 To allow participation of large institutional Islamic investors resulting in wider investor base and
competitive pricing
 To take advantage of the tax exemption benefit
 Perfect fit for Islamic financing - Segari is a single purpose company which operates a “halal”
business and proceeds are to be used for refinancing and working capital (“halal”)

 Segari has tangible Shariah endorsed Assets (power plant) in place
 Assets are leaseable and cashflow generating
 Single drawdown of the Sukuk, allows Segari to refinance its existing facilities. Amortising
structure matches the leasing concept

 Asset were charged to existing financiers ie; it is not “free of encumbrance”. Segari obtained a
letter of undertaking from the existing lenders to utilise the Assets pending the refinancing
exercise
 The principle of Ijarah Thumma Bai was adopted to incorporating a sale of the asset at the end
of the lease tenure

66
SENAI DESARU EXPRESSWAY BHD
Project Background
Senai Desaru Expressway Berhad (“Senai”) is a SPV incorporated to undertake the design,
construction, management, operation and maintenance of a 77-km highway in Johor, known as
the Senai-Pasir Gudang-Desaru Expressway (“the Project”) for a 33 year concession period
To finance the construction, Senai raised RM405.0 million ICULS which were placed to Ranhill
Berhad (“Ranhill”) and Islamic Development Bank Infrastructure Fund (“IDB”) and RM1,460
million Islamic Notes. The Notes were raised under the Bai Bithaman Ajil (“BaIDS”) structure
where the Concession Agreement was the Asset for the sale and purchase transaction
The shareholding of Senai are held by various parties, Ranhill and IDB holding the majority
stakes upon conversion of the ICULS.
Project Details
Owner : Senai Desaru Expressway Berhad
Total length : 77-km
PROJCT BACKGROUND
Location : Senai, Johor


67
SENAI DESARU
EXPRESSWAY
- RM1,460 million Islamic Notes BHD
Project Awarder
GOM
SENAI DESARU
3
Facility Agent appointed as
Wakil to sell back Assets to
Senai at an agreed Sale 1
Price Purchase
Senai sells Asset at an 4
agreed Purchase Price Consideration
Issue Islamic Notes
evidencing Issuer’s
ASSET obligation to pay the
Sale Price on
FACILITY AGENT deferred basis
Concession
Agreement Sale of Assets 2
Cash proceeds to meet
purchase consideration
INVESTORS

68
Why Islamic?
competitive pricing
 Good for Islamic financing - Senai is a single purpose company which operates a “halal” business
and proceeds to be used for halal purposes (i.e construction of highway)
Why BaIDS?
 The mandate for Senai came at a time when BaIDS was the most popular structure to be used
and widely accepted by investors. The education process for new concepts would require time
Alternative structure
 Musyarakah Mutanaqisah (diminishing partnership)

69
Alternative Structure : Musyarakah Mutanaqisah
GOM
AGENT
(to manage 1 Project Awarder
business)
2
Issue Sukuk
Musyarakah
Agreement
SENAI DESARU SUKUK
3 Sukuk Proceeds INVESTORS
Contractor 3
Sukuk proceeds to fund
construction of highway

70
Conclusion
Liquid and vibrant local Capital Market
Cost efficiency vis-à-vis traditional bank borrowings

Malaysia’s
Good balance of demand and supply Capital
Market
Ingredients
Strong backing of Government and Regulatory
Authorities
– Capital Market Masterplan
- Fiscal incentives
CONCLUSION

71
APPENDIX
ASEAMBANKERS’
CREDENTIALS
A Powerhouse in Fixed Income Transaction
RANKED 1ST ON THE UNDERWRITER RANKINGS’ LIST FOR THE 2nd QTR
2006
RANKED 2ND ON THE GLOBAL ISLAMIC BOND LEAGUE TABLE (AUG 2006)
ISLAMIC BOND
LEAD MANAGER TABLE 2005 SUKUK ISSUES LEAGUE TABLE
RANKED 1ST IN RAM’S LEAGUE TABLE FOR SUKUK ISSUANCE
BEST LOCAL CURRENCY BOND DEAL OF THE YEAR – CAGAMAS MBS RAM LEAGUE
BERHAD RM1.555 Billion Nominal Value Residential Mortgage-Backed Securities
Sole Principal Advisor / Lead Arranger & Joint Lead Manager AWARDS 2006
MALAYSIAN DEAL OF THE YEAR – OPTIMAL GROUP OF COMPANIES SUKUK
RM1.270 Billion Al-Bai Bithaman Ajil Islamic Debt Securities
USD468.0 Million Term Loan ISSUES
Joint Principal Advisor, Joint Lead Arranger & Joint Lead Manager /
Bookrunner
MALAYSIAN DEAL OF THE YEAR 2005 – MALAYAN BANKING BERHAD

RM1.0 Billion Islamic Subordinated Bonds Issuance
Sole Lead Arranger and Sole Principal Advisor
MALAYSIAN DEAL OF THE YEAR 2004 – OPTIMAL GROUP OF COMPANIES
RM1.270 Billion Al-Bai Bithaman Ajil Islamic Debt Securities
USD468.0 Million Term Loan
Joint Principal Advisor, Joint Lead Arranger & Joint Lead Manager / DEALS OF THE
Bookrunner
YEAR 2004
BEST MALAYSIAN RINGGIT BOND – CAGAMAS MBS BERHAD
RM1.555 Billion Nominal Value Residential Mortgage-Backed
Securities Sole Principal Advisor / Lead Arranger & Joint Lead
Manager
BEST MALAYSIAN RINGGIT BOND – CAGAMAS MBS BERHAD
RM1.555 Billion Nominal Value Residential Mortgage-Backed
Securities Sole Principal Advisor / Lead Arranger & Joint Lead
Manager

73
AWARDS
Other Awards...

74
Markets...
Awarded the Deal of
the Year 2004 and
Malaysian Deal of the
Year 2004 awards from
The Banker and Asia
Money for the Optimal
Group of Companies’
RM1,270 Million Islamic
PDS
Also won the Best at Islamic

Bonds Awards and Global
Islamic Finance Award from
Euromoney for the years GLOBAL ISLAMIC
FINANCE AWARD
GLOBAL ISLAMIC
FINANCE AWARD
2002, 2003 and 2004. 2003 2004
Ranked 4th in the world in Best at Islamic

Bonds
Best Islamic
Wholesale Financial
the Global Islamic Bond for the year
2002
Services Provider
for the year
League Table for 2005 by 2003
Islamic Finance
AWARDS

75
Recognised internationally as
the premier Islamic Financing
‘The Maybank Group was conferred the prestigious Sheikh Mohammed Bin Rashid Al Maktoum
Islamic Finance Awards, the 1st foreign bank to win the awards’
AWARDS

76
Thank You
Aseambankers Malaysia Berhad

Menara Maybank
100, Jalan Tun Perak,
50050 Kuala Lumpur
Tel: +603-2059 1888
Fax: +603-2059 1571
www.aseam.com.my
STRUCTURING
PRODUCTS FOR
INFRASTRUCTURE
PROJECTS
Dr. Mohd Daud Bakar
CEO/President
International Institute of Islamic
Finance (IIIF) Inc.
mdaud@iiif-inc.com
DEFINITION OF ISLAMIC
PROJECT FINANCING
• A scheme of financing to assist the developer /owner
of a project to complete the project according to
Shari’ah principles.
• Normally, in project finance, the cash flow from project
is the sole source of repayment, usually secured by
project-related assets.
• In conclusion, an Islamic project financing is a scheme
to finance the cost of construction or manufacturing,
as the case may be, whereby the mode and purpose
of financing are Shari’ah compliant.

79
STRUCTURE PRODUCTS
FOR INFRASTRUCTURE
PROJECTS (BANKING
• PRODUCTS)
Islamic banking products are available and
flexible to support any project financing. Ideally,
the best Islamic contract would be Istisna’
(construction/manufacturing) contract. However,
other modes of financing are useful which include:
– Murabahah
– Tawarruq
– Ijarah
– Sale and lease-back
– Forward lease

80
MURABAHAH ASSET
FINANCING
• A cost plus sale whereby the financier will purchase asset
from the supplier and will later sell to the contractor
/developer on cost-plus-profit basis.
The financier may assign the vendor to
6 deliver the “asset” direct to customer CUSTOMER /
VENDOR
CONTRACTOR
V 5
2 3 “as end
pr USD
se o
it
t” r d
ls
of
pl ys
to el
10 se el
Fi
s
pr ,000 ” at
th ive
it plu
as na
D “ as r s
0 pa
us
se nc e rs
t
US e ncie
00 r
t a ie fin t
0, me
tU rp a n he
10 sto
na
u ci
0
of
SD rc er
Fi
10 h a s 4
Cu
th
0, es 1
00
0 the
sp FINANCIER
ot
Customer expresses his intention to
purchase an “asset” from the financier at
mark-up sale payable on deferred basis
81
CONT’D
• The purpose of Murabahah financing is to
assist the customer /developer to purchase
“asset” (e.g. raw materials, equipments)
that are needed for the project, whereby
the payment is deferred .
• The customer /developer may elect to pay
the selling pricing either on installment
basis or on bullet payment basis, as the
case may be.
82
TAWARRUQ (MURABAHAH)
FINANCING
• Tawarruq is a contract to provide cash
facility to the developer to cover some
cash expenses such as fees, salaries, etc.
(The ultimate purpose of tawarruq, unlike
Murabahah, is not to acquire a particular
asset).

83
COMMODITY
PRODUCT
Prime Broker A Prime Broker B
Metal X 1 USD 100 k USD 100 k Metal X

2 5
6
3
RM Cost + Profit (USD110k)
Bank Customer /
Developer
Metal X 4

84
CONT’D
• Generally speaking, Tawarruq as a
concept has been widely accepted in the
Middle East with a varying level of
acceptance with regard to the number and
‘quality’ of the parties involved in the whole
transaction.

85
IJARAH FINANCING
• Ijarah is a lease contract under which the financial lessor may lease
his equipment(s), for example, to the lessee / contractor for a rental
payment.
• Ijarah could be operating lease or financial lease as the case may be.
CUSTOMER /
SUPPLIER DEVELOPER
Su 3
pp 5
0 D e
00 S h
2 l ie
0, f U s t
D er or s
rd
US in p et f ase
11 l o pay
11 iod a
00 or
Fi el
iv
rta ss le
0, 0 f
na
nt er
er
ce e a ier
as nc s
re om
se i e th
th anc
a
ta rp e
st
t U ur as Cu
n
c se
Fi
SD ha t 4
10 ses 1
0,
00 the
0
FINANCIER
Customer expresses his wishes to take
an “asset” on lease

86
CONT’D
• Purpose:
– Leasing of equipments
– Leasing of equipments with an option to
purchase

87
SALE AND LEASE BACK
(WITH AN OPTION TO
PURCHASE)
• This mode involves two different contracts:
– Sale of asset by the customer / developer to
the financier at cash price e.g. USD 100k
subsequently thereafter lease back of the
same asset from the financier at USD 110k
payable in 5 years for example.
– Option is given to the customer /developer to
purchase back the asset after the expiry of
the lease tenor.

88
CONT’D
1
ASSET CUSTOMER /DEVELOPER

Customer Identifies
asset
4 5
Financier 6
2 pays USD Customer Financier
100k cash Financier pays USD
Customer sells asset at leases back awards the
110k of
USD 100k cash 3 the asset at option to
rental customer to
USD 110k within 5
payable purchase the
years asset at an
within 5 years
agreed price
FINANCIER

89
CONT’D
• The purpose of sale and lease back
transaction is to refinance the asset of the
customer /developer as well as to obtain
cash facility.
(This structure has been widely used in
many sovereign and corporate issuance of
Sukuk al-Ijarah.)

90
FORWARD LEASE
• This contract is known as
– Ijarah Mausufah fi al –Dhimmah
• (lease on assets whose specifications are made known but not
identified).
– Ijarah Mudafah ila al-Mustaqbal
• (lease which is linked to future delivery )
• This contract could perfectly replace the Istisna’ financing. In

a nutshell, the lessee will start paying the rental to the lessor
through the asset is still under the construction. In the case
of non-delivery, all the advance rental shall be refunded to
the lessee. The rental payment is used to finance the
construction cost.
91
ISTISNA’ FINANCING
• Istisna’ is a contract of sale of specified items to be
manufactured or constructured, with an obligation on
the part of the manufacturer or builder (contractor) to
deliver them upon completion
• By and large, it has been said that Istisna’ is a
departure from the general principle of sale i.e. selling
something which is not existed
• Some scholars approved Istisna’ on the basis of
Istihsan i.e. a departure from a principle of law which
is obvious to another which is hidden but more
appealing (Hanafis methodology)

92
CONT’D
• Nevertheless, there are some reports from
the Prophet (PBUH) to the effect of Istisna’
:
– Ordered someone to ‘prepare’ a ring for him
(the Prohet)
– Ordered someone to build the ‘minbar’ for the
Madina Mosque

93
ISTISNA’ AND IJARAH (HIRE
CONTRACT)
• While Ijarah would require the hirer to
supply the raw material to the hiree
(worker / contractor) to work on, Istisna’
would require the contractor to supply both
the raw materials and the work.
• Compare with maintenance contract and
BOT-Build, Offer and Transfer.

94
CONT’D
• BOT, (Build, Operate and Transfer)
2 Builds, operates and transfers the
asset
GOVERNMENT CONCESSIONNAIRE
1
Awards the concession
Notes:
1. The contract of BOT is based on Istisna’
2. The payment of the Istisna’ sale is in kind i.e. right to
collect the toll (for example) .

95
PARALLEL ISTISNA’ (AL-
ISTISNA’ AL MUWAZI)
• This is based on two parallel contracts of Istisna
• In the first, the Islamic Financial Institution (IFI)
acting as a manufacture / contractor concludes a
contract with the customer (who is the ultimate
purchaser/buyer)
• In the second contract, the IFI acts in the
capacity of purchaser and concludes another
contract with (ultimate) manufacturer/contractor
to acquire the same item as per the first contract.

96
ILLUSTRATION OF
PARALLEL ISTISNA’
ULTIMATE ISLAMIC FINANCIAL ULTIMATE
PURCHASER/ INSTITUTION MANUFACTURER
CUSTOMER CONTRACTOR
1 2
• 2nd contract of Istisna’

• 1 contract of Istisna’
ST
• Purchase price is USD

100,000 payable according to
120,000 payable in 5 years
progress
• Delivery date e.g. 2
September 2008
September 2008

97
ISLAMIC FINANCING
STRUCTURES
(CAPITAL MARKET
Mudharabah
• A contract which is made between two parties to finance a business venture. The
PRODUCTS)
parties are:
 Rabb al-mal or an investor who solely provides the capital, and a Mudharib or
an entrepreneur who solely manages the venture
• If the venture is profitable, the profit will be distributed based on pre-agreed ratio.
In the event of a business loss, the loss shall be borne solely by the provider of
capital
Purpose : typically for venture financing (projects, real estate), on equity basis
Period : medium to long term
Asset : Equity investment in the venture assets
Issuance : Sukuk Mudharabah
Structure :
Contract of Mudharabah
Sukuk Mudharabah
Investor Issuer
(Rabb al-mal) Capital Proceeds (Mudharib)
Loss borne totally Y% Capital
X%
by Investor Profit shared based on
pre-agreed ratio X:Y Investment
Outcome
Venture

98
MUDARABAH SUKUK
Trustee Rabb al Mal 1
1
Bond
Holders
Profit Issue
1st Mudharabah
Mudharabah Bonds
5
Invest Capital
2
Mudharib 1
PG MUNICIPAL
&
Rabb al mal 2
3 2nd Mudharabah
Profit from PG LOCAL AUTHORITY Mudharib 2

Tax Collection
Manage and Administer

Tax Collection
99
PARALLEL MUDARABAH
MUNICIPAL
Bond Holders BONDS Security
Trustee
/ Investors
Profit Sharing
Bonds
First Issues proceeds
Mudharabah bonds SPV SPV Investors
Arrangement Collection X% Y%
SPV
Profit Sharing
(Issuer)
Collection Administrator Investors
Bond Account
X% Y%
Proceeds
Second
Mudharabah
Administrator
Arrangement (Entrepreneur managing
the business venture
Adapted from the article, “Parallel Mudharabah Municipal Bonds:

AmMerchant Bank Berhad”, Islamic Finance Bulletin, Jan-Mar 2005, Rating Agency
Malaysia (RAM)
100
ISLAMIC FINANCING
Musyarakah STRUCTURES
• 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 pre-agreed profit
sharing ratio, but a loss will be shared on the basis of equity participation
Issuance : Sukuk Musyarakah
Structure : Capital Proceeds Investment
Venture
Contract of Musyarakah
Capital
Sukuk Musyarakah
Investor Issuer
Loss borne on basis of equity Y%
X% participation
Profit shared based on
pre-agreed ratio X:Y
Outcome

101
EMIRATES AIRLINE SUKUK
AL- MUSHARAKA
USD 550,000,000
SUKUK WINGS
Wings issues Sukuk evidencing

proportionate share in underlying
MUSHARAKA
ASSETS EMIRATES
Musharakah assets
EMIRATES Land parcels valued

at USD 100,000,000

102
MUSHARAKAH
• Purpose:
– Financing the cost of construction of new tower.
– Enhancing the capabilities of the airport services.
• The source of payment is Ijarah / rental
payment as the tower will be leased to the
Emirates.
• There is purchase undertaking by the issuer
to purchase the Sukuk at face value in the
case of default/ Events of Default.

103
ISLAMIC FINANCING
Sukuk Ijarah
STRUCTURES
• A manfaah (usufruct)type of contract whereby a lessor (owner) leases out an asset or an
equipment to its client at an agreed rental fee and pre-determined lease period upon the
aqad (contract)
• The ownership of the leased asset/equipment remains for the account of the lessor
• Sukuk Ijarah represents a share in a leased asset (pro-rata ownership by the sukuk holders
of the leased asset)
Purpose : typically for capital expenditure financing

Asset : underlying asset typically provided by issuer
Issuance : Sukuk Ijarah
Structure :
Lease Payment Issues Sukuk al-Ijarah
Obligation
Sukuk
Originator SPV/Issuer
Leaseback of Asset Investors
Issuer Identified Purchase of asset by the

Assets SPV/issuer at purchase
Assets
price

104
ISLAMIC FINANCING
Intifaa’ STRUCTURES
• Securitization of the right to benefit or enjoyment (haq al intifaa’)in the form of time
sharing

Asset : underlying asset typically provided by issuer or to be constructed
Issuance : Sukuk Intifaa’
Structure :
Ijarah Contract on
Lease of Land
Land
Owner Land Lease Payments Developer
Lease of Rights Payments of

Development Of Future Use of
Units on Chosen Lease Rental
Cost
Time Slots
Commercial and Sukuk

Hotel Property “Time Use” by Investors
Sukuk Holders

105
THANK YOU
•Corresponding Services:
Address:
Education.
Suite A-D, 14th Floor Certification.
Bangunan Angkasa Training.
Raya Jalan Ampang,
50450 Kuala Lumpur, Research and Development.
Malaysia
Shari’ah Advisory Services.
•Website:
www.iiif-inc.com Networking and Matchmaking.
Publication
•Email:
niza@amanie.com.my
PROJECTS USING
ISLAMIC INSTRUMENTS
Key Legal Considerations in

Structuring Sukuk for
Infrastructure Financing:
the Malaysian experience
Outline
• Choosing appropriate Sukuk structures for infrastructure project
financing
• Addressing Legal and Syariah compliance issues in financing

transactions
• Avoiding common pitfalls in structuring Islamic infrastructure project

financing
• Appreciating different considerations involved in domestic and cross

border Islamic infrastructure project financing

108
Choosing appropriate Sukuk
structures for infrastructure
• project
1. Istisna’ (Purchase Order) financing
• Defined as a purchase contract of an asset whereby a buyer will place
an order to purchase the asset which will be delivered in the future.
• Procedures:
(i) The buyer will require a seller to deliver or construct the assets that will be completed in the
future.
(ii) The parties will decide on the sale and purchase price and the settlement can be delayed or
arranged based on the schedule of the work completed.
(iii) The buyer will then issue Istisna bond to investors to purchase the asset manufactured from the
seller.
• Benefits:
(i) Suitable for financing construction projects.
Disadvantage:
(i) Possible issue of Bai’ al-Dayn

109
110
• 2. project financing
Ijarah/Leasing (Sukuk Issuance) …(cont’ 2)
• Defined as contract for the purpose of renting out a lessor’s asset to a
lessee.
• At the end of the lease period, the lessee will purchase the asset at an
agreed price from the lessor by executing a purchase contract.
• Procedures:
(i) The company requiring financing will sell the Ijarah assets (such as plant, equipment, machinery) to the
SPV by executing an asset purchase agreement.
(ii) The investors shall provide funds to purchase the Ijarah assets, and the SPV shall issue Sukuk to evidence
share in Ijarah assets
(iii) The SPV having obtained the ownership of the assets on behalf of investors, will then lease the Ijarah
assets back to the to the company by executing an Ijarah contract.
(iv) At the end of the lease term the Ijarah assets will be purchased by the company at an agreed price.
• Benefits:
(i) Issuer may use rental flow of an existing asset to obtain financing
(ii) Requirement for an existing asset

111
Sukuk Al-Ijarah
•
•
•
• COMPANY A
•
•
• 1. Sale & Transfer of 6.Payment of rentals
• Beneficial Title 9.Exercise price at dissolution
• 2. Lease of land parcels
• 5. Onward payment of
• sukuk proceeds
• 8. Sale at dissolution 3. Sukuk issuance
• 7. Periodic rental payments
• 10. Dissolution Amount
•
SUKUK
SPV/ISSUER HOLDERS
(INVESTORS)
•
• 4. Payment of Proceeds
• from sale of sukuk

112
• 3. project financing …(cont’
Mudarabah/Muqaradhah/Musharakah (Sukuk3)
Issuance)
• Joint participation/partnership resulting in common ownership of
assets and entitles holders to share in the specific project on which the
bonds have been issued for financing purposes.
• Procedures:
(i) Unit price is determined by dividing Mudarabah/Muqaradhah/Musharakah capital by the number of
units issued. It is registered under the shareholders’ name, all of which represents the common
assets in Mudarabah/ Muqaradhah/Musharakah capital.
(ii) The rating of Mudarabah/Muqaradhah/Musharakah certificated represents the probability of
realising expected returns, rather than the ability to meet schedule payments and there is no
predetermined profits.
• Benefits:
(i) No requirement for underlying asset sale and buy back transactions.
(ii) Arrangement reflects investors participation as fund providers in the business venture.

113
114
115
Addressing Legal and Syariah
compliance issues in financing
• 1. transactions
Section 32 of the Securities Commission Act 1993 (SCA)
• Any person who issues, offers for subscription or purchase, or makes an
invitation to subscribe for or purchase (issue, offer or invitation), Islamic
securities would require the approval of the Securities Commission of Malaysia.
• 2. SC Guidelines on offering of Islamic Securities

• The issuer must comply with the SC Guidelines which sets the criteria which
must be met prior to offering the Islamic securities.
• 3. Syariah Compliance
• Syariah Adviser to be appointed to ensure that the structure and documentation
conforms to Islamic principles.
• Any securities issued pursuant to any Syariah principles and concepts must be
approved by the Securities Commission of Malaysia.

116
Addressing Legal and Syariah compliance issues in
financing transactions … (cont’ 2)
Syariah Adviser
There must be an appointment of:-
 an independent Syariah adviser who has been approved by the SC and meets the following
criteria:-
• not an undischarged bankrupt
• Not convicted for any offence arising our of a criminal proceeding
• is of good repute and character
• possesses the necessary qualifications and expertise in fiqh muamalah and Islamic
jurisprudence, and has a minimum of 3 years experience or exposure in Islamic finance, or
 The Syariah Committee of an Islamic bank or licensed institution approved by Bank Negara
Malaysia (Central Bank) to carry out Islamic Banking Scheme.
 A company that has in its employment a minimum of one individual who meets the criteria as
stated for the independent Syariah adviser above

117
financing transactions…(cont’ 3)
• Stamp Duty
• Section 14A of Stamp Act 1949

- Stamp duty chargeable only on principal amount provided by the financier
• Paragraph 6, General Exemptions, First Schedule to the Stamp Act 1949

- Stamp duty exemption on any additional instrument executed for the purpose of
complying with the Syariah principles, pursuant to a financing scheme approved by
the Bank Negara Malaysia (Central Bank) or Securities Commission of Malaysia
• Stamp Duty (Exemption) (No. 23) Order 2000 read together with Stamp
Duty (Exemption) (No. 3) Order 2005
- Stamp duty exemption on instruments relating to Islamic securities issuance

118
• Income Tax
• Section 2(7) of Income Tax Act

- provisions on interest shall apply mutatis mutandis to gains, profits, expenses of
Syariah transactions (to cover any income or expenses pursuant to Islamic financing)
• Section 2(8) of Income Tax Act 1967

- disposals of assets/leases pursuant to Syariah-compliant financing not subject to
Income Tax Act
- such financing schemes must be approved by the Bank Negara Malaysia (Central
Bank) or the Securities Commission of Malaysia as being in accordance with the
principles of Syariah
- effective from Year of Assessment 2003

119
• Income Tax
• Income Tax (Deduction for Expenditure on Issuance of Islamic

Securities Pursuant To Istisna' Principle) Rules 2005 (P.U. (A)
322/2005)
- deduction on expenditure incurred on issuance of IPDS under Istisna’ principles
from 3 July 2004 until Year of Assessment 2007
• Income Tax Income Tax (Deduction for Expenditure On Issuance of

Islamic Securities) Rules 2005 (P.U. (A) 107/2003)
- deduction on expenditure incurred on issuance of IPDS under Mudharabah,
Musyarakah and Ijarah principles from 3 July 2004 until Year of Assessment
2007

120
• 1.
transactions…(cont’ 6)
Riba (Interest)
• 2. Maisir (gambling/excessive speculation)
• 3. Gharar (ambiguity)
• 4. Zulm (Injustice/oppression)
• 5. Halal (not haram or makruh)
• 6. Syariah Advisory Council

• (a) Islamic financial products– Bank Negara Malaysia (Central Bank)
• (b) Islamic PDS/Securities – Securities Commission of Malaysia
•

121
Avoiding common pitfalls in
structuring Islamic infrastructure
• 1. project
Istisna (Purchase Order) financing
 Requires the construction of the asset
 Must be specific in the construction of the asse
 Avoidance of Bai’ al-Dayn
• 2. Ijarah (Leasing)
 Must have an asset to lease
 Asset must be capable of being used or enjoyed by the lessor (usufruct) (manfa’ah)
• 3. Mudarabah/Muqaradhah/Musharakah (Sukuk Bonds)

 Requires a certain number of investors (more than one)
 Requires capital contribution by all investors (for Musharakah only)
 Losses cannot be borne by the entrepreneur (for Mudarabah/Muqaradah only)

122
Comparison between domestic
and cross border Islamic
infrastructure project
• Malaysia – Applicable Structures
financing
1) Al-Bai Bithaman Ajil
2) Murabahah
3) Istisna
4) Ijarah
5) Mudarabah/Muqaradhah/Musharakah
• Reasons:
1) Trading in debt (Bai’al – Dayn)
2) Syariah Acceptance, e.g. Bai’ Inah element in Bai’ Bithaman Ajil and
Murabahah

123
• financing…
International – Applicable Structures
(cont’ 1)
1) Ijarah
• Reasons
1) Universal Acceptance.
2) Acceptability of Syariah Adviser/Panel
3) Use of International Syariah Panel, eg. Syariah Advisory
Board of International Islamic Financial Market, for
International/Cross Border Issuance

124
Contact Details
• Megat Hizaini
• Partner
• Tel : + 603 2087 9811

• Fax : + 603 2094 4666
• Email : megat.hizaini@zaidibrahim.com.my
• Zaid Ibrahim & Co

• Level 19 Menara Milenium
• Pusat Bandar Damansara 50490 Kuala Lumpur

125
Sources of Presentation
1. Aseambank, Malaysia
2. Infrastructure Development Corporation Limited (IDCL)
3. International Institute of Islamic Finance, Inc. (IIIC)
4. Richard Tinsley. Advanced Project Financing. Euromoney Institutional Investor
PLC, 2000
5. Zaid Ibrahim, Co., Malaysia
6.
7.

126
1) Is defines as raising funds to finance an economically separable capital

investment project in which the providers of funds look primarily to
the cash flow from the project as the sources of funds to service their
loans and provide the return of and a return on their equity invested
(IDCL)
2) A funding structure that relies on future cash flow from a specific

development as the primary sources of repayment with that
development’s assets, rights, and interests legally held as collateral
security

127
Structure
Independent
Experts
Co-Financing/PRI Advice
ECAs/MLAs
Lead Funders
Agent/ Shareholders Government
/Arrangers
Trustee
Debt Equity Concession/

License
Assignment
Other issues to
consider in
Islamic Insurance Long Term
Policies Special Off-take Contract
Financing: Purpose
Insurer Off-taker
•More complex Project Co
documentation.
•Asset ownership
& risks.
O&M Turnkey
Supply
•Tax treatment in Contract Contract
Agreement
relation to
O&M EPC
conventional Contractor Contractor
debt. Suppliers
Equipment
Warranties Vendors Warranties
Source : Aseambankers, 2006

128
Project Finance Participants
17. Offtaker 18. Transportation
3. Financial
Advisers 5. Exims/
MLAs
10. Government
Delay/
Sales contract/ Insurances 13. Insurers
Subscriber revenues Cofinancing/
PRI
19. Rating
1. Sponsors
Agency
Offshore 6. Agent/
Proceeds accounts Trustee
4. Arrangers/
Concession/ Lead Funders
Site Lease
2. Special
Security Loan
Purpose Agreement
Supply 14. Swap
Vehicle (SPV) counterparties
15. Suppliers Contract
8. Independent Performance Turnkey Performace O&M

Experts Lease
Bonds Contract LDs warranties Contract
7. Lessors
11. Construction 16. Equipment

Banks 12. O & M Co.
Company Vendors
9. Lawyers

07/12/23
129
Chile
ENAP
State Rule 144A
CHILE Performance
Petroleum, Co. Guarantee
18 years
T10+ 1.7% =
7.36% p.a.
7.5%
Processing
Petropower Service and supply LCs/cash-
Energia Ltda. agreement 6 month debt
Service reserve
US$ 9.6 million 7.5%
p.a. revenue PETROX
deficiency 30-year site REFINERY
efficiency Usufructory
agreement US $ 20 million agreement
Revenue deficiency Vacuum Refined
agreement residue products
85%
1-year buyout
(100% of PF) 100% LDs Delayed coker
Electricity, + hydrotreater
FW Cocque steam
Verde LP
LDs = Liquidated Green coke
US$ 186 million Damages (free)
EDPC and
commission
Foster Wheeler
Subcontract 59 MW ST Circulating
Cogeneration Fluidized
plant bed boiler
FW Iberia FW Chile

07/12/23
130
Tollway, Thailand
Government
Financial Shareholders Loss payees
Thai Highway Insurers
Department Advisers (incl. Dwydag)
International
Cash retention banks
Account
Equity
Concession
Bt. 2.4 billion
25 years/site lease
Security Package:
Assignments contract,
performance bond, 58%
borrowers rights,
pledge of shares, toll revenues,
other rights
Independent Supervision/ SPV & Opeartor
Engineer Certification DMT Co. Ltd. Local banks
Debt
Bt. 7.3 billion
42%
Direct and Standby
Performance & Loans
Bank Maintenance Fixed Price
Bonds Contract LDs
LDs = Liquidated Damages
Construction
Construction Company (DTC)
Consortium Dywithai
Dwydag 50% Dywidag 49%
Delta 25% Delta 49%
GTMI 25% Others 2%

131
Transit, Malaysia
Progressive 6 months
Right of Way late?
Bumiputra/
AEG Rolling Stock,
Malaysian Westinghouse signals
Pension Funds
Buyout
Taylor
55% Tracks and
Woodrow
Stations
30%
M $ 550 million 15% Other Foreign

Support loan Equity
STAR
Cash flow
deficiency
30 year M $ 1.26 billion

BOO concession FX hedge on
Loan + 5% overrun
construction
facility
equipment
Total cost M$ 2.17 billion
Equity M$ 360 million
Equity + 5% overrun
Malaysian Bank Negara
Government Malaysia Central Bank
Banks

132
Contents
Shariah Principles in Infrastructure Financing
Islamic Capital Markets
Case Study
Conclusion
Appendix 1 : Aseambankers’ Credentials

133
SECTION
ISLAMIC CAPITAL
MARKETS
Evolution Of The Malaysian Islamic Capital Market
Islamic Private Debt Securities debuted in Malaysia in 1990 which saw the issuance of Shell MDS Sdn
Bhd valued at RM140 million.
1980 1990 1995 2005 2006
 Development of  Primary market  Growth in the  Product  Product

Markets, Players & issuance Secondary Development Development
Products
 Investors shy away  Stronger  Shariah  Shariah
 Islamic Banking from Islamic acceptance for Harmonisation Harmonisation
Act 1983 instruments due Islamic products
 Market  Market
to perceived
 Bank Islam  Emergence of Penetration & Penetration &
complexities of
Malaysia 1983 Islamic Funds Development liberalization
structures
 Takaful Act 1984  Liberalize market  International
access Benchmark
Practice
Infant Market Broader Market Deeper Market Developed Market

Islamic capital market guidelines, as well as the Islamic Capital Market Master Plan have strategically
outlined prospective areas of development and growth.
The Islamic Capital Market (ICM) has progress significantly and form an integral part of broader capital
market landscape in Malaysia.
Continuous effort on product development has enable ICM to offer wide range of viable and
competitive products, hence increasing its popularity and acceptability to issuers and investors.

135
Funds raised via Corporate Bonds
Corporate Bond Total Value of PDS

Issuance Trend Issued by
45000
Conventional
40000
PDS
35000 33%
(1990 – 2006)
30000
Instrument Type,
RM mln
25000
as at 30 June 06
20000
15000
10000
5000
Islamic PDS
0 67%
1990
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
1991
2006f
Islamic Conventional Total
Corporate bond market expanded rapidly post-crisis with total issuance increased from RM9.2 billion in 1995 to
RM31.8 billion in 2005.

Bonds as a source of funding for long gestation infrastructure projects – water, toll roads and power.
Variation in structures - Straight bonds, Islamic bonds and structured products such as asset-backed securities.
Islamic principle securities remained the most favored form of fund raising in order to tap larger pool of
investors thus reducing cost of financing.
For 2006, we expect new corporate bonds issuance worth RM40bln, large portion will be channel to finance
infrastructure projects under 9MP, of which 82% is expected to be in Islamic corporate bonds.

136
Opportunities & Benefits Of Sukuk
The composition of Islamic fixed income securities vs. total private debt securities issued on the market
grew with increasing significance. As at 30th Dec 05, total Islamic PDS stood at 76% of total corporate
bonds issued. As of today, Islamic fixed income securities constituted more than 45% of total outstanding
PDS.
Islamic PDS: Value & Proportion of

40000 100
Total Corporate Bonds

30000 80
60
20000
40
10000 20
0 0
96 97 98 99 00 01 02 03 04 05 06f
Islamic bonds Conventionnal bonds Islamic bonds % of total (RHS)

137
Move Towards Shariah Compliant Principles
Total Value of PDS Total Value of PDS

Issued by Islamic Bonds - 2005
Issued by Islamic Bonds - 2006( July)
Instrument Type, in Instrument Type, in

Mudharabah BBA
Al-Dayn 7.8% Ijarah
Musyarakah 0.2%
0.9% Musyarakah 6.8%
9.5%
year 2005 year 2006 (up to

48.2% Istisna
Murabahah
15.9% 3.3%
Istisna
2.9%
BBA July)
Ijarah 68.2% Murabahah
2.4% 33.9%
As at end July 2006, Islamic issues using the musyarakah principle amounted to 48.2% of total issuance of
Islamic debt and the trend to adopt more Shariah compliant principles is likely to continue in the
foreseeable future
The awareness for internationally recognised Shariah principles underscores the deepening of Malaysia’s
Islamic Capital Market
Investors’ level of sophistication and acceptance of international Shariah principles would further
strengthen Malaysia’s position as the center for Islamic Finance

138
Islamic Infrastructure Deals
Infrastructure Financing Via Capital

Markets (1990-2005) Tanjung Bin Power
RM5.57bln
Kapar RM3.40bln
SAJH RM1.28bln Segari RM930mln
100 PLUS Senai
RM7.36bln RM1.46bln
90 SILK Jimah
RM2.01bln RM5.75bln
80 Splash
RM1.40bln
70 PLUS
60 RM18.1bln
R M b ln
Litrak
RM535mln
50 UEM
40 RM200mln
30
20
10
15.1
0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06f
Government Debt Securities Corporate bonds Equities

139
Yields of Islamic and conventional infrastructure issues
Independent
Islamic
Power Producers
Conventional
Issues
Issuer Ra Ten Curre Issuer Ra Ten Curre
tin ure nt tin ure nt
g Yield g Yield
3 4.10% 3 4.40%
year 4.65% year 5.00%
AA s s
Toll
Segari Highway
1 Issues 5.30%
Islamic 6 Conventional
AA 6
Issuer Ra year Ten Curre Issuer
YTLPG Ra Ten
year Curre
tin ure
s nt 1 ure
tin s nt
g Yield
8 6.30% g 8 Yield
3 4.40%
year 6.60% 3
year 4.60%
year Litrak AA
Jimah AA s 4.75%
s 5.55% 2 year s
s
3 11 4 4.25%
AA 6
year Selia 7.5
year 6.00%
5.60%140
07/12/23 AA
Suyono Dikun Lecture Material @ SADE Research Institute 140
SECTION
EVOLUTION OF PROJECT
FINANCING
“A funding structure that relies on future • Future cashflow.

cashflow from a specific development as
the primary source of repayment,
that development’s assets, rights,
• Proper project risks allocation.
and interest held as collateral security.”
- R. Tinsley
• Funding and repayment
mechanisms.
“Financing the development or

exploitation of a right, natural resource or • Legal security and provision to
other asset where the bulk of the financing to handle defaults.
is not to be provided by any form of
share capital and is to be repaid principally
out of revenues produced by the project • Project reporting and
in question.” – G.Vinter compliance.

142
1980 - 1990 1990 - 1995 1995 - 2000 2000 onwards
•Privati •Privati •Regio •Revisi

zation zation nal on of
Mile
policy of econo privati
ston was power mic zation
e annou genera crisis. policy.
Even nced in ting

ts 1983. assets.
•PLUS •IPPs – •Refina •West
As the market gets more sophisticated, so does the debt instrument.
- YTL, ncing Coast

Key
07/12/23 North- Segari,
Suyono Dikun Lecture Material @ SADEof
Research Institute Highw 143
143
Diversity Of Islamic Private Debt Securities
Total Value of Total Value of

PDS Issued by PDS Issued by
Supra Healthcare Transportation Qard Hassan Bai Inah
Trdg/serv 0% Prop/Real Est Bai Bi Al-Taqsit
0% 1% 1%
4% 21% 1% 1%
Musyarakah
Construction Bai Al-Dayn Murabahah
3%
Sector, Instrument
4% 26%
2% Ijarah
2%
Mudharabah
Industrial prod 0%
as at Dec 05 Type, as at Dec

Istisna
8%
10%
Infra & uti
Consumer prod
53%
1%
ABS
3%
Mining
3%
Plant/Agri
2% 05 Bai Bithaman Ajil
Investment hldg 52%

2%
Financial serv
0%
There are 333 issues of rated and issued Islamic corporate bonds worth RM147.99bln as at Dec
2005.
Infrastructure & utilities dominated at 53%, followed by Property/ Real Estate and Industrial
Products at 21% and 8% respectively.
Preferred Islamic structures are Bai Bithaman Ajil (deferred payment) (56%) and Murabahah (cost +
profit) (29%).
Issuers are venturing into other Islamic structure such as Istisna (commissioned manufacture),
Ijarah (lease), Musharakah (partnership) and Mudharabah (profit sharing) to tap the market.
144
Perspective of Issuers, Arrangers and Investors
Issuers Arrangers Investors
 To meet funding  Fees.  Shariah compliance

requirements. investment.
 Profiling.
 Benefits from  Comparable returns to
 High demand for
incentives being conventional debt
Islamic debt.
offered. instruments.
 Development of Islamic
 Cheaper source of  Conducive market
Capital Market.
funds via wider environment.
investor base.
 Various financing
structures/instruments.
 Shariah compliance.

145
Islamic Capital Market – Conducive Environment
The Malaysian Government ( through the Capital Market Masterplan launched in 2001), has taken
steps to put in place the necessary infrastructure and policies to drive the development of the Islamic
Debt Market. Among the measures taken are as follows:-
Legal and Regulatory

(i) The appointment of the SC as the single approving authority for Islamic PDS.
(ii) The formulation of specific guidelines for Islamic PDS.
(iii) Single Shariah Advisory Council established for the SC and the Central Bank.
Fiscal Incentives
(i) Stamp duty exemption for Islamic Bonds.
(ii) Expenses incurred in issuance of Islamic Securities are eligible for tax deduction over 5 year.
(iii) The sale of assets are not deemed as a sale for tax purposes (No RPGT).
(iv) Refinancing of conventional loans using the Islamic Bank Market is exempted from stamp duty.
Other Measures Introduced

(i) The issuance of Islamic debt securities in the global market, for example the USD600 Million
Malaysian Sukuk Ijara issued in 2002.
(ii) Issuance of new products such as Sukuk musyarakah, sukuk mudharabah, Islamic structured
products and the introduction of the Islamic index
(iii) Issuance of Supranational Ringgit denominated bonds such as International Financial
Corporation and IBRD Wawasan bonds.

146
Selected Projects Financed by ICM instruments
Sec Is Issuer Instruments Issu Ten

tor su e ure
e Size (Yrs
Ye (RM )
ar mil)
IPP 20 GB3 Sdn Bhd* ABBA Serial 1,000 13
s 01 Bonds
20 Teknologi Al-Istisna’Serial 1,515 15

01 Tenaga Perlis Bonds
20 Prai Power Sdn Al-Istisna’Serial 780 15
01 Bhd Bonds
20 Musteq Hydro ABBA Serial 108 15
02 Sdn Bhd*
(*) arranged by Aseambankers
Bonds
07/12/23 20 Pahlawan ABBA
Suyono Dikun Lecture Material @ SADE Bonds
Research Institute 450 10 147
147
SECTION
CASE STUDY
TANJUNG BIN POWER SDN BHD
Project Background
Tanjung Bin Power Sdn Bhd (“Tanjung Bin”) is a special-purpose company incorporated to
develop, own, operate and maintain a coal-fired power plant (“the Project”)
Tanjung Bin is 90% owned by Malakoff Berhad, Malaysia’s leading Independent Power Producer
(“IPP”).
Tanjung Bin issued a RM5.6 billion Istisna’ Medium Term Notes Programme (“MTN”) mainly to
finance the cost associated with the site acquisition, development, design, construction, to part
finance profit during construction, to finance issuance expenses and for working capital.
Project Details
Owner : Tanjung Bin Power Plant
Type : Coal-fired (baseload plant)
Capacity : 2,100MW
PROJCT BACKGROUND
Location : Tanjung Bin, Johor

Total cost : RM7.9 billion (Estimation)

149
TANJUN BIN POWER SDN BHD
- RM5.6 billion Istisna Medium Term Notes Programme
EPU
1b Sale price
Istisna’ Sale & Purchase Contact
1a SKS appoints Trustee to construct

and deliver power plant to SKS
TRUSTEE
SKS
Trustee then appoints SKS to
(Wakeel)
construct and deliver plant to
2a Trustee
2b Purchase price Sale price

Insurance for
Construction
3 Asset leased to SKS upon completion
INVESTORS

150
Why Islamic?
 SPV’s proposed business is “halal” in nature and Islamic issuances are well accepted by investors
in Malaysia
 To allow participation of large institutional investors (Islamic & Conventional) resulting in wider
investor base

 Concept of Istisna’ (work-in-progress) is well suited for a green field project financing
 Istisna’ MTN was structured to match the work-in-progress and completion of construction
 Upon completion of construction, the Istisna’ was converted into an Ijarah Contract
 A forward lease agreement was incorporated to allow profit payments to be paid to Investors
even during construction stage.

 An SPV - Tanjung Bin, was created to facilitate the transaction
 Sale of Assets is a beneficial sale. Assets are held by SPV in “trust” for Investors
 Trustee is the intermediary between Investors and the SPV, which facilitated a 3 party
transaction
 Each drawdown requires execution of a separate Istisna’ Agreement

151
Project Background
A financing exercising involving issuance of RM930 million Sukuk Ijarah Notes to refinance
existing RM890.0 million PDS and for working capital purposes
Segari Energy Ventures Sdn Bhd (“Segari”) is a special-purpose company incorporated to
develop, own, operate and maintain a combined cycle gas-fired power plant (“the Project”)
The shareholding of Segari are held by Malakoff Berhad and the Employees Provident Fund Board
Project Details
Owner : Segari Energy Ventures Sdn Bhd
Type : Combined cycle gas turbine
Capacity : 640MW
Location : Segari, Perak
PROJCT BACKGROUND

152
SEGARI ENERGY
VENTURES
- RM930 million Sukuk Ijarah SDN BHD
4 Lease Assets at an
agreed rental rate
TRUSTEE
SEGARI
1
Beneficial sale Cash proceeds to
of Assets meet purchase
consideration
3 Issue Sukuk to
evidence undivided
POWER PLANT proportionate ownership
FACILITY AGENT in the Assets and right
EQUIPMENT
to receive rental
payments
Sale of Assets 2
Cash Proceeds
INVESTORS

153
Why Islamic?
competitive pricing
 To take advantage of the tax exemption benefit
 Perfect fit for Islamic financing - Segari is a single purpose company which operates a “halal”
business and proceeds are to be used for refinancing and working capital (“halal”)

 Segari has tangible Shariah endorsed Assets (power plant) in place
 Assets are leaseable and cashflow generating
 Single drawdown of the Sukuk, allows Segari to refinance its existing facilities. Amortising
structure matches the leasing concept

 Asset were charged to existing financiers ie; it is not “free of encumbrance”. Segari obtained a
letter of undertaking from the existing lenders to utilise the Assets pending the refinancing
exercise
 The principle of Ijarah Thumma Bai was adopted to incorporating a sale of the asset at the end
of the lease tenure

154
SENAI DESARU EXPRESSWAY BHD
Project Background
Senai Desaru Expressway Berhad (“Senai”) is a SPV incorporated to undertake the design,
construction, management, operation and maintenance of a 77-km highway in Johor, known as
the Senai-Pasir Gudang-Desaru Expressway (“the Project”) for a 33 year concession period
To finance the construction, Senai raised RM405.0 million ICULS which were placed to Ranhill
Berhad (“Ranhill”) and Islamic Development Bank Infrastructure Fund (“IDB”) and RM1,460
million Islamic Notes. The Notes were raised under the Bai Bithaman Ajil (“BaIDS”) structure
where the Concession Agreement was the Asset for the sale and purchase transaction
The shareholding of Senai are held by various parties, Ranhill and IDB holding the majority
stakes upon conversion of the ICULS.
Project Details
Owner : Senai Desaru Expressway Berhad
Total length : 77-km
PROJCT BACKGROUND
Location : Senai, Johor


155
SENAI DESARU
EXPRESSWAY
- RM1,460 million Islamic Notes BHD
Project Awarder
GOM
SENAI DESARU
3
Facility Agent appointed as
Wakil to sell back Assets to
Senai at an agreed Sale 1
Price Purchase
Senai sells Asset at an 4
agreed Purchase Price Consideration
Issue Islamic Notes
evidencing Issuer’s
ASSET obligation to pay the
Sale Price on
FACILITY AGENT deferred basis
Concession
Agreement Sale of Assets 2
Cash proceeds to meet
purchase consideration
INVESTORS

156
Why Islamic?
competitive pricing
 Good for Islamic financing - Senai is a single purpose company which operates a “halal” business
and proceeds to be used for halal purposes (i.e construction of highway)
Why BaIDS?
 The mandate for Senai came at a time when BaIDS was the most popular structure to be used
and widely accepted by investors. The education process for new concepts would require time
Alternative structure
 Musyarakah Mutanaqisah (diminishing partnership)

157
Alternative Structure : Musyarakah Mutanaqisah
GOM
AGENT
(to manage 1 Project Awarder
business)
2
Issue Sukuk
Musyarakah
Agreement
SENAI DESARU SUKUK
3 Sukuk Proceeds INVESTORS
Contractor 3
Sukuk proceeds to fund
construction of highway

158
Conclusion
Liquid and vibrant local Capital Market
Cost efficiency vis-à-vis traditional bank borrowings

Malaysia’s
Good balance of demand and supply Capital
Market
Ingredients
Strong backing of Government and Regulatory
Authorities
– Capital Market Masterplan
- Fiscal incentives
CONCLUSION

159
STRUCTURING
PRODUCTS FOR
INFRASTRUCTURE
PROJECTS
Dr. Mohd Daud Bakar
CEO/President
International Institute of Islamic
Finance (IIIF) Inc.
mdaud@iiif-inc.com
DEFINITION OF ISLAMIC
PROJECT FINANCING
• A scheme of financing to assist the developer /owner
of a project to complete the project according to
Shari’ah principles.
• Normally, in project finance, the cash flow from project
is the sole source of repayment, usually secured by
project-related assets.
• In conclusion, an Islamic project financing is a scheme
to finance the cost of construction or manufacturing,
as the case may be, whereby the mode and purpose
of financing are Shari’ah compliant.

161
STRUCTURE PRODUCTS
FOR INFRASTRUCTURE
PROJECTS (BANKING
• PRODUCTS)
Islamic banking products are available and
flexible to support any project financing. Ideally,
the best Islamic contract would be Istisna’
(construction/manufacturing) contract. However,
other modes of financing are useful which include:
– Murabahah
– Tawarruq
– Ijarah
– Sale and lease-back
– Forward lease

162
MURABAHAH ASSET
FINANCING
• A cost plus sale whereby the financier will purchase asset
from the supplier and will later sell to the contractor
/developer on cost-plus-profit basis.
The financier may assign the vendor to
6 deliver the “asset” direct to customer CUSTOMER /
VENDOR
CONTRACTOR
V 5
2 3 “as end
pr USD
se o
it
t” r d
ls
of
pl ys
to el
10 se el
Fi
s
pr ,000 ” at
th ive
it plu
as na
D “ as r s
0 pa
us
se nc e rs
t
US e ncie
00 r
t a ie fin t
0, me
tU rp a n he
10 sto
na
u ci
0
of
SD rc er
Fi
10 h a s 4
Cu
th
0, es 1
00
0 the
sp FINANCIER
ot
Customer expresses his intention to
purchase an “asset” from the financier at
mark-up sale payable on deferred basis
163
CONT’D
• The purpose of Murabahah financing is to
assist the customer /developer to purchase
“asset” (e.g. raw materials, equipments)
that are needed for the project, whereby
the payment is deferred .
• The customer /developer may elect to pay
the selling pricing either on installment
basis or on bullet payment basis, as the
case may be.
164
FINANCING
• Tawarruq is a contract to provide cash
facility to the developer to cover some
cash expenses such as fees, salaries, etc.
(The ultimate purpose of tawarruq, unlike
Murabahah, is not to acquire a particular
asset).

165
COMMODITY
PRODUCT
Prime Broker A Prime Broker B
Metal X 1 USD 100 k USD 100 k Metal X

2 5
6
3
RM Cost + Profit (USD110k)
Bank Customer /
Developer
Metal X 4

166
CONT’D
• Generally speaking, Tawarruq as a
concept has been widely accepted in the
Middle East with a varying level of
acceptance with regard to the number and
‘quality’ of the parties involved in the whole
transaction.

167
IJARAH FINANCING
• Ijarah is a lease contract under which the financial lessor may lease
his equipment(s), for example, to the lessee / contractor for a rental
payment.
• Ijarah could be operating lease or financial lease as the case may be.
CUSTOMER /
SUPPLIER DEVELOPER
Su 3
pp 5
0 D e
00 S h
2 l ie
0, f U s t
D er or s
rd
US in p et f ase
11 l o pay
11 iod a
00 or
Fi el
iv
rta ss le
0, 0 f
na
nt er
er
ce e a ier
as nc s
re om
se i e th
th anc
a
ta rp e
st
t U ur as Cu
n
c se
Fi
SD ha t 4
10 ses 1
0,
00 the
0
FINANCIER
Customer expresses his wishes to take
an “asset” on lease

168
CONT’D
• Purpose:
– Leasing of equipments
– Leasing of equipments with an option to
purchase

169
SALE AND LEASE BACK
(WITH AN OPTION TO
PURCHASE)
• This mode involves two different contracts:
– Sale of asset by the customer / developer to
the financier at cash price e.g. USD 100k
subsequently thereafter lease back of the
same asset from the financier at USD 110k
payable in 5 years for example.
– Option is given to the customer /developer to
purchase back the asset after the expiry of
the lease tenor.

170
CONT’D
1
ASSET CUSTOMER /DEVELOPER

Customer Identifies
asset
4 5
Financier 6
2 pays USD Customer Financier
100k cash Financier pays USD
Customer sells asset at leases back awards the
110k of
USD 100k cash 3 the asset at option to
rental customer to
USD 110k within 5
payable purchase the
years asset at an
within 5 years
agreed price
FINANCIER

171
CONT’D
• The purpose of sale and lease back
transaction is to refinance the asset of the
customer /developer as well as to obtain
cash facility.
(This structure has been widely used in
many sovereign and corporate issuance of
Sukuk al-Ijarah.)

172
FORWARD LEASE
• This contract is known as
– Ijarah Mausufah fi al –Dhimmah
• (lease on assets whose specifications are made known but not
identified).
– Ijarah Mudafah ila al-Mustaqbal
• (lease which is linked to future delivery )
• This contract could perfectly replace the Istisna’ financing. In

a nutshell, the lessee will start paying the rental to the lessor
through the asset is still under the construction. In the case
of non-delivery, all the advance rental shall be refunded to
the lessee. The rental payment is used to finance the
construction cost.
173
ISTISNA’ FINANCING
• Istisna’ is a contract of sale of specified items to be
manufactured or constructured, with an obligation on
the part of the manufacturer or builder (contractor) to
deliver them upon completion
• By and large, it has been said that Istisna’ is a
departure from the general principle of sale i.e. selling
something which is not existed
• Some scholars approved Istisna’ on the basis of
Istihsan i.e. a departure from a principle of law which
is obvious to another which is hidden but more
appealing (Hanafis methodology)

174
CONT’D
• Nevertheless, there are some reports from
the Prophet (PBUH) to the effect of Istisna’
:
– Ordered someone to ‘prepare’ a ring for him
(the Prohet)
– Ordered someone to build the ‘minbar’ for the
Madina Mosque

175
ISTISNA’ AND IJARAH (HIRE
CONTRACT)
• While Ijarah would require the hirer to
supply the raw material to the hiree
(worker / contractor) to work on, Istisna’
would require the contractor to supply both
the raw materials and the work.
• Compare with maintenance contract and
BOT-Build, Offer and Transfer.

176
CONT’D
• BOT, (Build, Operate and Transfer)
2 Builds, operates and transfers the
asset
GOVERNMENT CONCESSIONNAIRE
1
Awards the concession
Notes:
1. The contract of BOT is based on Istisna’
2. The payment of the Istisna’ sale is in kind i.e. right to
collect the toll (for example) .

177
PARALLEL ISTISNA’ (AL-
ISTISNA’ AL MUWAZI)
• This is based on two parallel contracts of Istisna
• In the first, the Islamic Financial Institution (IFI)
acting as a manufacture / contractor concludes a
contract with the customer (who is the ultimate
purchaser/buyer)
• In the second contract, the IFI acts in the
capacity of purchaser and concludes another
contract with (ultimate) manufacturer/contractor
to acquire the same item as per the first contract.

178
ILLUSTRATION OF
PARALLEL ISTISNA’
ULTIMATE ISLAMIC FINANCIAL ULTIMATE
PURCHASER/ INSTITUTION MANUFACTURER
CUSTOMER CONTRACTOR
1 2
• 2nd contract of Istisna’

• 1 contract of Istisna’
ST

100,000 payable according to
120,000 payable in 5 years
progress
September 2008
September 2008

179
ISLAMIC FINANCING
STRUCTURES
(CAPITAL MARKET
Mudharabah
• A contract which is made between two parties to finance a business venture. The
PRODUCTS)
parties are:
 Rabb al-mal or an investor who solely provides the capital, and a Mudharib or
an entrepreneur who solely manages the venture
• If the venture is profitable, the profit will be distributed based on pre-agreed ratio.
In the event of a business loss, the loss shall be borne solely by the provider of
capital
Issuance : Sukuk Mudharabah
Structure :
Contract of Mudharabah
Sukuk Mudharabah
Investor Issuer
(Rabb al-mal) Capital Proceeds (Mudharib)
Loss borne totally Y% Capital
X%
by Investor Profit shared based on
pre-agreed ratio X:Y Investment
Outcome
Venture

180
MUDARABAH SUKUK
Trustee Rabb al Mal 1
1
Bond
Holders
Profit Issue
1st Mudharabah
Mudharabah Bonds
5
Invest Capital
2
Mudharib 1
PG MUNICIPAL
&
Rabb al mal 2
3 2nd Mudharabah
Profit from PG LOCAL AUTHORITY Mudharib 2

Tax Collection
Manage and Administer

Tax Collection
181
PARALLEL MUDARABAH
MUNICIPAL
Bond Holders BONDS Security
Trustee
/ Investors
Profit Sharing
Bonds
First Issues proceeds
Mudharabah bonds SPV SPV Investors
Arrangement Collection X% Y%
SPV
Profit Sharing
(Issuer)
Collection Administrator Investors
Bond Account
X% Y%
Proceeds
Second
Mudharabah
Administrator
Arrangement (Entrepreneur managing
the business venture
Adapted from the article, “Parallel Mudharabah Municipal Bonds:

AmMerchant Bank Berhad”, Islamic Finance Bulletin, Jan-Mar 2005, Rating Agency
Malaysia (RAM)
182
ISLAMIC FINANCING
Musyarakah STRUCTURES
• 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 pre-agreed profit
sharing ratio, but a loss will be shared on the basis of equity participation
Issuance : Sukuk Musyarakah
Structure : Capital Proceeds Investment
Venture
Contract of Musyarakah
Capital
Sukuk Musyarakah
Investor Issuer
Loss borne on basis of equity Y%
X% participation
Profit shared based on
pre-agreed ratio X:Y
Outcome

183
AL- MUSHARAKA
USD 550,000,000
SUKUK WINGS
Wings issues Sukuk evidencing

proportionate share in underlying
MUSHARAKA
ASSETS EMIRATES
Musharakah assets
EMIRATES Land parcels valued

at USD 100,000,000

184
MUSHARAKAH
• Purpose:
– Financing the cost of construction of new tower.
– Enhancing the capabilities of the airport services.
• The source of payment is Ijarah / rental
payment as the tower will be leased to the
Emirates.
• There is purchase undertaking by the issuer
to purchase the Sukuk at face value in the
case of default/ Events of Default.

185
ISLAMIC FINANCING
Sukuk Ijarah
STRUCTURES
• A manfaah (usufruct)type of contract whereby a lessor (owner) leases out an asset or an
equipment to its client at an agreed rental fee and pre-determined lease period upon the
aqad (contract)
• The ownership of the leased asset/equipment remains for the account of the lessor
• Sukuk Ijarah represents a share in a leased asset (pro-rata ownership by the sukuk holders
of the leased asset)

Asset : underlying asset typically provided by issuer
Issuance : Sukuk Ijarah
Structure :
Lease Payment Issues Sukuk al-Ijarah
Obligation
Sukuk
Originator SPV/Issuer
Leaseback of Asset Investors
Issuer Identified Purchase of asset by the

Assets SPV/issuer at purchase
Assets
price

186
ISLAMIC FINANCING
Intifaa’ STRUCTURES
• Securitization of the right to benefit or enjoyment (haq al intifaa’)in the form of time
sharing

Asset : underlying asset typically provided by issuer or to be constructed
Issuance : Sukuk Intifaa’
Structure :
Ijarah Contract on
Lease of Land
Land
Owner Land Lease Payments Developer
Lease of Rights Payments of

Development Of Future Use of
Units on Chosen Lease Rental
Cost
Time Slots
Commercial and Sukuk

Hotel Property “Time Use” by Investors
Sukuk Holders

187
Outline
• Choosing appropriate Sukuk structures for infrastructure project
financing
• Addressing Legal and Syariah compliance issues in financing

transactions
• Avoiding common pitfalls in structuring Islamic infrastructure project

financing
• Appreciating different considerations involved in domestic and cross

border Islamic infrastructure project financing

188
• project
1. Istisna’ (Purchase Order) financing
• Defined as a purchase contract of an asset whereby a buyer will place
an order to purchase the asset which will be delivered in the future.
• Procedures:
(i) The buyer will require a seller to deliver or construct the assets that will be completed in the
future.
(ii) The parties will decide on the sale and purchase price and the settlement can be delayed or
arranged based on the schedule of the work completed.
(iii) The buyer will then issue Istisna bond to investors to purchase the asset manufactured from the
seller.
• Benefits:
(i) Suitable for financing construction projects.
Disadvantage:
(i) Possible issue of Bai’ al-Dayn

189
190
• 2. project financing
Ijarah/Leasing (Sukuk Issuance) …(cont’ 2)
• Defined as contract for the purpose of renting out a lessor’s asset to a
lessee.
• At the end of the lease period, the lessee will purchase the asset at an
agreed price from the lessor by executing a purchase contract.
• Procedures:
(i) The company requiring financing will sell the Ijarah assets (such as plant, equipment, machinery) to the
SPV by executing an asset purchase agreement.
(ii) The investors shall provide funds to purchase the Ijarah assets, and the SPV shall issue Sukuk to evidence
share in Ijarah assets
(iii) The SPV having obtained the ownership of the assets on behalf of investors, will then lease the Ijarah
assets back to the to the company by executing an Ijarah contract.
(iv) At the end of the lease term the Ijarah assets will be purchased by the company at an agreed price.
• Benefits:
(i) Issuer may use rental flow of an existing asset to obtain financing
(ii) Requirement for an existing asset

191
Sukuk Al-Ijarah
•
•
•
• COMPANY A
•
•
• 1. Sale & Transfer of 6.Payment of rentals
• Beneficial Title 9.Exercise price at dissolution
• 2. Lease of land parcels
• 5. Onward payment of
• sukuk proceeds
• 8. Sale at dissolution 3. Sukuk issuance
• 7. Periodic rental payments
• 10. Dissolution Amount
•
SUKUK
SPV/ISSUER HOLDERS
(INVESTORS)
•
• 4. Payment of Proceeds
• from sale of sukuk

192
• 3. project financing …(cont’
Mudarabah/Muqaradhah/Musharakah (Sukuk3)
Issuance)
• Joint participation/partnership resulting in common ownership of
assets and entitles holders to share in the specific project on which the
bonds have been issued for financing purposes.
• Procedures:
(i) Unit price is determined by dividing Mudarabah/Muqaradhah/Musharakah capital by the number of
units issued. It is registered under the shareholders’ name, all of which represents the common
assets in Mudarabah/ Muqaradhah/Musharakah capital.
(ii) The rating of Mudarabah/Muqaradhah/Musharakah certificated represents the probability of
realising expected returns, rather than the ability to meet schedule payments and there is no
predetermined profits.
• Benefits:
(i) No requirement for underlying asset sale and buy back transactions.
(ii) Arrangement reflects investors participation as fund providers in the business venture.

193
194
195
• 1. transactions
Section 32 of the Securities Commission Act 1993 (SCA)
• Any person who issues, offers for subscription or purchase, or makes an
invitation to subscribe for or purchase (issue, offer or invitation), Islamic
securities would require the approval of the Securities Commission of Malaysia.
• 2. SC Guidelines on offering of Islamic Securities

• The issuer must comply with the SC Guidelines which sets the criteria which
must be met prior to offering the Islamic securities.
• 3. Syariah Compliance
• Syariah Adviser to be appointed to ensure that the structure and documentation
conforms to Islamic principles.
• Any securities issued pursuant to any Syariah principles and concepts must be
approved by the Securities Commission of Malaysia.

196
financing transactions … (cont’ 2)
Syariah Adviser
There must be an appointment of:-
 an independent Syariah adviser who has been approved by the SC and meets the following
criteria:-
• not an undischarged bankrupt
• Not convicted for any offence arising our of a criminal proceeding
• is of good repute and character
• possesses the necessary qualifications and expertise in fiqh muamalah and Islamic
jurisprudence, and has a minimum of 3 years experience or exposure in Islamic finance, or
 The Syariah Committee of an Islamic bank or licensed institution approved by Bank Negara
Malaysia (Central Bank) to carry out Islamic Banking Scheme.
 A company that has in its employment a minimum of one individual who meets the criteria as
stated for the independent Syariah adviser above

197
• Stamp Duty
• Section 14A of Stamp Act 1949

- Stamp duty chargeable only on principal amount provided by the financier
• Paragraph 6, General Exemptions, First Schedule to the Stamp Act 1949

- Stamp duty exemption on any additional instrument executed for the purpose of
complying with the Syariah principles, pursuant to a financing scheme approved by
the Bank Negara Malaysia (Central Bank) or Securities Commission of Malaysia
• Stamp Duty (Exemption) (No. 23) Order 2000 read together with Stamp
Duty (Exemption) (No. 3) Order 2005
- Stamp duty exemption on instruments relating to Islamic securities issuance

198
• Income Tax
• Section 2(7) of Income Tax Act

- provisions on interest shall apply mutatis mutandis to gains, profits, expenses of
Syariah transactions (to cover any income or expenses pursuant to Islamic financing)
• Section 2(8) of Income Tax Act 1967

- disposals of assets/leases pursuant to Syariah-compliant financing not subject to
Income Tax Act
- such financing schemes must be approved by the Bank Negara Malaysia (Central
Bank) or the Securities Commission of Malaysia as being in accordance with the
principles of Syariah
- effective from Year of Assessment 2003

199
• Income Tax
• Income Tax (Deduction for Expenditure on Issuance of Islamic

Securities Pursuant To Istisna' Principle) Rules 2005 (P.U. (A)
322/2005)
- deduction on expenditure incurred on issuance of IPDS under Istisna’ principles
from 3 July 2004 until Year of Assessment 2007
• Income Tax Income Tax (Deduction for Expenditure On Issuance of

Islamic Securities) Rules 2005 (P.U. (A) 107/2003)
- deduction on expenditure incurred on issuance of IPDS under Mudharabah,
Musyarakah and Ijarah principles from 3 July 2004 until Year of Assessment
2007

200
• 1.
transactions…(cont’ 6)
Riba (Interest)
• 2. Maisir (gambling/excessive speculation)
• 3. Gharar (ambiguity)
• 4. Zulm (Injustice/oppression)
• 5. Halal (not haram or makruh)
• 6. Syariah Advisory Council

• (a) Islamic financial products– Bank Negara Malaysia (Central Bank)
• (b) Islamic PDS/Securities – Securities Commission of Malaysia
•

201
Avoiding common pitfalls in
structuring Islamic infrastructure
• 1. project
Istisna (Purchase Order) financing
 Requires the construction of the asset
 Must be specific in the construction of the asse
 Avoidance of Bai’ al-Dayn
• 2. Ijarah (Leasing)
 Must have an asset to lease
 Asset must be capable of being used or enjoyed by the lessor (usufruct) (manfa’ah)
• 3. Mudarabah/Muqaradhah/Musharakah (Sukuk Bonds)

 Requires a certain number of investors (more than one)
 Requires capital contribution by all investors (for Musharakah only)
 Losses cannot be borne by the entrepreneur (for Mudarabah/Muqaradah only)

202
Comparison between domestic
• Malaysia – Applicable Structures
financing
1) Al-Bai Bithaman Ajil
2) Murabahah
3) Istisna
4) Ijarah
• Reasons:
1) Trading in debt (Bai’al – Dayn)
2) Syariah Acceptance, e.g. Bai’ Inah element in Bai’ Bithaman Ajil and
Murabahah

203
• financing…
International – Applicable Structures
(cont’ 1)
1) Ijarah
• Reasons
1) Universal Acceptance.
2) Acceptability of Syariah Adviser/Panel
3) Use of International Syariah Panel, eg. Syariah Advisory
Board of International Islamic Financial Market, for
International/Cross Border Issuance

204

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CHAPTER 5

07/12/23 SADE Research Institute,

Equity Financing Debt

Construction Contract PROJECT

OFFTAKER Operating & Maintenance

Source : Principles of Project Finance, ER. Yescombe, 2002

07/12/23 SADE ResearchSuyono

European Institute for Interest Free Economy

Presentation for Strohalm Foundation

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 4

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 5

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 6

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 7

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 9

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 10

God does not change the conditions of

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 11

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 13

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 14

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 15

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 16

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 17

-the internationally catalic (IDB, DMI, DBG)

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 18

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 19

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 20

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 21

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 22

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 23

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 24

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 25

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 26

• MODEL A: lease with option to

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 27

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 28

Guarantee of the capital value:

Use of Islamic modes of financing: Yes Not-applicable

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 29

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 30

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 31

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 32

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 33

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 34

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 35

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 36

• Farhat Khan: islam@ipdirect.home.pl

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 37

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 38

1) Is defines as raising funds to finance an economically separable capital

2) A funding structure that relies on future cash flow from a specific

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 39

Debt Equity Concession/

07/12/23 Suyono Dikun Lecture Material @ SADE Research Institute 40

8. Independent Performance Turnkey Performace O&M

11. Construction 16. Equipment

Source : International Advisory

US$ 186 million

Source : International Advisory

LDs = Liquidated Damages

Source : Tinsley, 2000

M $ 550 million 15% Other Foreign

30 year M $ 1.26 billion